Dividends and US finalizes plan for oil drilling in Arctic refuge

In the early 1990’s one of the books which made the best sellers list was by John Grisham. It was similar to his other books, well written moves quickly and based on what could be the truth. The story of the Pelican Brief (made into a movie starring Julia Roberts and Denzel Washington) was someone was killing off Supreme Court judges so new Supreme Court judges could be appointed to make the correct decisions. In this book, the prime reason was a case was coming to the Supreme Court about drilling for oil in the Mississippi Delta where oil and gas was expected to be found but existed a Pelican bird sanctuary.

If you were cynical about the Trump administration, you would say all areas of the US which has resources should be open for business. In part that is true, the administration under the Department of Interior has made resource extraction seemingly its first priority. It is interesting under the Trump administration 14% of the hydro is now comes from solar and wind. As the cost to the utilities goes down and more wind and solar facilities go up. President Trump said he loved coal, but it is expensive and many coal companies have filed for Chapter 11 bankruptcies because natural gas is less expensive and utilities who are biggest customers switched from coal to natural gas.

During COVID two things have happened to oil production, the health reason for staying at home has dropped the demand for oil as commuting slowed down and roads were drive able to those who needed to commute. The second thing is production based on fracking for oil has decreased as expected. The first years of the Trump administration brought a boom in the bringing oil from Texas and North Dakota, however those wells are drying up.

One of the areas of the world, where there are oil and gas reserves is the Arctic, but until now it has been very expensive to bring the oil out due to weather conditions. The global warming including the Arctic makes some of the Arctic more accessible, there are big problems but one was a number of years ago, some of the land was declared to be the Arctic National Wildlife Refuge in Alaska. Essentially the animals were allowed to be free range of people or no oil and gas drilling and then the pipelines to carry the oil and gas to refineries and ships to be sent south to California to be refined.

In mid August, in an article by Brad Plumer and Henry Fountain of the New York Times News Service, Interior Secretary David Bernhardt finalized plans to open up part of the Arctic National Wildlife Refuge in Alaska for oil and gas drilling.

There are on going problems with the Arctic, people believe there is oil and gas in the Refuge but not sure how much. In order to justify drilling, one needs to find a major discovery. In 2017, the Trump administration and Republican in Congress included in the tax bill authorizing the Interior Department to establish a plan to sell leases in the coastal plain. The agency must conduct at least 2 lease sales of 400,000 acres each by the end of 2024. As part of the process the Department of Energy conducted a review of the potential environmental effects of drilling. Their recommendation was for oil and gas leasing of 1.5 million acres of the coastal plain.

Do not expect any rush to drilling because environmental groups have been lobbying investment banking and Goldman and JP Morgan Chase have said they will not directly finance any oil and gas drilling in the Arctic. The other issue is no seismic data has been done on the Refuge lands so if the Trump administration was expecting upwards of $1.8 billion on the leases, the reality might be closer to $45 million. What companies would bid? All the major companies have signed on the Paris agreement.

Linking to dividend paying stocks, at one time there was a clear distinction between the economy and the environment and people voted for the economy. Now the economy is a mixture and there are jobs to be found and created in the environment and people want both. There is a transition, however both sides need to be considered. It is not one or the other, the economy needs both for its citizens to live, work and play. Many dividend paying companies have embraced both, they gain more of their energy from renewals which is a good thing it is less expensive in the short and long run. Cost matters.

There are more questions than answers, till the next time – to raising questions.

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