President Donald Trump’s White House has said his plans to slash environmental regulations will trigger a new energy boom and help the United States drill its way to independence from foreign oil.
But the top U.S. oil and gas companies have been telling their shareholders that regulations have little impact on their business, according to a Reuters review of U.S. securities filings from the top producers.
In annual reports to the U.S. Securities and Exchange Commission, 13 of the 15 biggest U.S. oil and gas producers said that compliance with current regulations is not impacting their operations or their financial condition.
The other two made no comment about whether their businesses were materially affected by regulation, but reported spending on compliance with environmental regulations at less than 3 percent of revenue.
The dissonance raises questions about whether Trump’s war on regulation can increase domestic oil and gas output, as he has promised, or boost profits and share prices of oil and gas companies, as some investors have hoped.
According to the SEC, a publicly traded company must deem a matter "material" and report it to the agency if there is a substantial likelihood that a reasonable investor would consider it important.
"Materiality is a fairly low bar," said Cary Coglianese, a law professor at the University of Pennsylvania who runs the university’s research program on regulation. "Despite exaggerated claims, regulatory costs are usually a very small portion of many companies’ cost of doing business."
The oil majors’ annual filings come after the industry and its political allies have spent years criticizing the Obama administration for policies aimed at reducing fossil-fuel consumption, curtailing drilling on federal lands and subsidizing renewable energy.
Trump promised during the campaign that a rollback of the Democratic administration’s policies would help free the nation from reliance on imported oil.
"Under my presidency, we will accomplish complete American energy independence," said Trump, describing regulation as a "self-inflicted wound."
The Trump administration is now preparing an executive order - dubbed the "Energy Independence" executive order - to roll back Obama-era regulations, which could be signed as early as this month, according to administration officials.
U.S. presidents have aimed to reduce U.S. dependence on foreign oil since the Arab oil embargo of the 1970s, which triggered soaring prices. But the United States still imports about 7.9 million barrels of crude oil a day - almost enough meet total oil demand in Japan and India combined.
The Trump administration’s attacks on regulation have been applauded by the oil industry.
"We haven’t seen 3 percent growth in the economy for eight years, and I think part of the reason is that we’ve had a heavy dose of regulation," Chevron Corp. (CVX.N) CEO John Watson said at CERAWeek, a global energy conference in Houston this month.
Continental Resources (CLR.N) CEO, Harold Hamm, who advised Trump on energy issues during his campaign for the White House, told the Republican National Convention in Cleveland in July that stripping regulation could allow the country to double its production of oil and gas, triggering a new "American energy renaissance."
Yet Continental's annual report, filed last month with the SEC, says environmental regulation - after eight years under the Obama administration - does not have a "material adverse effect on our operations to any greater degree than other similarly situated competitors."
Continental's competitors who reported actual spending on environmental compliance told investors that such expenses amount to a small percentage of operating revenues.
Fourteen of the 15 companies whose filings were reviewed by Reuters declined to comment on their statements to investors or the impact of regulation on their profits.
A spokesman for ConocoPhillips acknowledged that regulatory compliance has not had a material adverse impact on the company's liquidity or financial position. But red tape can be an unwelcome burden nonetheless.
"Changing, excessive, overlapping, duplicative and potentially conflicting regulations increase costs, cause potential delays and negatively impact investment decisions, with great cost to consumers of energy," the spokesman, Daren Beaudo, said in a written statement.
The American Petroleum Institute - which represents the U.S. oil and gas industry - also declined to comment.
Last month, before the U.S. Senate Commerce, Science and Transportation Committee, API President Jack Gerard said that the oil and gas industry has surged forward despite onerous regulations under the Obama administration.
"Technological innovations and industry leadership have propelled the oil and gas industry forward despite the unprecedented onslaught of 145 new and pending federal regulatory actions targeting our industry."
Though the industry saw a staunch opponent in Obama, oil and gas production soared more than 50 percent during his presidency. That was mainly because of high oil prices and improved hydraulic fracturing, a drilling technology that has allowed producers to access new reserves in previously tough-to -reach shale formations.
The rush of production ultimately contributed to a global glut that dropped crude oil prices CLc1 from a high of over $100 a barrel in early 2014 to a low of nearly $25 by 2016. Current prices hover near $50 a barrel.
NO "MATERIAL" IMPACT
Four of the 15 companies reviewed by Reuters reported that spending on environmental matters - including new equipment or facilities, as well as fines and compliance staffing - amounted to a small fraction of revenues.
Exxon Mobil (XOM.N) reported spending $4.9 billion worldwide in 2016, or about 2.24 percent of gross revenue. Occidental Petroleum (OXY.N), a much smaller company, reported spending $285 million, or about 2.82 percent of revenue. Neither addressed whether the spending was "material" in their filings.
Two other companies, ConocoPhillips (COP.N) and Chevron, also broke out their environmental spending while reporting that regulation had no material impact on their business. Conoco spent $627 million in 2016, or about 2.57 percent of gross revenue, while Chevron spent $2.1 billion, or 1.91 percent of gross revenue.
The other 11 companies did not break out spending, but all of them told the SEC that environmental regulation did not have a material impact on their business.
In one typical statement, EOG Resources (EOG.N), one of the biggest U.S. producers, told investors in a report filed last month: "Compliance with environmental laws and regulations increases EOG's overall cost of business, but has not had, to date, a material adverse effect on EOG's operations, financial condition or results of operations."
Devon Energy Corp (DVN.N), Anadarko Petroleum Corp (APC.N), Pioneer Natural Resources Co (PXD.N), Apache Corp (APA.N), and other large U.S.-focused oil and gas drillers used similar wording.
"ABSENCE OF A NEGATIVE"
Still, Obama's exit - and Trump's win over Democratic presidential candidate Hillary Clinton in November - has been enough to brighten the outlook of some big investors.
"I believe the absence of a negative is a positive," John Dowd, who manages several energy funds at Fidelity Investments, wrote in his 2017 energy outlook. "The market has been concerned with the sustainability of fracking, and particularly to what extent it might have been regulated into obscurity by a different election outcome."
Clinton had said during her campaign that she planned to increase regulation on fracking.
Other segments of the energy industry, such as coal mining and oil refining, were harder hit by environmental protection measures during Obama's presidency. Several coal companies went bankrupt in recent years and blamed Obama’s climate change initiatives for raising costs and hurting demand.
Refiners have also long complained that environmental regulations have stymied attempts to build new refineries and that they have borne the brunt of costly rules requiring them to blend biofuels into their gasoline.
Still, some energy analysts and regulation experts point out that the biggest drivers for these industries, too, tend to be supply and demand – not regulation.
The abundance of cheap natural gas is seen as the biggest obstacle to reviving coal country, since both fuels compete for space in the furnaces of U.S. power plants. For refiners, the key driver for profitability is the differential between the price of their raw material, crude oil, and the fuels they make with it.
"Supply and demand are the fundamental forces driving markets," said Coglianese, the University of Pennsylvania law professor. "Regulation is relatively trivial."