(Bloomberg) -- As he accepted the Republican presidential nomination Thursday night, Donald Trump led delegates at the party’s Milwaukee convention in raucous chants for the US to “drill, baby, drill,” underscoring his commitment to domestic oil development.
While it’s a message that resonates strongly with Trump’s GOP base, it belies the reality in the boardrooms of the country’s top oil producers, where executives have shown little appetite to dramatically boost output. Instead, they’ve embraced strict fiscal discipline and a focus on shareholder returns, chastened by huge losses from collapsing energy prices during the pandemic.
Trump’s operating thesis appears to be “open it and they will drill,” but it’s not clear companies will go along, said Kevin Book, managing director at ClearView Energy Partners LLC. Much “depends on global supply and demand balances and investor appetite” — not new access from Washington — Book said. “Since the Covid crash, ‘drill, baby, drill’ has been up against ‘earn, baby, earn.’”
If elected, Trump could repeal many of Biden’s policies meant to encourage a pivot from fossil fuels, replacing them with new regulations that foster oil demand and lower the costs of development. Trump has repeatedly vowed to end what he calls the “EV mandate,” referring to federal vehicle pollution standards that are so strict they effectively compel automakers to boost sales of electric models at the expense of conventional-gasoline powered cars.
Furthermore, under Trump, the Interior Department could write robust new plans for selling oil and gas leases on federal lands, the Environmental Protection Agency could ease a Biden-era rule stifling methane emissions from oil and gas wells, and the Energy Department could dial back efficiency standards that pare fuel demand.
While there aren’t “many meaningful restrictions on drilling” for Trump to undo, a new administration could help stoke demand, said Benjamin Salisbury, director of research at Height Capital Markets. “The biggest impact of a change in administration is likely to be on the demand side with EV incentives and fuel economy standards getting reconsidered,” he said.
Despite the impact of the pandemic, US oil production increased under both Trump and President Joe Biden. The nation is the world’s biggest crude supplier as well as a significant exporter. But that growth could slow. The world is amply supplied with crude right now and OPEC has extended production cuts to support prices. US oil companies have told investors they plan to grow output moderately. Overall, they’re focusing on improving efficiencies in the field and returning money to shareholders.
Halliburton Co., the oil services giant and a useful proxy for US shale producer activity, said Friday it expects sales in North America to fall this year. Harold Hamm, an oil billionaire and Trump confidant, told Bloomberg Television that the industry is already “producing everything we can.”
The domestic oil sector’s relationship with the current president has ranged from uneasy to openly hostile over the past four years, as Biden imposed policies meant to encourage emission-free energy. Those measures include regulations and incentives encouraging electric vehicle sales as well as new limits on oil development across federal land.
Biden’s Interior Department adopted the leanest-ever US plan for selling offshore oil leases and signaled it would sharply reduce what acreage is up for grab in the auctions, while also barring drilling across more than half of the US government’s mammoth petroleum reserve in Alaska.
“There is a complex of rules that put a lot of burden on the oil and gas industry with the sense that it will eventually be shut down,” said Jim Lucier, managing director at Capital Alpha Partners, a research group in Washington. In contrast, he said, Trump is signaling policy changes that would lift “that sense of inevitability, that sense of inevitable termination.”
Analysts stress it’s important to take Trump’s words figuratively, not literally. In this case, Trump’s promise to “drill, baby, drill” is a kind of shorthand for “unrestricted energy development,” according to Lucier. Where Biden campaigned on a promise to end offshore drilling and essentially wind down the oil industry, Trump is signaling an opportunity for unchecked growth.
That alone could entice more capital flows to oil projects following years where industry leaders blamed signals and policies in Washington for discouraging lending by banks and other fossil fuel investment.
Trump on Thursday championed riches from oil drilling, casting energy development as a potential economic boon for the country. “We are a nation that has the opportunity to make an absolute fortune with its energy,” he said in his acceptance speech. Soon, he said, “we will be energy dominant and supply not only ourselves, but we will supply the rest of the world.”
His promises dovetail with the Republican party’s platform that calls for an end to “market-distorting restrictions” on oil, natural gas and coal and making the country “energy dominant,” leading to lower energy prices.
However, it’s not clear if such an outcome would be sustainable. Bringing down energy prices below pandemic-driven lows — levels that drove dozens of oil companies into bankruptcy — would likely inspire another retreat from drilling and development.
--With assistance from Mitchell Ferman and David Wethe.
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