Will This Candidate Send Oil Stocks to New Highs?

By Chris Marasco - October 31, 2012 | Tickers: BP, CVX, COP, XOM, RDS-A | 0 Comments

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Typically the U.S. oil industry shies away from influencing its workers’ Presidential votes.  Not anymore.

For the first time in history, the U.S. oil industry is tapping its 9 million employees to vote for a candidate that will support “expanded oil drilling, hydraulic fracturing, and pipeline construction,” said The Wall Street Journal. 

While the industry has not endorsed a specific candidate, this is a direct backing of "energy-friendly" policies. A consortium of companies – ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), ConocoPhillips (NYSE: COP), Shell (NYSE: RDS-A), and BP (NYSE: BP) – are pushing the effort and have spent “tens of millions of dollars” to educate their employees about key energy issues. 

By going door-to-door and educating employees about the benefits of increased energy production in the U.S., these energy giants hope to convince millions of voters to vote for the candidate who they think is favorable toward energy production in the U.S.  

Bi-Partisan Portfolio

Portfolios are bi-partisan.  Portfolios care about the performance of the market - not which President causes them to tick up or down.  However, the President definitely influences the market through tax rates and other laws, and he or she influences different sectors through policies.  If Governor Romney should win November's election, here are four reasons that energy stocks could see new highs.

4 Ways to Help Energy Stocks

1. Increase Energy Exports

In my recent article “Exports Fire up Miserably Low Natural Gas Prices,” I explained that Exxon, BP, and ConocoPhillips are concocting a joint venture to export natural gas from Alaska’s North Slope.  The project could cost up to $65 billion, but it would give the companies an infrastructure to liquefy and export natural gas to nations that do not have free trade agreements with the U.S. – particularly those where natural gas is more expensive.  Other countries have higher gas prices, because their gas price is tied to oil.

Because these companies plan to export to nations that do not have free trade agreements with the U.S., the government must approve the plan.  Because Governor Romney wants the U.S. to become energy independent and to ramp up exports, he could likely approve this plan.

2. Trim Permit Time

Texas Congressman Francisco Canseco explains the slowing of drilling permits on Federal Lands.  On his weekly blog, he cited data from the U.S. Department of the Interior’s Bureau of Land Management to draw his conclusion:

It took 154 days, on average, to receive a permit to drill on federal land in 2005.  In 2011, the average number of days to receive a federal permit jumped to 307 days.  

Romney plans to ramp-up permits, so that companies can further explore and drill on American soil for rich energy deposits.

3. Become Energy Independent

Governor Romney hopes to achieve American energy independence by 2020.  First, he would likely support the Keystone XL Pipeline, which would bring oil from Canada into the U.S.  The project was originally denied, but Romney could reverse the decision. 

According to the Romney campaign’s whitepaper “Energy Independence," Governor Romney hopes to:

• Empower states to control onshore energy development
• Open offshore areas for energy development
• Pursue a North American Energy Partnership
• Ensure accurate assessment of energy resources
• Restore transparency and fairness to permitting and regulation
• Facilitate private-sector-led development of new energy technologies

An energy-independent North America calls for expanded exploration, drilling, and production.  Also, excess supply could be exported.  The major energy companies above would benefit from increased exports because exports can be sold in Europe and Asia for higher prices.  Also, energy transporters like Cheniere, which transports natural gas, would also see a benefit by moving more product.

4. Cut Corporate Taxes

The Heritage Foundation published an article entitled “No Fooling: U.S. Now Has Highest Corporate Tax Rate in the World,” which explains that America’s highest corporate tax bracket is higher than any other nation in the world. 

Governor Romney claims that the rate is far too high, that it shuns investment in the U.S., and is stifling American growth.  According to the candidate, Romney plans to:

• Cut the corporate rate to 25 percent
• Strengthen and make permanent the R&D tax credit
• Switch to a territorial tax system
• Repeal the corporate Alternative Minimum Tax (AMT)

Lowering the lower tax rate would give major energy companies more cash to either pay back in dividends or to invest in either additional capital expenditures or exploration and drilling.

Conclusion

In short, the energy firms hope to construct more favorable energy policy and to be able to expand energy production in the U.S.  Energy expansion could likely lead to increased profits, which would spur dividend increases and additional investment.

Right now I hold no energy stocks, but I do hope to enter positions if the market pulls back.  Sometimes I use far-dated option spreads to make trades.  However, if Governor Romney wins November’s election, I would likely use stocks – because Romney’s policies would likely boom the energy industry and increase dividends for the long-term.

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