Elizabeth Warren’s shale shutdown proposal adds risk for operators, investors

By Michael Bellusci on 10/11/2019

TORONTO (Bloomberg) - The prospect of Elizabeth Warren becoming the 2020 Democratic presidential nominee, or the 46th president of the U.S., has energy investors worrying about risks to hydraulic fracturing.

“What happens if Elizabeth Warren becomes president and bans fracing?” was the most common question Sanford C. Bernstein received during recent marketing, analysts led by Bob Brackett said in note Tuesday. They don’t currently have a good answer.

Concern on Wall Street has been rising along with Warren’s poll numbers, with sectors such as financials, health care and industrials as well as energy identified among those at risk from her policy proposals.

In early September, Warren tweeted that she would ban fracing “everywhere” if she becomes president.

The former part of Warren’s plan would have a modest longer-term impact given the “mature state” of areas such as onshore Alaska or the federal Gulf of Mexico, according to Bernstein. However, a fracing ban would offer “much more immediate consequences,” and be “incredibly bullish for both global oil prices and U.S. natural gas prices.”

Federal leasing changes could have the most impact on shale drillers such as EOG Resources Inc. and Devon Energy Corp., Brackett said. Kosmos Energy, Hess Corp., Apache Corp. and ConocoPhillips may have little to worry about from a fracing ban, however.

Still, any impact from a Warren win may be short-lived. “We have a government with checks and balances,” Brackett noted, pointing to processes which have caused executive orders to be moderated. He also highlighted the ability of E&Ps to re-allocate capital to mitigate effects.

And, as RBC Capital Markets wrote earlier this week, most of the sectors seen to be at high risk “are already deeply undervalued versus the broader market.”

Canada Implications

There may also be some beneficiaries. UBS analyst Lloyd Byrne recently identified Canadian producers such as Canadian Natural Resources Ltd. and Suncor Energy Inc. as likely to gain from curbs on drilling in U.S. federal acreage.

Though at least one investment bank isn’t so certain Canada’s oil-patch will benefit from a Warren victory, given her and fellow presidential candidate Bernie Sanders haven’t been so friendly on their stance for pipeline projects. Energy investment bank Tudor Pickering Holt & Co. cited Warren’s opposition to Enbridge Inc.’s Line 3 oil pipeline replacement and expansion project, along with the mention of permits being revoked for TC Energy Corp.’s long-delayed Keystone XL oil pipeline.

Also, Sanders is opposed to Enbridge’s Line 5 pipeline. “We’d caution the enthusiasm,” analysts from Tudor told clients in a note Wednesday.

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