The top U.S. banks are major financiers of the fossil fuel industry, and Bank of America might be the most recognizable, consumer-facing of all these banks. It is the second largest U.S. bank, with tens of millions of customers and branch locations all across the country.
In response to growing pressure around our climate crisis, Bank of America and other banks have made gestures around the need to act. Bank of America was even a corporate sponsor of last year’s Global Climate Action Summit in San Francisco.
But in reality, Bank of America shows little sign of scaling back its financing of the fossil fuel industry, the driving force of our climate crisis. A recent report shows that Bank of America provided $106.69 billion in fossil fuel industry financing in the last three years alone — the fourth most of any bank.
Bank of America is now closely involved in advising Occidental Petroleum’s attempted bid to takeover Anadarko Petroleum — a move that, if successful, would significantly increase Occidental’s market share over fossil fuel extraction in the Texas Permian Basin, now the world’s most productive oil field. Moreover, production in the Permian Basin could explode even more — from 4.7 million barrels per day to about 12 million barrels per day by 2030.
If Bank of America helps close the deal, it is set to rake in tens of millions of dollars in advisory and service fees. And now, in a major boost to Occidental’s bid, Warren Buffett — whose Berkshire Hathaway is the biggest shareholder in Bank of America, owning 9.3% of the bank’s stock — has endorsed Occidental by pledging to invest $10 billion in the company if it takes over Anadarko.
In aiming to profit through facilitating a massive corporate merger that will consolidate fossil fuel extraction operations in the world’s busiest oil basin, Bank of America is continuing its role in deepening our global climate crisis, despite its public relations efforts to appear concerned with environmental sustainability.
Corporate Competition for Supremacy in the Permian Basin
Two Big Oil corporate behemoths, Occidental and Chevron, are battling for supremacy over the Texas Permian Basin, the epicenter of U.S. oil and gas extraction. Operations in the Permian Basin are helping to drive the meteoric rise of fracking and LNG exports that make up the U.S. “shale revolution.” Occidental is the leading producer in the Permian Basin, while Chevron is second.
Earlier this month, Chevron reported that it was acquiring Anadarko in a $33 billion takeover bid. But last week Occidental announced a $38 billion counter-offer to acquire Anadarko ($57 billion total, according to the Financial Times, including the debt that Occidental would assume with the takeover). On April 29th, Anadarko announced that it was entering into talks with Occidental on the potential takeover, and on April 30th, Occidental’s bid received a major boost when billionaire investor Warren Buffett announced he would purchase $10 billion in Occidental stock if Occidental wins the bidding war.
Occidental’s challenge to Chevron is a bold one. Chevron is four times the size of Occidental. In 2017, Chevron was the top oil and gas driller in the U.S., while Anadarko and Occidental were fourth and fifth, respectively. Anadarko’s board now has to decide which offer to accept. While many assumed Chevron would prevail, Buffett’s intervention has led one executive whose firm invests in Anadarko to argue that Chevron’s bid is now “dead.”
While the victor of the bidding war will swoop up Anadarko’s global operations that stretch from the Gulf of Mexico to Ghana and Mozambique, the real prize is its operations in the Permian Basin located in West Texas and New Mexico — now the most productive oil field in the entire world, more so than even Saudi Arabia’s Ghawar field.
According to the New York Times, “[m]ore than a dozen oil and gas pipelines serving the Permian are expected to be completed by the middle of 2020, potentially increasing exports from the Gulf of Mexico region to eight million from two million barrels a day.”
However, there is also growing skepticism about the underlying strength of the fracking boom. For instance, some argue that the Permian Basin’s productivity and profitability are being overhyped. The Journal of Petroleum Technology says that the “long-term outlook for Permian Basin producers may not be so bright” with the potential for rapid declines in output, and a Wall Street Journal report from last November argued that well output is often being inflated.
Some of fracking’s biggest skeptics are on Wall Street. They argue that the industry’s financial foundation is unstable: Frackers haven’t proven that they can make money. “The industry has a very bad history of money going into it and never coming out,” says the hedge fund manager Jim Chanos, who founded one of the world’s largest short-selling hedge funds. The 60 biggest exploration and production firms are not generating enough cash from their operations to cover their operating and capital expenses. In aggregate, from mid-2012 to mid-2017, they had negative free cash flow of $9 billion per quarter.
Still, banks, investors, and fossil fuel corporations continue to sink tens of billions into fracking — ensuring that, even if profits fail to rise, carbon emissions will.
Oil and gas production in the Permian Basin has been central to the Trump administration’s goal of ramping up fossil fuel production and exports as a means to “usher in” a “golden era of American energy dominance” to project U.S. power globally.
Whether Chevron or Occidental ultimately win the takeover battle, the result will be the biggest U.S. oil and gas corporate merger in years, and it signals a further decline of the era of smaller “wildcat” companies driving the U.S. fracking boom. The industry giants are moving in to consolidate operations and takeover.
The Role of Bank of America
Bank of America is playing an indispensable role in Occidental’s attempt to take over Anadarko. Along with Citigroup, it is serving as an advisor on the bid and it is set profit in the tens of millions if Occidental is successful.
Occidental and Bank of America have a revolving door of top personnel. Occidental’s takeover bid is being driven by Oscar K. Brown, its Senior Vice President for Business Development. Brown joined Occidental in 2016 from Bank of America, where he was a top oil and gas banker (his title was “managing director and co-head of Americas Energy Investment Banking”). Occidental’s former CEO, Stephen Chazen, was a managing director at Merrill Lynch, which was later acquired by Bank of America. Chazen “worked on oil deals” at Merrill Lynch, according to the Financial Times.
The Financial Times also reports that:
(Occidental CEO) Ms Hollub and Mr Brown have been steered by Patrick Ramsey and Purna Saggurti, the co-head of global mergers and acquisitions and chairman of global corporate and investment banking at Bank of America, respectively. The two men have been joined by Brad Hutchinson, who co-head’s the bank’s Americas energy investment banking department and whose team last year advised on the $10.5bn sale of BHP’s shale assets to BP.
Bank of America is “in line for a lucrative payday” if Occidental’s bid is successful. Fees could reach $170 million, along with another $100 million payout to finance the transaction (for example, by providing bridge loans). These fees would be split between Occidental’s and Anadarko’s advisors.
In other words, Bank of America would profit in the tens of millions purely through fees tied to the bidding process, and even if skepticism about the Permian Basin’s long-term profitability proves to be true.
The deal would also raise Bank of America’s market share in advising global mergers and acquisitions versus competition like Goldman Sachs, Morgan Stanley, and JPMorgan, who Bank of America has fallen behind in recent years.
And now, Warren Buffett’s intervention adds a new dimension to Occidental’s takeover bid. As Bank of America’s biggest beneficial owner, Buffett and Berkshire Hathaway may stand to profit doubly from Occidental’s takeover — as an owner of both Bank of America and Occidental. Buffett has major clout as an investor, and he has had significant oil and gas holdings throughout the years, including, currently, in Phillip 66 and Suncor Energy. Some commentary believes that Buffett’s backing of Occidental increases its chance of winning the bidding war against Chevron.
A recent report released by several environmental organizations identified Bank of America as the fourth biggest financier of global fossil fuel production from 2016 to 2018, having made available $106.687 billion to fossil fuel operations.
Moreover, as we noted last September, Bank of America is a key financier of all the most controversial oil and gas infrastructure projects in the United States — including the Dakota Access Pipeline, Bayou Bridge Pipeline, Line 3 Pipeline, Atlantic Coast Pipeline, and others. Here is a slideshow map with some more details:
In driving the U.S. fossil fuel infrastructure boom and the intensification of drilling in the Permian Basin, Bank of America is also facilitating the Trump agenda of “energy dominance” while worsening our global climate crisis that, as last year’s IPCC report showed, we must urgently address.
Or, to reference a new book that has brought a renewed sense of urgency around human-caused global warming, Bank of America is helping to pave our way towards an uninhabitable earth.
Wall Street and the Climate Crisis
To be sure, Bank of America is not the only bank profiting off of the expansion of fossil fuel operations and our global climate crisis. Many of the big Wall Street players are.
For example, JPMorgan Chase is the world’s biggest financier of fossil fuel production since 2016, with $195.663 billion provided. Wells Fargo ($151.599 billion) and Citibank ($129.493 billion) are second and third, and Bank of America comes after. And like Bank of America, all these banks finance the companies and projects that are advancing pipelines, plants, and compressor stations that will lock in new carbon emissions for decades to come.
But Bank of America may be the most public-facing bank of all these. It has branches everywhere in the U.S. and may be the most recognizable financial brand in the nation. It depends on the business of tens of millions of ordinary people and small businesses and a host of major institutional investors — many of whom are increasingly demanding action around our climate crisis.
Fossil fuel operations like those in the Permian Basin — and the oil and gas companies that carry out those operations — are dependent on loans and services from the major banks. These banks are the indispensable enablers behind fossil fuel production that prop up the whole industry.
But these banks also depend on the business of everyday consumers and their big asset managers — some who invest hundreds of billions and even trillions of dollars apiece. We’re seeing an increasing trend by consumers and investors to move towards divesting from fossil fuels.
Using this kind of leverage — combined with a wider mass global action movement and advancing initiatives like the Green New Deal — may offer hope in rolling back the power of the fossil fuel industry and achieving the renewable energy system we need to prevent the worst of all possibilities when it comes to our growing climate crisis.