Drilling in the North Slope of Alaska is inherently expensive, and it has caused several major oil companies to steer capital expenditures away from the region. Both ConocoPhillips (NYSE:COP) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) have put major holds on their drilling programs in Alaska as of late, citing both high costs and regulatory uncertainty for the cutbacks. So while the more lucrative tax incentives may help, it may not be enough to turn Alaska’s production numbers around.
What a Fool believes
Agree with these policies or not, they are not binary outcomes for the industry. The Obama administration’s proposals to do away with tax incentives for the oil and gas industry and increased royalty revenue will probably have a negative effect on exploration and production, but they won’t cripple the industry. There are still several benefits to producing oil and gas in the U.S., and our dominance in shale gas drilling has led oil majors Chevron Corporation (NYSE:CVX) and ConocoPhillips (NYSE:COP) to restructure their growth plans to incorporate more U.S. shale drilling rather than exploration plans overseas.
As investors, we don’t need to play this situation as a binary outcome situation, either. With global demand for energy growing at a staggering pace, there are opportunities for both fossil fuels and alternative energy to grow immensely. Don’t let political rhetoric or emotional biases cloud your judgement when investing, especially in the energy space. One of Warren Buffett’s tenets of investing is to not let political and macroeconomic forecasts obscure your investment theory. Rather, take a step back and invest in great businesses dispassionately. While following this advice may not be easy, your portfolio will thank you for it.
The article Obama and Alaska at Odds About How to Tax Energy originally appeared on Fool.com.
Fool contributor Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.com under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool. The Motley Fool recommends Chevron and National Oilwell Varco and owns shares of National Oilwell Varco.
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