In the first part of this pair of articles about what has effectively -- if not officially -- become our nation's energy policy, we looked at the historic need for an approach to deal with our fossil and renewable fuels sectors. We also touched on some of the unilateral decisions that have emerged from the current administration to -- like it or not -- establish a de facto energy policy.
Now let's look at relevant portions of President Barack Obama's recent State of the Union speech. We'll find some comments that are spot-on, along with others that, unfortunately, are questionable.
A slight pop in production
Let's begin with the president's initial comments about energy:
Nowhere is the promise of innovation greater than in American-made energy. Over the last three years, we've opened millions of new acres for oil and gas exploration, and tonight I'm directing my administration to open more than 75% of our potential offshore oil and gas resources. Right now, American oil production is the highest it's been in eight years. That's right -- eight years. Not only that -- last year, we relied less on foreign oil than in any of the past 16 years.
These assertions are essentially correct. However, it's appropriate to point out, as The Washington Post did following the SOTU, that U.S. oil production has been essentially flat since 2003. Beyond that, the minor increase that the Energy Information Administration believes may have occurred in 2011 was more attributable to the industry's having extracted more black gold from shale rock in places like the Bakken, the Eagle Ford, and the Niobrara plays than to any meaningful contribution from the federal government.
A swat at the old fossils
But having figuratively walked onto the course, we might as well tee off on fossil fuels producers, a seemingly unavoidable approach in so many quarters:
It's time to end the taxpayer giveaways to an industry that rarely has been more profitable and double-down on a clean energy industry that never has been more promising. Pass clean energy tax credits. Create these jobs.
In October, I mentioned in a Foolish article that Wood Mackenzie, regarded as one of the world's top energy consultancies, estimated that the increased energy taxation that the president was then seeking would reduce our domestic production by about 700,000 barrels a day of oil equivalent production. In the process, it would cost the nation about 170,000 jobs.
The numbers don't lie
As for the conventional energy industry having rarely been more profitable, it appears appropriate to drag out our old "comparison meter" once again. Quite simply, for each dollar of revenue that ExxonMobil (NYSE: XOM ) generates, it's left with about $0.09 in net income. However, Apple (Nasdaq: AAPL ) , which has pulled ahead of the biggest member of Big Oil in the market capitalization race, keeps about $0.26 of each revenue dollar, making it approximately three times as lucrative as the members of the group that "rarely has been more profitable."
Discussions about ending taxpayer giveaways almost certainly presage another effort to remove the Section 199 allowable deduction of 3% of the net income obtained through the production of oil, or gas, or the creation of products primarily from hydrocarbons. Amazingly, that effort would not affect other manufacturing companies. Rather, it would single out fossil fuels producers and related manufactures for special treatment.
They're clean and green, but they're costly
Similarly, in Part 1 we looked at the Department of Energy's Solyndra and BrightSource debacles, among others. I therefore cringe at what may be the intent of a call to "double-down on clean energy."
The president was correct when he said that, "We have a supply of natural gas that can last America nearly 100 years." But then came the doozey of the night: "And by the way, it was public research dollars, over the course of 30 years, that helped develop the technologies to extract all this natural gas out of shale rock -- reminding us that government support is critical in helping businesses get new energy ideas off the ground."
Possibly he's kidding
It's not because I have two offspring attending the University of Arkansas that I feel compelled to respectfully term the last statement "hogwash." As Daniel Kish of the D.C.-based Institute for Energy Research noted in a U.S. News and World Report article: "The president's claim that the federal government helped create the hydraulic fracturing boom is specious at best. After all, hydraulic fracturing is more than 60 years old and predates the creation of the Department of Energy by 30 years."
In fact, it was Houston oilman George Mitchell, the founder of Mitchell Energy, now owned by Devon Energy (NYSE: DVN ) , who, using millions of his own dollars and a similar amount in patience, spearheaded the development of North Texas' Barnett shale, our first commercially successful shale play. Services giant Halliburton (NYSE: HAL ) was also involved in the early development of fracking, and later, Chesapeake Energy (NYSE: CHK ) played a key role in the development or discovery of many of our currently active unconventional natural gas and liquids plays.
There were other questionable statements in the SOTU. For instance, "I'm requiring all companies that drill for gas on public land to disclose the chemicals they use." In fact, an expanding number of states are already requiring such disclosure, and they're performing their monitoring function quite effectively.
Go east, young man
And then there was, "I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here." On the battery front, we've already been lapped repeatedly by the Chinese, where several hundred factories are turning out rechargeable batteries for an expanding variety of uses. Beyond that, a Massachusetts high-tech battery start-up, Boston-Power, recently replanted a significant portion of its operations in China. There is no word about the likelihood of a change in the company's name, perhaps to Beijing-Power.
My conclusion is that, despite the energy policy that's effectively been foisted upon us, the bursting onto the scene of unconventional gas and oil, along with solid results from deepwater drilling, have placed the hydrocarbons companies in an unusually strong position. As such, I'd urge Fools to keep close tabs on the energy companies named above.
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