The 2020 election results will take the energy industry one of two paths — toward the energy transition or continuing the status quo. In this guest column, an energy investor assesses the situation ahead of election day. Photo via Getty Images

The United States Presidential election is at our doorstep. The fossil fuel industry is under significant pressure and the outcome of the election could impact the speed at which exploration and production is impacted. This pressure is financial in nature, but also is operational, technological and all wrapped in physics. A mere 12 to 18 months ago, environmental, social and governance influences and overlays on E&P began and are only accelerating.

My company, Riverbend Oil and Gas, is beginning to see the industry rebound from a significant downturn in revenues, activity, and confidence in 2020 due to the impacts of COVID-19 and the OPEC price war earlier this year. The industry is battling with headwinds, including, lack of access to debt/equity capital, transaction valuations, commodity prices, shale well spacing, and other issues, all impairing market conditions.

At present, there is little to no lubrication in the system. With most talking about an oil and gas market cycle that is driven by supply and demand fundamentals over previous decades, now there is more discussion of a contrarian view of those confident of a demand recovery for oil and gas.

Since the start of energy private equity, funds were raised by general partners to support the small cap E&P space, in the late '80s, private equity became a significant participant in the oil and gas upstream space. Private equity firms became great in number as institutions desired exposure to a growing segment of the market outside of merely investing in the oil and gas public equities. This role, 30 to 35 years later, remains essential, but is currently stifled with thoughts of a declining fossil fuel world and with energy representing only about 2 percent of the S&P 500.

Hydrocarbon outlook

Looming headwinds in the fossil fuel industry include The Green New Deal, an accelerating consciousness of the carbon footprint, the Paris Climate Accord, ESG importance, and the growth of renewables. Additionally, the advent of electric vehicles presents a significant new entrant that is causing a substantial threat to oil's monopoly on the transportation sector. A collision of possible futures exists. Currently, around 1 billion vehicles today are using around 30 percent of the world's oil supply with an estimate of 4 million electric vehicles on the roads globally. Some forecasters predict around 400 million electric vehicles in 2040, decreasing oil supply demand by an estimated 6 percent.

These forecasts of human mobility are driven by the nature of human ambition and worldwide population growth. Africa, China, and India are expected to grow significantly through 2100. Moreover, all persons worldwide strive for a better life for themselves and their families — energy drives these ambitions.

Meanwhile, the capital markets for public fossil fuel companies has declined by over 90 percent from 2016 to 2019 with a continued dismal outcome year-to-date in 2020. The lack of cash flow and capital markets will likely drive less U.S. and non-nationalized produced oil and gas volumes and fewer sustainable companies. Many confident analysts predict a looming oil supply shortage in 2021 driven by these factors along with a federal lands development ban and the possible slowdown of fracking. However, others predict that peak oil demand is now and the need for fossil fuels has already reached a peak.

Assessing the candidates

The results of the election are anticipated to have significantly differing implications (should campaigning be a real signal) for the oil and gas industry. While a Donald Trump win would largely represent a status quo for the environment, a Joe Biden triumph could drive towards changes. Implications are wide ranging across the equity, credit and commodities market energy value chain.

It is important to evaluate who will have control of the House and Senate to pass said legislation. The House is expected to remain with the Democrats, comfortably winning at least 224 of the 435 seats. Recent polls have pointed toward a competitive Senate election cycle. The Republicans currently have a 53-47 Senate majority, but a Democrat favored majority of 51-49 is currently predicted.

The next question is whether the filibuster would be eliminated to push legislation through without a super majority needed; meaning Democrats could drive approvals with a 50-50 tie and Kamala Harris's vote. Although polls are pointing toward a "blue wave" for the Democrats, certain moderate democrats in oil and gas states such as Colorado, New Mexico and Pennsylvania may be swayed against major regulatory or legislative threats to oil and gas exploration and production. Additionally, elected authorities in anticipated Republican states such as Texas, Oklahoma, North Dakota, Utah, and Ohio who are home to industry trade groups and fossil fuel companies will play a significant role.

The Biden Administration has discussed several energy-related policies. These include support for climate-friendly legislation, a ban on federal lands and water permits that represented 21 percent of U.S. oil output in 2019, and an increased investment of $2 trillion over four years in clean energy technologies. To put this investment into perspective, total global energy investment from 2017 to 2019 averaged $2 trillion, and Biden's plan would add $500 billion per year. Biden would target roughly two thirds of U.S. carbon emissions focusing on transportation (40 percent) and electricity production (31 percent).

Broadly, the goal is a nationwide carbon reduction to achieve net-zero emission no later than 2050 and transition to a carbon pollution-free power sector by 2035. In order to achieve the 2050 net zero emissions goal, the world requires 2020 COVID-19 sized reductions (8 percent) every other year for the next 25 years. Throughout this energy transition, energy prices are likely to increase, and as a result, the pace of the energy transition will likely reflect the balance of societal demand to reduce fossil fuel usage and the costs (economic, convenience, speed, satisfaction) of doing so.

Renewables and hydrocarbons

In 2019, the U.S. accounted for 15 percent of global CO2 emissions (5,130 MM metric tons of CO2), down 873 MM metric tons since the U.S. peaked in 2007. The large decrease can be attributed to coal-to-gas switching, while wind generation and solar power installations also aided the decline. From 2018 to 2019 alone, coal-to-gas switching decreased U.S. emissions by 140 MM metric tons, driving the largest decrease for the year. While shifting from one end of the carbon-emitting energy spectrum to another, it is imperative to balance costs, plausibility and expectations.

Hydrocarbons can be stored for less than $1 per barrel of oil equivalent, or BOE, while renewables cost $200 per BOE. Total U.S. renewable storage capabilities can provide two hours of national electricity demand which is stored in the utility-scale batteries on the grid and in the about 1 million electric vehicles on U.S. roads. Storage, physics and costs are major drivers for a hydrocarbon partnership as the U.S. transitions to a less carbon-heavy source of fuel. While costs of wind and solar have been driven down by around 70 percent and 89 percent, respectively since 2009, the Betz Limit and Shockley-Queisser Limit do have a governor on further improvements of the current technology and materials. Similarly, subsurface oil and gas reservoirs have similar boundary conditions of physics involving ultimate recovery of resources through natural production, fracking and/or enhanced recovery techniques.

The goal of providing low cost, reliable energy to consumers, enhancing lives and providing better futures can be reached through utilizing hydrocarbon technologies in tandem with renewable sources. A vast amount of investment, research and development is still required in the renewable world, including battery storage, solar/wind efficiency, electric grid expansion and electric vehicle technology/charging stations.

According to the 2020 IEA Energy Outlook, oil and gas represented 55 percent of global energy demand in 2019 and the agency predicts that oil and gas will comprise 46 percent to 54 percent of the energy stack in 2040. This is a relatively flat market share. Coal, on the other hand, cedes market share to renewables and nuclear power, decreasing from 30 percent to 10 percent. While renewables are vital to reaching the U.S. goals of net-zero emissions, hydrocarbons are essential in backstopping U.S. energy needs and ambitions throughout this energy transition. Additionally, on a global scale, cheaply sourced and stored hydrocarbons are essential for emerging economies to advance through existing carbon-emitting infrastructure, eventually leading to renewable alternatives and global carbon reduction.

We remain encouraged for the next decade of growth and performance as we look to identify unique opportunities in the space. In a dynamic oil and gas market, Riverbend has a high degree of confidence to sustain and thrive due to our culture, performance-based team and systems. Riverbend is anchored by vigorous technical subsurface reserve assessments as well as land, accounting and commercial diligence. Additionally, Riverbend, as an energy company, is investing in the alternatives segment, concentrating on materials and services in the wind, solar and battery portions of the value chain. In a world full of human ambition, we see a need for all energy to support undeveloped nations and economies to access the opportunity of the American Dream, pursuing elimination of a "have" and "have not" world.

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Randy Newcomer is president and CEO of Houston-based Riverbend Oil and Gas, a private equity investment group specializing in the energy industry.

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Texas named a top state for women-led startups

this one's for the ladies

Who runs the world? According to Merchant Maverick's inaugural Best States for "Women-Led Startups'' study, Texas is a great place for women to be in charge.

The Lone Star state cracked the top 10 on the list, earning a No. 6 spot according to the small business reviews and financial services company, which based the study on eight key statistics about this growing segment of the economy. Colorado (at No. 1), Washington, Virginia, Florida, and Montana were the only states to beat out Texas on the rankings—leading the Merchant Maverick team to conclude that "the part of the country that lies west of the Mississippi is great for startups led by women entrepreneurs."

Women-led startups in Texas received $365 billion in VC funding in the last five years, the report found. This is the seventh largest total among U.S. states. Too, about 20 percent of Texans are employed at woman-led firms, which is the fifth highest percentage among states. Roughly 35 percent of employers in Texas are led by women.

A few other key findings that work in female founders' favor: The startup survival rate in Texas is nearly 80 percent. And a lack of state income tax "doesn't hurt either," the report says.

Still there are shortcomings. On a per capita basis, only 1.27 percent of Texas women run their own business. The average income for self-employed women is also relatively low ranking among states, coming in around $55,907 and landing at 31st among others.

This is not the first time Texas has been lauded as a land of opportunity for women entrepreneurs. A 2019 study named it the best state for business opportunities for women. Houston too has proven to support success for the demographic. The Bayou City was named in separate studies a best city for female entrepreneurs to start a business and to see it grow.

Still, as many findings have concluded, the realities of the pandemic loom for all startups and small business owners. The Merchant Maverick study was careful to add: "The pandemic has changed the economic landscape over the past year, and often for the worse.

"This means that not every metric may be able to accurately gauge how a state might fare amidst the pandemic," the report continues. "To help factor in COVID's impact, we included some metrics that take 2020 into account, but it will be a while until we get a full picture of the pandemic's devastation.""

New downtown office tower will rise in bustling Discovery Green

new to hou

A new office tower will soon loom over the popular Discovery Green as the anchor of a new downtown district. Global development and construction firm, Skanksa, announced the new building at 1550 Lamar St. and its anchor tenant on January 13. The new 28-story, 375,000-square-foot Class-A office structure is dubbed 1550 on the Green, per a Skanska statement.

Global law firm Norton Rose Fulbright will relocate its Houston office in 2024 and acquire naming rights upon occupancy, according to a press release.

Bound by La Branch, Lamar, Crawford, and Dallas Streets, 1550 on The Green will feature extra-wide pedestrian zones with a canopy of trees, two tenant outdoor roof terraces, and wide views of the surrounding greenery.

International design firm BIG-Bjarke Ingels Group led the building's design; it is the company's first foray into Texas. BIG's design promises sustainability, energy efficiency, and an "airy" office environment for tenants, a release describes.

Some 7,000 square feet of retail space will greet first-floor guests. Michael Hsu Office of Architecture has been tapped to design the interior amenity spaces; those include a fitness center, rooftop event space and terrace, and community spaces.

The new 1550 on the Green tower is part of a new envisioned district that will be branded as Discovery West. The district will consist of 3.5 acres of mixed-use development boasting restaurants, retail, green space, and "world-class architecture," per a release.

Working with Central Houston Inc., Discovery Green, Bike Houston, the Kinder Foundation, as well as several brokers, Skanska and design firm of record, BIG-Bjarke Ingels Group, completed the master plan for Discovery West in early 2020.

Skanska has been noticeably active in the Houston office market, specifically with the development of Bank of America Tower, West Memorial Place I and II, and the future Discovery West. The company is behind the acquisition of a buzzy strip center in Montrose. Skanska also plans to multifamily to its Houston portfolio, the firm notes.

"As an organization that prides itself on building what matters to our communities, our team, made up of Houstonians, has been working alongside local stakeholders to develop a plan and a building that will transform this side of downtown Houston while still meeting the needs of the city," said Matt Damborsky, executive vice president for Skanska USA commercial development's Houston market, in a statement.

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This article originally ran on CultureMap.