Invest in Upstream, Biden Official says from Abu Dhabi

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Taking a page from regional producers, the top U.S. energy envoy, Amos Hochstein, told the audience at an energy conference in Abu Dhabi that it's time to invest more in the oil and gas sector.

Hochstein was on hand for the opening of this year's Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC), which runs through November 3. He told the audience during the opening ceremony that major energy companies reaping hefty profits on the back of high commodity prices should invest more of that capital into their operations.

U.S. President Joe Biden, he added, is not against big profits so long as they're reinvested in the energy sector. This administration is interested in "increased investment in production, increased investment in refining capacity and, at the same time, additional investment in the (energy) transition," he said.

That seems at odds with recent rhetoric from the Biden administration. The president in June complained that Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) made "more money than God" after it reported $23 billion in net income in 2021.

For the third quarter, ExxonMobil reported $19.7 billion in profits, besting its second-quarter performance by $2 billion. Those profits allowed ExxonMobil to return $15 billion to shareholders this year.

That too irked Biden, who said a shareholder return is not the same as doing the work necessary to bring prices down for U.S. taxpayers. Commodity prices are nowhere near the peak levels from earlier this year, but combined with the 11% year-on-year increase in the price of groceries and the 6.6% increase in rents, and consumer burdens start to accumulate.

Meanwhile, any energy analyst worth their salt will tell you a supply-side crisis is brewing given the lack of spare capacity from the Organization of the Petroleum Exporting Countries (OPEC) and the looming European ban on waterborne crude oil imports from Russia.

Supply tightness, however, is nothing new this year. The Russian invasion of Ukraine largely caught the world off guard and the world is still scrambling to figure out how to do without its vast natural resources. OPEC leaders, meanwhile, have spent much of the year saying that if revenue translated to investments, perhaps the supply-side crunch would not be as severe.

To be fair to Biden, his "God" comment on Exxon returns is the only part that most people remember. He later complained the company was favoring stock buybacks over new investments.

But for U.S. companies and others in private hands, much of those decisions are for shareholders to decide, not politicians. Meanwhile, the renewed emphasis on investments -- particularly in OPEC's backyard -- seems like a change of heart for the administration. Biden has been particularly incensed with Saudi Arabia, the de facto leader of OPEC, for an apparent snub on production levels, and bilateral relations are on the decline.

Hochstein's comments could be seen as more diplomatic, given the market's focus on OPEC chatter. Given the current geopolitical climate, allies are more important than ever and upsetting the world's major oil producers would be ill-advised at best, so it pays to speak their language.

Meanwhile, it appears investors may be interested in crude oil after all. Mike Wirth, the chairman and chief executive officer at Chevron Corporation (NYSE:CVX) (San Ramon, California), said Friday that profits weren't the only thing growing for the U.S. supermajor.

"We're increasing investments and growing energy supplies, with our Permian production reaching another quarterly record," he said.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 Trillion (USD).