As Trump targets energy
rules, oil companies downplay their impact
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[March 23, 2017]
By Richard Valdmanis
(Reuters) - President Donald Trumpís White House has said his plans to
slash environmental regulations will trigger a new energy boom and help
the United States drill its way to independence from foreign oil.
But the top U.S. oil and gas companies have been telling their
shareholders that regulations have little impact on their business,
according to a Reuters review of U.S. securities filings from the top
In annual reports to the U.S. Securities and Exchange Commission, 13 of
the 15 biggest U.S. oil and gas producers said that compliance with
current regulations is not impacting their operations or their financial
The other two made no comment about whether their businesses were
materially affected by regulation, but reported spending on compliance
with environmental regulations at less than 3 percent of revenue.
The dissonance raises questions about whether Trumpís war on regulation
can increase domestic oil and gas output, as he has promised, or boost
profits and share prices of oil and gas companies, as some investors
According to the SEC, a publicly traded company must deem a matter
"material" and report it to the agency if there is a substantial
likelihood that a reasonable investor would consider it important.
"Materiality is a fairly low bar," said Cary Coglianese, a law professor
at the University of Pennsylvania who runs the universityís research
program on regulation. "Despite exaggerated claims, regulatory costs are
usually a very small portion of many companiesí cost of doing business."
The oil majorsí annual filings come after the industry and its political
allies have spent years criticizing the Obama administration for
policies aimed at reducing fossil-fuel consumption, curtailing drilling
on federal lands and subsidizing renewable energy.
Trump promised during the campaign that a rollback of the Democratic
administrationís policies would help free the nation from reliance on
"Under my presidency, we will accomplish complete American energy
independence," said Trump, describing regulation as a "self-inflicted
The Trump administration is now preparing an executive order - dubbed
the "Energy Independence" executive order - to roll back Obama-era
regulations, which could be signed as early as this month, according to
U.S. presidents have aimed to reduce U.S. dependence on foreign oil
since the Arab oil embargo of the 1970s, which triggered soaring prices.
But the United States still imports about 7.9 million barrels of crude
oil a day - almost enough meet total oil demand in Japan and India
The Trump administrationís attacks on regulation have been applauded by
the oil industry.
"We havenít seen 3 percent growth in the economy for eight years, and I
think part of the reason is that weíve had a heavy dose of regulation,"
Chevron Corp. <CVX.N> CEO John Watson said at CERAWeek, a global energy
conference in Houston this month.
Continental Resources <CLR.N> CEO, Harold Hamm, who advised Trump on
energy issues during his campaign for the White House, told the
Republican National Convention in Cleveland in July that stripping
regulation could allow the country to double its production of oil and
gas, triggering a new "American energy renaissance."
Yet Continental's annual report, filed last month with the SEC, says
environmental regulation - after eight years under the Obama
administration - does not have a "material adverse effect on our
operations to any greater degree than other similarly situated
Continental's competitors who reported actual spending on environmental
compliance told investors that such expenses amount to a small
percentage of operating revenues.
Fourteen of the 15 companies whose filings were reviewed by Reuters
declined to comment on their statements to investors or the impact of
regulation on their profits.
A spokesman for ConocoPhillips acknowledged that regulatory compliance
has not had a material adverse impact on the company's liquidity or
financial position. But red tape can be an unwelcome burden nonetheless.
"Changing, excessive, overlapping, duplicative and potentially
conflicting regulations increase costs, cause potential delays and
negatively impact investment decisions, with great cost to consumers of
energy," the spokesman, Daren Beaudo, said in a written statement.
The American Petroleum Institute - which represents the U.S. oil and gas
industry - also declined to comment.
Last month, before the U.S. Senate Commerce, Science and Transportation
Committee, API President Jack Gerard said that the oil and gas industry
has surged forward despite onerous regulations under the Obama
[to top of second column]
A pump jack operates at a well site leased by Devon Energy
Production Company near Guthrie, Oklahoma September 15, 2015.
REUTERS/Nick Oxford/File Photo
"Technological innovations and industry leadership have propelled the oil and
gas industry forward despite the unprecedented onslaught of 145 new and pending
federal regulatory actions targeting our industry."
the industry saw a staunch opponent in Obama, oil and gas production soared more
than 50 percent during his presidency. That was mainly because of high oil
prices and improved hydraulic fracturing, a drilling technology that has allowed
producers to access new reserves in previously tough-to -reach shale formations.
The rush of production ultimately contributed to a global glut that dropped
crude oil prices from a high of over $100 a barrel in early 2014 to a low
of nearly $25 by 2016. Current prices hover near $50 a barrel.
NO "MATERIAL" IMPACT
Four of the 15 companies reviewed by Reuters reported that spending on
environmental matters - including new equipment or facilities, as well as fines
and compliance staffing - amounted to a small fraction of revenues.
Exxon Mobil reported spending $4.9 billion worldwide in 2016, or about 2.24
percent of gross revenue. Occidental Petroleum, a much smaller company, reported
spending $285 million, or about 2.82 percent of revenue. Neither addressed
whether the spending was "material" in their filings.
other companies, ConocoPhillips <COP.N> and Chevron, also broke out their
environmental spending while reporting that regulation had no material impact on
their business. Conoco spent $627 million in 2016, or about 2.57 percent of
gross revenue, while Chevron spent $2.1 billion, or 1.91 percent of gross
The other 11 companies did not break out spending, but all of them told the SEC
that environmental regulation did not have a material impact on their business.
In one typical statement, EOG Resources <EOG.N>, one of the biggest U.S.
producers, told investors in a report filed last month: "Compliance with
environmental laws and regulations increases EOG's overall cost of business, but
has not had, to date, a material adverse effect on EOG's operations, financial
condition or results of operations."
Devon Energy Corp, Anadarko Petroleum Corp, Pioneer Natural Resources Co, Apache
Corp, and other large U.S.-focused oil and gas drillers used similar wording.
"ABSENCE OF A NEGATIVE"
Still, Obama's exit - and Trump's win over Democratic presidential candidate
Hillary Clinton in November - has been enough to brighten the outlook of some
"I believe the absence of a negative is a positive," John Dowd, who manages
several energy funds at Fidelity Investments, wrote in his 2017 energy outlook.
"The market has been concerned with the sustainability of fracking, and
particularly to what extent it might have been regulated into obscurity by a
different election outcome."
Clinton had said during her campaign that she planned to increase regulation on
Other segments of the energy industry, such as coal mining and oil refining,
were harder hit by environmental protection measures during Obama's presidency.
Several coal companies went bankrupt in recent years and blamed Obamaís climate
change initiatives for raising costs and hurting demand.
Refiners have also long complained that environmental regulations have stymied
attempts to build new refineries and that they have borne the brunt of costly
rules requiring them to blend biofuels into their gasoline.
Still, some energy analysts and regulation experts point out that the biggest
drivers for these industries, too, tend to be supply and demand Ė not
The abundance of cheap natural gas is seen as the biggest obstacle to reviving
coal country, since both fuels compete for space in the furnaces of U.S. power
plants. For refiners, the key driver for profitability is the differential
between the price of their raw material, crude oil, and the fuels they make with
"Supply and demand are the fundamental forces driving markets," said Coglianese,
the University of Pennsylvania law professor. "Regulation is relatively
For a graphic on environment spending by major oil companies, click http://fingfx.thomsonreuters.com/gfx/rngs/USA-TRUMP-OIL-REGULATION/0100404Y0BC/index.html
(Editing by Brian Thevenot)
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