Despite mounting concerns about fossil fuel emissions and their contributions to climate change, BOK Financial is betting on oil and gas amid a resurgence in demand.
Energy will inevitably transition to more renewable sources, but that process will take decades, during which time oil will still be needed in transportation, and natural gas will be vital to heating homes and powering industrial plants, said Stacy Kymes, chief operating officer of the Tulsa, Oklahoma-based company. Kymes will become president and CEO of BOK Financial in January.
“We’re going to see more growth from oil and gas,” Kymes said in an interview. “We remain very bullish on that.”
The $47 billion-asset BOK Financial expects the oil and gas sector to help it
Kymes, who will succeed the
Consumption of oil screeched to a halt in 2020 amid travel restrictions imposed to slow spread of the coronavirus. But demand bounced back this year with the help of vaccination campaigns. Natural gas demand rebounded from pandemic lows as industrial activity recovered.
But the climate crisis still casts a cloud over the energy sector.
Even amid this demand for oil and natural gas, large institutional investors are clamoring for energy companies — and the banks that lend to them — to focus more on renewable fuels to reduce greenhouse gas emissions and ease the effects of a warming planet, according to Mike Matousek, head trader at U.S. Global Investors.
Banks’ overall exposure to the oil and gas sector is down this year and is expected to decline further in 2022, he noted, with major lenders such as JPMorgan Chase and Wells Fargo pledging to shift more of their efforts to renewable energy projects.
Of the nine banks with the greatest exposure to energy, five reported declines in third-quarter energy loan balances when compared with the prior quarter, according to S&P Global data. Among the banks that reported increases, Prosperity Bancshares in Houston said its energy loan balances were lifted by a single loan to a longtime borrower. If not for that loan, its energy portfolio would have decreased.
BOK Financial, which among large lenders has the greatest exposure to energy at 14% of loans, said its third-quarter energy loan book declined by more than 6% from the prior quarter. The reason was that many companies used the extra cash they gained from rising oil and gas prices to pay down debt, Kymes said. This offset new lending.
But BOK Financial has added more than 40 new customers and nearly $1 billion in loan commitments in 2021, and Kymes expects borrowing to climb as more companies finance new projects to meet demand for oil and gas.
Kymes also expects to gain market share in oil and gas as competitors pull back. “We’ve never retrenched,” he said.
Despite pressure from environmentally conscious investors, oil and gas demand is steady and poised to remain elevated along with a growing economy, according to Matousek.
“Oil demand is strong, and that’s important because consumption of oil is a barometer of the overall economy’s health,” Matousek said. “When people are buying more gasoline and other travel fuels, they are driving and flying more, getting out more, and that happens when the economy is humming along. And things across the economy are starting to get cooking.”
U.S. oil production for the first two weeks of December held at a 2021 high of 11.7 million barrels per day. That was up by 700,000 barrels per day from a year earlier, according to the
The Paris-based International Energy Agency forecast global oil demand would grow by 5.4 million barrels per day this year and another 3.3 million barrels a day next year, getting back to prepandemic levels of 99.5 million barrels a day by mid-2022.
To be sure, the
The new strain created fresh concerns about winter virus outbreaks and new travel restrictions to slow its spread. That has put downward pressure on oil prices in recent days.
But early public health data from South Africa, where omicron first spread widely before arriving in the United States, indicated that the fast-spreading variant is not causing serious illness as often as earlier forms of the virus. An increase in the numbers of vaccinated people adds another layer of protection. This could ward off lasting travel restrictions and any long-term interruptions to oil demand.
“New containment measures put in place to halt the spread of the virus are likely to have a more muted impact on the economy versus previous COVID waves, not least because of widespread vaccination campaigns,” IEA researchers said in a December report.
Rystad Energy analyst Louise Dickson said the new variant shows that the virus remains a threat, even if it is not as disruptive as the ones that spread in 2020. “Omicron worries have for now been put on ice, as the new variant’s symptoms have so far been branded as mild, a relief for traders who initially feared the worst," she said.
Kymes shared that view.
“It certainly creates a lot of headlines and concern, but what we’ll be focused on are the data — severe illness, hospitalization rates,” Kymes said. “Early indications are encouraging.”
Oil and gas complement growing and diverse economies across a BOK Financial footprint that spans Oklahoma, Texas, Colorado and neighboring states, Kymes said. Commercial real estate markets in major metropolitan areas across the lender's territory are also poised for a rebound in 2022. This is especially evident in Texas, where populations in Dallas, Houston, Austin and other cities are all surging as more Americans move to Texas for its climate, job opportunities and relatively low taxes. Texas has no state income tax.
“We’re going to be very aggressive in Texas,” Kymes said. “We will be very focused on reenergizing growth.”
