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William Donald (Donnie) Harris III, President and CEO, Forrest A. Garb & Associates, Inc.
The United States has elected a new president. Barack Obama and his party have promised no increased taxation on the average Joe. Maybe it would be more accurate to say that, behind the smoke and mirrors, Obama has promised no new direct taxation on Average Joe Citizen.
This promise will almost surely mean higher taxes on business, especially the oil and gas industry. If this is the outcome, we will see the larger multinational companies moving their investment dollars overseas. With these big companies showing huge quarterly profits, due mainly to the effect of high oil prices, Obama’s administration will look to increase taxes and thus force these companies to look for places other than the US for opportunities. Some might even relocate their headquarters to avoid taxes. Even the small to mid-sized companies will be seen as large and will suffer the unjust burdens of higher taxes. In the long term, we will also see a slowdown in the economy, with fewer expenditures by consumers and fewer employment opportunities in the oil and gas industry.
Regardless of future policy decisions and their effects, the next year will see a slowdown and “wait and see” attitude regarding investment. We’ve witnessed high gasoline prices at the pump, and we’ve seen that the broad base of consumers can and will meaningfully cut back on consumption. As the laws of economics would predict, high prices led to reduced consumption, in turn leading to increasing supply and eventually to falling prices. The cycle goes on and on.
Higher gasoline prices have rippled through the economic maze and caused every facet of our economy to start slowing. Car manufacturers, retailers, oil and gas producers and others have all cut back on investment plans. The financial markets debacle - the result of creative greed - has added a new dimension to already complex economic problems. As a result, a great deal of spending capacity has been deleted.
Both presidential candidates flip-flopped with regard to drilling in the ANWR and expanded offshore leasing. If approved, these steps to increase domestic supplies should benefit our industry and our country. Future oil supply and demand will always be tight. Demand will continue to increase. Maybe the rate of change will slow, but the ever-growing world population and the emerging demand for energy and affluence in China, India and other nations will add demand pressure to the world’s energy supply. In the short term, however, even these emerging nations are seeing the downturn, and previous oil consumption projections there have been cut back.
We are also watching as the government selectively steps in to help the failing stock markets, and we are waiting to see if it will also assist domestic automakers, both of which are considered too important to fail. What if our industry were to come upon hard times? I doubt the government would bail out even one faltering oil company; our industry’s fortunes would be decided by survival of the fittest.
The wildcard that could affect all our hands is the uncertainty about which way the winds of the global warming and environmental debate will take us.
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THE AUTHOR
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William Donald (Donnie) Harris III is CEO and President of Dallas-based Forrest A. Garb & Associates, Inc., which he first joined as president in 1998. He is responsible for the firm’s daily operations and the supervision of engineering projects. Mr. Harris began his career with Arco Oil & Gas as a reservoir engineer. He also was Vice President at DeGolyer and MacNaughton, where he prepared and supervised engineering and reserve studies. He holds a BS degree in petroleum engineering from Texas A&M University and an MBA from Southern Methodist University.
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