As we approach the upcoming election, energy investors are understandably curious about how different administrations could impact the industry. From my perspective, the overarching strategy for energy companies will likely remain consistent, regardless of who wins the election.
Under a Trump administration, we might hear familiar rhetoric about aggressive growth — such as “drill, baby, drill” — but the reality on the ground tells a different story. Energy companies have shifted their focus from rapid expansion to maximizing free cash flow and returning capital to shareholders. The rig count has decreased by 15% over the past year, reflecting this priority. Even if Trump were to win and renew sanctions on Iran, causing a shift in OPEC production, the overall strategy for U.S. energy firms is unlikely to change. We believe they are set on delivering value to shareholders rather than pursuing rapid growth. The industry’s efficiency in drilling has reduced the need for an increased rig count, reinforcing that their current approach will likely remain unchanged regardless of the election outcome.
On the other hand, if Harris were to win, we’d likely see a continuation of the current policies under the Biden administration, particularly in support of renewables and decarbonization efforts. While there may be some discussion about fracking bans, history suggests such measures are unlikely to be enacted due to the potential economic impact on key states like Pennsylvania and Ohio. The biggest potential shift could come if a Republican sweep enables the overturning of the Inflation Reduction Act (IRA), which could significantly reduce support for renewables by cutting government subsidies. However, this remains speculative. It’s also important to consider the cumbersome nature of permitting reforms, which, despite being necessary, are slow and unlikely to see significant changes under either administration. The challenges at the state level make it difficult to push through rapid regulatory reforms, further indicating that the energy sector’s core strategies will likely remain intact.
So, while there are clear differences between the potential administrations, we believe, the fundamental impact on the energy sector might not be as dramatic as some expect. Energy prices tend to rise under Democratic administrations due to constraints on production, which can ultimately benefit energy companies by increasing their profitability. Conversely, Republican policies that promote growth could lead to lower prices, but the industry’s current focus on free cash flow generation suggests that aggressive expansion is not on the horizon. The industry is more focused on maintaining its current strategy, which has delivered positive returns in recent years. As long as this continues to be the case, the energy sector is poised to remain resilient, with or without major policy shifts from the government.
