3 Energy Stocks to Buy After Biden's Offshore Oil Ban

President Joe Biden's remaining days in office are dwindling, but one last-minute decision of his could have a major impact on the energy market that will linger long past January 20, 2025.

On January 6, the Biden administration banned offshore drilling in more than 625 million acres of US coastal areas, wetlands, and marine ecosystems. The drilling ban protects those areas from future oil and natural gas leases.

Here’s how this will affect energy stocks now and in the future.

"Using his authority under Section 12(a) of the Outer Continental Shelf Lands Act, President Biden is issuing two Presidential Memoranda to protect all U.S. Outer Continental Shelf areas off the East and West coasts, the eastern Gulf of Mexico, and additional portions of the Northern Bering Sea in Alaska from future oil and natural gas leasing," the White House said in a statement. "The withdrawals have no expiration date and prohibit all future oil and natural gas leasing in the areas withdrawn."

The S&P Energy Index remained relatively stable the week after the drilling ban was announced, holding in the 665-to-675 range. Yet there may be limited collateral damage to select energy companies from the ban.

Oil and gas companies that rely on offshore drilling, particularly in restricted areas, may see reduced exploration and production opportunities, leading to potential revenue declines," said Mike Blankenship, a capital markets attorney with Winston & Strawn LLP in Houston, Tex. "We will likely continue to see more drilling in the Gulf of Mexico, where regulatory hurdles might be less restrictive. The ban could also contribute to tighter domestic oil and gas supplies in the long term, potentially driving up prices if demand remains steady or increases."

Other energy experts say fears of a significant decline in sector share prices were overblown.

“President Biden's ban on oil drilling covers approximately 2.54 million square kilometers of oceanic territory, including parts of the Atlantic and Pacific coasts, sections of Alaska's northern Bering Sea, and the eastern Gulf of Mexico," said Igor Isaev, head of the analytics center at the European broker Mind Money. "To put this into perspective, the area is comparable to the size of Sudan or Algeria, which rank 10th and 11th in global landmass, while the U.S. totals 9.37 million square kilometers."

That said, the drilling ban doesn't affect the central and western Gulf of Mexico, which account for about 14.5% of U.S. oil production and 4% of its natural gas output, Isaev noted. "Another thing is that the newly restricted zones contain little in terms of proven reserves," he added. "While the eastern Gulf contains some forecasted but unexplored reserves, their economic viability remains questionable given the rise of onshore shale extraction."

Additionally, the oil and gas markets remain oversupplied through the development of existing oil and gas fields.

"The natural gas market has shown little reaction to the presidential elections, instead being influenced by short-term drivers like weather, storms, and LNG export demand in Europe and Asia playing a greater role," Isaev said. "We expect gas prices to rise in the near term."

Over the long term, the U.S. has the capacity to produce up to 14.5 million barrels of oil daily with its existing infrastructure. "Pushing production beyond this threshold would require significant investment in pipelines and drilling facilities," Isaev said. "Increased oil output would also contribute to associated gas production, and we are already seeing expansion in dedicated gas fields like Marcellus."

The U.S. will likely maintain stable oil and gas prices tied to the Fed's policy, global liquidity, and energy costs.

"The country's main goal lies in affordable, stable energy, which is why it will keep the oil prices in the range of $70–$80 per barrel, which is beneficial for the U.S., and there isn't much reason to lower prices further," Isaev noted. "While President Trump has promised to overturn the ban, history shows such actions face legal hurdles. For example, Trump's 2019 attempt to lift a similar Arctic ban was blocked, and in 2020, Trump himself extended a moratorium on offshore drilling during his presidency."

"Ultimately, the ban itself is unlikely to affect the oil market significantly," he added.

With legal hurdles in place and potential Congressional action needed, what options does the Trump administration have to overturn the drilling ban?

"If the ban includes elements tied to Congressional authority (e.g., restrictions codified in law), overturning it may require bipartisan approval," Blankenship said  "This would be difficult if the political makeup of Congress is divided. The Trump administration could attempt to defund enforcement mechanisms tied to the ban, but this strategy would face its own political challenges."

Three Energy Stocks That Should Keep Percolating

With energy stocks experiencing no significant impact from the Biden offshore drilling ban (so far), the outperforming sector stocks should keep rolling – especially these three energy plays.

Texas Pacific Land Corp. (TPL). This energy stock is pricey at $1,293 per share, but it's been a robust performer lately. The stock is up 153.7% over the past year and the company owns 900,000 acres in the oil-rich Permian Basin.

The company makes big profits on oil and gas royalties and surface leases. Couple that with a debt-free balance sheet, a decent 0.49% dividend yield, and the bullish tone on oil and gas coming from the incoming Trump administration, and TPL should keep its winning streak going in 2025.

Targa Resources (TRGP). Targa, a Houston, Tex.-based midstream natural gas and natural gas liquids services provider, is also on a roll. TRGP's stock price is up 130% over the past year. The company is in full expansion mode, building six natural gas processing centers and a new NGL export terminal, which should be up and running next year.

Scotiabank recently issued an "outperform" call on Targa, with a $218 price target. The stock is currently trading at $195 per share.

Kinder Morgan (KMI). Analysts are also bullish on Houston-based Kinder Morgan, an oil and natural gas pipeline transportation services provider. KMI's share price has been up 58.5% over the past year, and it's expected to post year-over-year earnings increases when it releases earnings numbers from the last quarter of 2024. Overall, analysts expect earnings to rise by 19.9% year-to-year, and revenues are pegged to increase by 1.3% over the same period.

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