Best Lawyers Fall Business Edition 2020

Page 10

in focus

POWERING UP

Regulation, consumption trends, global population growth, and the pandemic’s many earth-shaking effects make this moment highly uncertain for the upstream-energy industry—and the only way forward is to change with the times. By George H. Lugrin IV

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N LATE FEBRUARY, I was on a Boeing 787 burning jet fuel, returning to Texas from London because of the novel coronavirus. I had no idea that after I got back the virus would virtually shut down air travel, personal vehicle use, and the burning of hydrocarbons in general worldwide. Depending on where you get your data, the environmental impact of the shutdown has been anything from slight to significant. But there’s strong evidence from NASA and the European Space Agency that there have been sizable reductions in pollution—particularly in Wuhan, China, the source of the outbreak, where the government implemented and strictly enforced stay-home orders. Readers of a certain age will remember the ozone crisis of the 1980s. Earth’s atmospheric ozone layer blocks most harmful wavelengths of UV sunlight, those that cause cancer and assorted maladies in humans and other animals. In the ’70s, some smart scientists noticed a marked reduction in the size of the ozone layer. By the 1980s the primary cause had been traced to the use of refrigerants (remember CFCs?). Given the fraught politics of the issue—yes, even then—it wasn’t until 1989 that countries banned ozone-depleting chemicals. In 2019, NASA reported that the ozone hole was

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the smallest it has been since it was first observed. What should we make of this for the future of oil and gas exploration and production companies (also known as upstream companies—those who find and produce hydrocarbons), particularly given that stocks are now often rated on their “social sentiment” and the fact that many more people than in the past will likely work from home in the years ahead? I think the prognosis is good for integrated large companies (those that are upstream, midstream, and downstream, in other words), but not for non-integrated upstream companies unless something is done now to help them. We should also note a few other important factors unrelated to the virus itself. Prior to the pandemic, virtually all “Big Oil” (e.g. Exxon Mobile, Chevron, Shell, BP, Total) had published net-carbon-neutral or carbon-reduction plans involving a combination of efficiency improvements, carbon-capture technology, and increased production of green energy—primarily solar and wind but also geothermal and my forgotten favorite, the fuel cell. (More on this in a moment.) Critics charge that these prominent companies are engaged in nothing more than public relations, but I disagree. These businesses are realistic. They’re