Both sides in an increasingly fractious US presidential election campaign have set out their pitches to the oil industry, but the reality is that shareholders might wield more influence over the outlook for shale than who wins the White House.
Market forces and corporate strategy, rather than government policy, arguably hold greater sway over a sector that has been turned upside down since emerging from the pandemic-induced price slump of 2020. As such, promises of support from Republican candidate Donald Trump, or the risk of more regulations if Democrat Kamala Harris wins, might have limited fall-out for a sector where capital discipline and a clamour for shareholder returns remain the guiding forces.
"The industry is driven by market fundamentals, not by politics," consultancy Rystad Energy's senior analyst of upstream research, Matt Bernstein, says. "The US onshore industry has learned to live with a high degree of uncertainty, and the presidential election is just one of many factors on operators' radars." Changes in oil prices, increased efficiencies on the part of producers, as well as acquisitions intended to boost long-term growth, could all be more significant for a shale industry whose short-term prospects remain positive, Rystad says.
The industry's shifting priorities have seen it abandon a previous strategy of chasing growth at all cost, and focus instead on boosting dividends and share buybacks. Most publicly listed shale firms are sticking to output growth targets of no more than 5pc/yr, under relentless pressure to keep costs under control.
That the race for the White House might have little bearing on the industry can be seen in comments in a recent Federal Reserve Bank of Dallas survey, with some executives more concerned over whether the economy will face a slowdown. "The presidential election is a side-show in terms of actual effects for most energy firms," one respondent from an exploration and production firm said.
Caution when merging
One area where a potential win for the Democrats could have more wide-ranging repercussions is the approval process for mergers. A wave of shale consolidation that has seen more than $200bn of deals signed over the past year has attracted the attention of a Federal Trade Commission (FTC) that has cast a more wary eye over oil deals under Joe Biden's administration.
Recent mega-mergers led by ExxonMobil and Chevron were only cleared by the antitrust regulator after two high-profile chief executives of takeover targets — Scott Sheffield of Pioneer Natural Resources and John Hess of Hess — were barred from the boards of the merged companies. The FTC accused the two of improper communications with Opec officials to keep prices high, allegations both denied. But with Harris already pledging a crackdown on price gouging — mostly in relation to the grocery sector so far — it would not be a stretch to imagine her attention also turning to antitrust issues and oil deals.
"With all of the talk from the Harris campaign about price gouging, exploitation, those are words that historically have been hurled at the energy sector more than any other," former FTC chairman Bill Kovacic says. "So I would expect the scrutiny would be no less intense, maybe even more intense."
Given the sector's commitment to spending restraint, doubts remain as to whether Trump could do anything to accelerate growth of US oil and gas production already at record highs. Even higher oil prices might not necessarily spur companies to step up spending, given that the price link with increased drilling activity has weakened, according to Rystad. Nor has Harris flagged any plans to impose stricter regulations or drilling restrictions, instead recognising record domestic production as a means of reducing reliance on foreign oil.
