President Trump's Energy Secretary
I wanted to take a moment to break the silence on our blog and share an update on our ongoing work, which feels like we're writing an ever growing number of research papers. I anticipate being able to release our first paper in early January. Keeping up with the Trump-induced surge in animal spirits—is going to be quite challenging.
In the meantime, I'd like to offer my thoughts on the current state of political progress in oil & gas during the Trump transition.
Chris Wright, nominee for Energy Secretary
I believe there is more behind the policy of "drill baby drill" than President Trump may realize. He needs to ask how oil & gas drilling and expanded deliverability will develop under his administration. Will the industry be able to rally and return to abundant deliverability with this change in leadership? I find this doubtful. I have often stated that the Biden administration's obstructions have had little effect on the industry's performance, other than providing officers and directors with a convenient scapegoat over the past four years. "Muddling through" and doing nothing have been the producers' hallmark, and that has and will continue.
President Trump benefited from the surge in shale production during his first term, and we can agree that governments perform best when they step aside. Blaming the government disrespects the industry's pioneers who overcame impossible odds, dedicating their efforts to build what was once a robust oil & gas sector before these excuse-makers took over.
Today, I believe the president is being misled, perhaps naively, by those advising him on the industry's current state. The core issue is profits. Investors signaled this starting in 2015, but officers and directors of producer firms have chosen to ignore them. One of the most vocal in resisting investor demands was Harold Hamm of Continental Resources, who proudly claimed for many years before 2015 that he doesn't pay dividends. Finding investor demands too burdensome, Mr. Hamm took Continental private in the fourth quarter of 2022. With a personal wealth of $18.6 billion, this was an option for him. It is reported that Harold Hamm is President Trump's most influential oil & gas representative and that he recommended Chris Wright of Liberty Energy for Energy Secretary in the Trump Cabinet.
People, Ideas & Objects believe that past leadership holds responsibility for the industry's current predicament. They have betrayed every interest connected to the oil & gas sector, affecting everyone down to local businesses in rural areas where producers operate. Confidence in profitability will not return until it is permanently restored within producer businesses. Many stakeholders are unwilling to reinvest in what was previously destroyed by producers' indifferent approach to costs and the downstream implications of their actions in the broader oil & gas economy. Rigs dismantled for scrap metal and equipment sold to other industries were observed by producers' officers and directors without concern. These are the consequences, as illustrated by Liberty Energy's 9/30/2024 quarterly report, which purchased Schlumberger's fracing division in 2020. Note that Chris Wright, at the time of this writing, was nominated for Energy Secretary in President Trump's cabinet.
Focused investments have allowed us to develop new markets and lead technology innovation and operational efficiency in the industry. Over the past year, Liberty entered partnerships to develop the new gas-rich Beetaloo Basin in Australia. We have taken a significant step forward with the arrival of a Liberty fleet in country,” continued Mr. Wright. “During the third quarter, the Liberty Advanced Equipment Technologies (LAET) manufacturing and assembly division delivered its first digiPrime pumps. Additionally, Liberty Power Innovations’ (LPI) expanded operations in the DJ Basin are off to a strong start, helping bring our frac fleet CNG fueling services to critical mass.” p. 1
And
Today, the rising demand for power in commercial and industrial applications offers compelling opportunities for LPI. We are excited to leverage the expertise that we have built constructing and managing power plants for frac fleets to additional opportunities both inside and outside the oilfield. p.1
Outlook
Frac markets are navigating the slowing of E&P operators' 2024 development programs in response to the strong first half 2024 efficiency gains from factors including consolidation, longer laterals, and concentration in high-graded acreage. Elevated uncertainty in energy markets has further left operators reluctant to accelerate completions activity in advance of the new year. We now expect a low double-digit percentage reduction in Q4 activity, a bit more than the typical Q4 softening. Completions activity likely increases in early 2025 to support flattish E&P oil & gas production targets. Since late 2023, U.S. crude oil production has been relatively flat and would likely decline if current completions activity levels persist.
Expressions of faith, trust, and confidence that producers have matters under control have all but vanished. Liberty Energy is seeking future fracing business opportunities outside North America and looking to apply their power systems expertise to industries beyond oil & gas. They state there is little doubt that production volumes will decline. People, Ideas & Objects assert this is the case as there is no money. Due to decades of mismanagement and leadership failures in the boardrooms of oil & gas producers they don’t earn profitability, have no support for their capital structures and destroyed the field service providers comprehensively. Again, this is from Liberty Energy's quarterly report. While I have no doubt that Mr. Wright will be able to provide the appropriate perspective to President Trump; it appears that oil & gas officers and directors have learned little since their investors began sending clear messages.
Few outside the boardrooms of oil & gas producers trust the statements made by their officers and directors. Most damaging is they have lost credibility in the eyes of their investors. For nearly a decade, these leaders have declined to act on the significant messages sent by investors. Despite possessing the authority, responsibility, and resources to address industry challenges, they have often attributed issues to external factors or made various excuses such as "praying for a cold winter," "market rebalancing," or asserting that "profits don't matter; it's cash flow." As oil prices declined from $100 to $35, they publicly claimed profitability at ever-lower price points—$70, $60, $50, then $40—through creative accounting practices. Other justifications included declarations of innovation, blaming the service industry as "greedy and lazy," professing newfound commitments to production discipline, and fluctuating stances on shale and clean energy.
These are just a few of the excuses offered over the years, consistently deflecting responsibility. The events of 2023 demonstrated that the core issue is one of leadership, not just profitability. Until there is a change in leadership among officers and directors, meaningful progress in the North American oil & gas industry is unlikely, regardless of who is blamed.
In 2023, People, Ideas & Objects published findings on the consequences of producers' actions in managing shale gas in the 21st century. The decline in traditional heating value pricing from 6:1 to as low as 50:1 to oil in early 2024 highlighted a lax approach to business, resulting in a loss of $4.1 trillion in revenues from shale gas in North America this century. This issue was exacerbated by the failure to capitalize on the development of the LNG marketplace, with producers selling gas domestically at an average of $3.22 since LNG exports began in 2015, while others purchased, liquefied, and exported it realizing prices as high as $50.00.
Officers and directors did nothing until we raised this point. They then began contracting to do so as quickly as they could to rectify their mistake. Unfortunately, they’re too late and were forced to sign agreements with LNG facilities that have not been approved by the regulators and in some instances not even approved by the LNG facility owners to build. Precipitating President Biden to shut down the approval of any more LNG facilities during his administration. So yes the Biden administration has been the roadblock to progress in North American oil & gas, not sheer incompetence by those who have the authority, responsibility and resources to act to avoid basic business mistakes.
Initiating meaningful activity in the industry is difficult while current officers and directors remain in place. Lacking any imagination, vision, understanding or concern they'll "muddle through" for another decade or two. President Trump has a good pick in Mr. Chris Wright as he has experienced the consequences of the producer's incompetence first hand. However, Mr. Hamm doesn’t think investors are worthy of any say in the industry and he is of like mind with his cohorts. They blamed President Biden for shutting them down in their attempt to correct their failures on LNG contracting. The issue here is they didn’t understand free-on-board. Blaming external factors may continue unless there is a fundamental shift in oil & gas industry leadership.
Since 2015, little has been done to mitigate ongoing issues affecting the broader North American oil & gas economy. Changes in government policy alone are unlikely to alter perceptions of how the industry has been managed. Without significant organizational changes and a commitment to addressing these challenges, progress may remain elusive. They have not renounced their prior methods and continue to belittle People, Ideas & Objects for having a plan on how to generate “real” profitability. They have no organizational approach to deal with these issues and wish only to lay the blame on the next convenient, viable scapegoat. Don’t fall for it, President Trump.