The Wall Street Journal clearly has the status of energy in the U.S. figured out. According to a headline atop an article published in the financial icon on Thursday, federal regulators and the oil companies are in an "uneasy alliance."
I only wish that the Journal's phraseology had described the situation more accurately. Unfortunately, I'm afraid that a stronger term, perhaps using the words "at loggerheads" might have been more appropriate. And while the BP (NYSE: BP) and Transocean (NYSE: RIG) Gulf of Mexico tragedy in April clearly didn't benefit the current state of affairs between the industry and many in Washington, it's still only slightly worse than it has been for decades.
For instance, as I've mentioned to Fools previously, I once cranked out a thesis dealing with ultimately unsuccessful mid-1970s Senate efforts to retaliate against OPEC's oil embargos by breaking up our integrated oil companies into their component parts. I thought it was difficult to justify then, and I don't see legislators operating with much more sense in their approach today.
Now the industry is operating in the throes of a deepwater Gulf drilling moratorium. Unfortunately, the halt has also affected shallower areas as well. As such, oil prices could increase given the Gulf's role in supplying nearly a third of our domestic oil production. But it isn't only the Gulf that's being effectively quarantined. The Obama administration has also put Shell's (NYSE: RDS-A) plans to drill in Alaska's Chukchi and Beaufort seas in the deep freeze.
There are other forces afoot intent on hammering the oil industry, especially Big Oil. For instance, a Congressional group led by Florida Democrat Bill Nelson has been resurrecting a long-standing effort to disqualify BP, Shell, and domestic majors ExxonMobil (NYSE: XOM), ConocoPhillips (NYSE: COP), and Chevron (NYSE: CVX) from receiving manufacturing tax breaks, a move that would cost them a combined $12.2 billion over 10 years. And, to top that off, financially struggling states like California and Pennsylvania have considered higher taxes on oil production as a way to refill their coffers.
None of this, of course, will help us cut our dependence on foreign oil. Even more importantly, and unless our economy is far softer than we think and continues to dampen oil demand, I'll bet we're in for a meaningful ramp in crude prices. On that basis alone, I hope Fools will keep energy companies prominent among the names in their portfolios. With their oil and gas balance, not to mention geographic diversification, Exxon is hard to beat.
