During last year’s energy crisis, when oil and natural gas prices were rising, the U.S. oil and gas companies were continually under attack from Democrats. They were accused of price gouging, among other things. These companies made huge profits while Americans were paying more for gas.
Now, fast forward several months and it looks like those “obscene profits” will be used to reinvest in a way that ultimately brings down prices, despite all the best efforts of the Biden administration to discourage such reinvestment. It could even lead to a showdown that the Biden administration cannot afford.
The Wall Street Journal reports that Exxon-Mobil is in talks with Pioneer Natural Resources. This could result in industry consolidation and more production. This would be good news for consumers and the American economy.
This transaction would be the strongest signal yet that Permian drillers, which is the most prolific U.S. oilfield, are looking to increase their production through acquisitions. Oil companies have healthy balance sheets, which gives them the ability to target acquisitions.
The Journal reported that Pioneer and Exxon have not entered into a formal process and that any deal if they do, will likely not be completed until late this year or next. Exxon stock fell less than 1% Monday after the Journal reported it. Pioneer stock rose about 6% on Monday.
Analysts and investment bankers agree that the time is right for an oil deal frenzy.
Deals and acquisitions like these can have an immediate impact on the market. The energy market is primarily a futures market and increased production can lead to a near-immediate price drop. It comes at a time when Biden’s administration has repeatedly claimed that American oil fields remain open. However, they also maintain red tape which makes production costly.
Biden’s regulatory efforts made it almost impossible for oil and natural gas companies to establish new production facilities. Biden insists there is plenty of opportunity. However, he and his party made it impossible for oil and gas companies to set up new production facilities.
Although these regulations make it difficult for oil companies to profit from new production, it appears that the rising prices of the past could be used to invest again in growth and production. It is possible that companies will spend their war chests on mergers and growth, which is exactly what the Biden administration tried to stop.
The potential acquisition will involve more natural gas than oil. However, the implications are enormous. It is only a matter of time until oil and gas companies reinvest in both oil production and natural gas production. It’s also a complicated political issue for Biden. There’s the fact that he continues to try to reduce U.S. fossil fuel development, which is a big concern considering the environmentalist base is one of his largest supporters. He will also endanger his chances of re-election by delaying and denying new production.
We’re likely going to see oil companies fight back in the future (without them looking like they’re fighting back). The key question will be how the Biden administration deals with re-investment in and growth among oil companies. Is his administration going to sue ExxonMobil and Pioneer Natural Resources to stop a merger? Are they increasing the bureaucracy?
How much will Joe Biden resist investments that would eventually make it more affordable for Americans? This is especially important considering that we will soon be in a recession.