In this issue, we are going to do a miscellany of a few short items relating to the oil and gas industry. First of all, let’s do something we don’t do very often — let’s praise the Texas Legislature for passing SB 13.
SB 13 has two major parts. A state agency or political subdivision with a qualifying contract of $100,000 or more is prohibited from signing that contract unless the contract contains written verification from the contracted company that it does not and will not during the terms of the contract boycott energy companies. The second major part of the bill provides for the Comptroller (Glenn Hegar) to maintain a list of all financial companies that boycott energy companies. The bill provides that the permanent school fund and each statewide retirement system divest from those listed companies and establishes certain reporting requirements for the permanent school fund and the state retirement systems. The bill also authorizes the attorney general to use action to enforce the prohibitions. This bill was passed on May 28, 2021, as the Senate adopted the Conference Committee Report by a 28 to 3 vote and the House adopted the Conference Committee Report by a 121 to 26 vote. The law went into effect on September 1, 2021.
Comptroller Hegar has started the process of enforcing the provisions of this bill. I want to applaud him and encourage him to vigorously carry on. This bill was much needed. When you look at how important the oil and gas industry is to the state of Texas, as well as the importance to the economy of the entire country, you begin to understand how much damage the war on fossil fuels will do to this country if not stopped. This bill is a good first step to stop the damage.
The Russian economy is in large part dependent on oil and gas sales. It should not come as a surprise to anyone that Russia has tried and is still trying to use its position as a major supplier of energy to Europe to strengthen its geopolitical position.
About a decade ago, I pointed out that Russia (through Gazprom and other entities) was trying to suppress U.S. gas production to have more market share and higher prices for Russian natural gas. Russia was doing this through a disinformation campaign to provide public relations points, studies and funding to the “anti-fracking” groups active in Europe and the United States. The current administration’s thought process on lowering American oil and gas production by canceling the Keystone pipeline, canceling offshore drilling and reducing drilling on federal lands would weaken Russia’s geopolitical status rather than strengthen it, is crazy. Even if you believe that renewables should replace fossil fuels in the long run, it’s insane to force that replacement before the infrastructure is ready. If you, like me, are one of the millions of Texans who lost power and water in the February 2021 storm just stop and imagine what could have happened to the grid if half the cars in the country were electric vehicles.
Let us close this column with a brief discussion of windfall profits. In both Europe and the U.S., left-wing politicians (including Senator Elizabeth Warren, former Democrat Presidential candidate) are starting to call for windfall profits tax on oil companies because of the high prices and exorbitant profits caused by the Russian-Ukrainian war. Are their profits exorbitant? I would argue no!
Energy has been the worst-performing sector in the S&P 500 over the last twelve years through December 31, 2021. This year so far has been better for the oil companies but they are still only making up lost ground. The S&P of course is a measure of the larger publicly traded companies. Small independent oil and gas producers, a group that I work with consistently, are primarily working to get back to the financial condition they were in before taking the financial hit caused by the Covid price crash in March and April of 2020. If you want to blame the primary culprit for increasing prices, let’s talk about inflation.
About the author: David Porter has served as a Railroad Commissioner (2011–17) and Chairman (2015–16), as well as Vice Chairman of the Interstate Oil and Gas Compact Commission (2016). Prior to service on the Commission, Porter spent 30 years in Midland, Texas, as a CPA working with oil and gas producers, service companies and royalty owners. Since leaving the Commission, Porter works as a consultant for oil and gas companies. He also serves as Chairman of the 98th Meridian Foundation, a nonprofit concerned with water, energy and land issues.