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Under Trump, Predictions of OFS Revival, Brief Lame Duck Session

Analysts with Evercore ISI said they expect the oilfield services (OFS) sector will enjoy a "vigorous recovery" under a future Trump administration, complete with increasing rig and well counts and a recovery in commodity prices.

But Todd Wooten, senior energy counsel at the Senate Finance Committee, predicted Republicans would likely scuttle an omnibus energy bill despite bipartisan support, and that the upcoming lame duck session of Congress would be a short one.

"No one really prepared for what was going to happen last night," Wooten said during a conference call Wednesday. "We're figuring out on-the-fly what things are going to look like."

Wooten said Democrats on the Senate Finance Committee had hoped to do something with Section 48(a) tax credits included in an omnibus spending bill Congress enacted last December (see Shale DailyDec. 16, 2015). The federal Business Energy Investment Tax Credit included rebates ranging from 10-30% for certain types of renewables through at least 2022.

"I think that's a pretty heavy lift," Wooten said of possibly extending the rebates. "Most of us...are inclined to believe that this could be a very short lame duck. The incentive is really not there for the Republicans to cut any major deals -- particularly when it comes to something on energy -- because they likely have things that they want, which perhaps President Obama would veto but obviously President Trump would sign."

According to Wooten, House Ways and Means Committee Chairman Kevin Brady (R-TX) doesn't want to do anything with tax extenders during the lame duck session, but both Brady and House Speaker Paul Ryan (R-WI) were looking to enact tax reform in 2017. He added Republicans would probably start over rather than pass an omnibus energy bill supported by Sens. Lisa Murkowski (R-AK) and Maria Cantwell (D-WA) (see Daily GPI, July 12).

Tax reform “is an area that there is a fair amount of agreement amongst Republicans. For us, that what we're assuming to be is going to be the 'big push,'" Wooten said, adding that the Senate Energy and Natural Resources Committee, which Murkowski chairs, "made great success. I wonder, though, if you're a Republican if you're asking 'Why don't we just let this one go, we'll come back in 2017 and see if we can get a better deal?' That's the sentiment up here today."

Evercore analyst Tom Cape, who covers energy policy, said a Trump administration appears bearish toward renewables and other areas of national energy policy, including the Renewable Fuel Standard and ethanol mandates. But other energy policy areas -- especially domestic oil and gas development, permitting, hydraulic fracturing (fracking) and petroleum product exports -- have a bullish future. He added that Energy Transfer Partners LP, recently embattled over its controversial Dakota Access Pipeline (DAPL), would also benefit (see related story).

"The key takeaway here is that we view a Trump administration as being an incremental positive in terms of the path forward for ETP and DAPL," Cape said. "Specifically, we feel the regulatory overhang in the post-DAPL space diminishes significantly under a Trump administration. The risk of further legislation or [regulations]...is probably likely obviated under Donald Trump."

James West, who covers OFS for Evercore, called Trump's election "a net positive."

"He has said he wants a fossil fuel revival," West said. "He wants to reduce regulations. He wants to roll back emissions standards. He wants to open up federal lands for drilling, and he has also talked about pulling out of the Paris agreements, which would be a net positive for oil."

Steve Richardson, who covers the exploration and production (E&P) sector, concurred.

"Clearly the market is reacting today to the fact that we got a clear mandate from one candidate," Richardson said. In terms of the E&P sector, the market is “clearly reacting to the view that this incoming administration will be incredibly hydrocarbon friendly.

"There's some view that in terms of trade policy [there will be a] rather generalized slow-down, and that you could have some risked oil. I think that's getting Trumped, to use a pun, from the view of fiscal policy -- a loosening and, more importantly, a more inflationary environment, in commodities.

West said a Trump administration "will add a little bit of fuel to the fire on the North American side. The land market in North America was already moving into what we think will be a very robust recovery in 2017. We're in the early stages of that now. We expect to see continued rig count growth, continued well count growth, and continued pricing traction for the OFS industry as they regain some of the economic rent that they lost to the E&P industry during the last two years of the downturn.

Trouble overseas could be a benefit, too. "We do expect him to be tested by our international 'friends' -- particularly Russia and probably Iran -- and that will add to geopolitical tensions around the world, which should add some geopolitical pricing to the oil price," West said. "It should boost oil prices somewhat from today's levels."

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