President Joe Biden delivered his annual State of the Union speech Tuesday night and covered a wide range of topics, including Big Oil.

“Have you noticed Big Oil just reported its profits? Record profits,” Biden said. “Last year, they made $200 billion in the midst of a global energy crisis. I think it’s outrageous.” 

This was all a prelude to explaining that the oil companies didn’t invest enough in boosting production, but rather used the gushing profits to buy back their stock, rewarding CEOs and shareholders at the expense of consumers. Biden’s recommendation was for Congress to quadruple the 1% tax on the value of company share repurchases. 

This recommendation came after Biden laid out his plan that states that we will need oil for another 10 years, but then it’s over for the business. So why should an oil company CEO – a custodian of shareholders’ capital invested in the company – plan on investing in any project that does not return all the investment along with a reasonable profit within that 10-year time span? This decade mentality, which we have seen dominate previous periods in the industry’s history, is a hurdle for major offshore initiatives. 

What such short-term thinking brings is a reordering of investment priorities. It was explained by Charles Penner, the architect of hedge fund Engine No. 1’s proxy fight against ExxonMobil. In an interview, he said that most investors want to see Big Oil focus on their highest-return opportunities that produce oil quickly, such as the Permian Basin. 

Investors believe these projects are likely to be profitable, even if oil demand falls in the coming years. Penner said investors prefer these projects over “mega offshore projects.” Something he characterized was once Big Oil’s “bread and butter.”  Those long-term projects, according to Penner, put shareholder capital at risk because their profitability will be in doubt if the world uses less oil in the future – like none as envisioned by Biden.

With forecasts for future oil demand extending its use further into the future than the decade-mentality suggests, offshore oil projects will continue to play a role in the industry’s future.

The upturn in offshore drilling suggests Big Oil is not being scared by the anti-oil rhetoric, even if it comes in the State of the Union speech. Supply and production profiles will govern the search for large offshore deposits and not the fear of being politically correct.

G. Allen Brooks is an energy analyst. In his over 50-year career in energy and investment, he has served as an energy security analyst, oil service company manager, and a member of the board of directors for several oilfield service companies.