Trump Poised to Offer Bridge Loans to Ailing Oil Companies

April 30, 2020

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by Saleha Mohsin, Ari Natter and Jennifer A. Dlouhy (Bloomberg/RigZone) The Trump administration may announce as soon as Thursday a plan to offer loans to the ailing oil industry possibly in exchange for a financial stake, according to two people familiar with the matter.

Treasury Secretary Steven Mnuchin and Energy Secretary Dan Brouillette have already briefed President Donald Trump on a plan to provide financial aid to oil drillers beset by a historic crash in prices, the people said.

Brouillette, during a conference call Tuesday with the North Dakota Petroleum Council, said Mnuchin was leaning toward aid that includes two separate programs -- bridge loans and emergency lending authority through the U.S. Federal Reserve -- designed to help smaller and medium sized companies.

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Trump last week vowed to “make funds available” to oil and gas companies, saying he would “never let the great U.S. Oil & Gas Industry down.”

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Some forms of lending would involve the government taking a stake in the companies -- a condition oil companies are likely loathe to accept, according to the two people familiar with the discussions.

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Senator Ted Cruz, a Texas Republican, and the Independent Petroleum Association of America have stressed that oil companies need flexibility to use Main Street loans to repay existing debt.

The program bars recipients from using loan proceeds to finance pre-existing debt and places restrictions on the size of loans for businesses with large amounts of debt. Those limitations are enough to prevent small- and medium-sized oil companies from taking advantage of the program to gain “the short-term liquidity they need to avoid bankruptcy,” Cruz said in a letter to Mnuchin and Powell last week.

Mnuchin in a Bloomberg News interview last week said that investment-grade companies can turn to private markets or the Fed’s investment facility for assistance.

For oil companies that aren’t credit-worthy enough to tap the Fed, Mnuchin said he was weighing “alternative structures with banks.” READ MORE

Details emerge on Trump's oil rescue plan (E&E News)

Trump pledges financial aid to oil industry (Politico)

Oil industry faces more troubled seas (Washington Post/Beaumont Enterprise)

Trump may announce loan program for oil companies this week (World Oil)

Federal Reserve Expands Business-Lending Program: Eligibility and loan terms have been loosened on the $600 billion effort targeting midsize businesses hit by the coronavirus pandemic (Wall Street Journal)

Fed Opens Door for Oil Company Loans After Lobbying Push (Bloomberg)

Fed's expanded lending program opens funding to oil and gas industry (The Hill)

Firms like Continental Resources (Politico's Morning Energy)

Trump administration won't be 'taking equity' in oil companies (Washington Examiner)

Fed Changes Open the Door for More Oil Companies to Get Loans (Bloomberg)

POLL — MORE THAN HALF OF VOTERS SUPPORT RENEWABLE BAILOUT: (Politico's Morning Energy)

Excerpt from E&E News: The administration has not offered similar assurances of aid to the renewables industry, and Trump suggested it was not ready to be a substitute.

"You can talk all the green, I'm all for green," said Trump, who has routinely railed against wind power. "The green can't power these massive factories that are being built in this country. It just can't; the windmills aren't going to be able to do it, and solar is not going to be able to. I love solar, but it's not going to be able to do it."

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Environmental groups last week assailed the effort to extend loans, saying it would lead to a "full-fledged oil industry bailout."

"Millions of families need help putting food on the table. But Trump and Mnuchin are busy inventing loopholes for their fossil fuel cronies," said John Noël, Greenpeace USA senior climate campaigner.

Brouillette said he's also asked Mnuchin to work with the Office of the Comptroller of the Currency to ensure that regulators do not impose "undue" pressure on smaller, regional banks to call in oil and gas industry loans.

"Now is not the time to be asking the borrowers in the energy industry for additional equity, with prices being what they are," he said. READ MORE

Excerpt from Politico's Morning Energy: Firms like Continental Resources, which last week reportedly invoked an "act of God" clause to skirt oil deliveries to a refiner, and Occidental Petroleum, whose debt fell below investment grade in March, could be eligible under the revised conditions, said Andrew Park, a financial policy analyst at Americans for Financial Reform.

In whose interests? Bharat Ramamurti, a former aide to Sen. Elizabeth Warren tapped for the congressionally appointed panel scrutinizing trillions of dollars in emergency lending, tweeted Thursday the expansion clearly lined up with the requests of the oil and gas industry. "That raises questions about how the changes promote the broader public interest — especially when these companies will still have no real obligation to retain or rehire their workers," he said. Ramamurti added to POLITICO: "A lot of the changes ... seem to move this from temporary liquidity for companies hurt by Covid to a bailout of companies that were already in bad shape pre-Covid."

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THIS TIME IT'S DIFFERENT? Economic downturns have weighed on oil demand in previous energy market busts, but no one was prepared for the coronavirus pandemic that wiped out 30 percent of the world's consumption. Now, with oil storage tanks around the world rapidly filling as producers race to shut down wells, there's little hope that the situation for companies will improve any time soon, Pro's Ben Lefebvre and Zack report this morning.

"It still remains a very complex system, but it does feel like this oil price crash is different," said Michael Webber, chief technology officer at Paris-based energy infrastructure company ENGIE and a professor of energy resources at the University of Texas-Austin.

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DEMS WARN AGAINST ROYALTY RELIEF: Senate Democrats, led by Sen. Tom Udall, are warning the Interior Department against seeking to provide relief from federal royalty payments for oil and gas production on federal lands amid the pandemic. "We adamantly oppose any plans to eliminate oil and gas operators' royalty obligations," said the senators, including Ed Markey, Ron Wyden and Cory Booker, in a letter to Secretary David Bernhardt today and shared with ME. "This 'relief' would gut the budgets of states that count on receiving 48 percent of those receipts to fund emergency response, infrastructure, education, and other critical state functions in the midst of a worsening public health and economic crisis."

The Democrats write that, should the department decide to move forward with a royalty relief program, it "should simultaneously enact a leasing moratorium to counteract the oversupply of oil and gas reserves." The letter lays out a series of questions for the department to respond to for the record, including how many operators have received relief and whether recipients committed to forgoing executive bonuses, shareholder dividends or other corporate payouts.

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The oil and gas industry, for instance, "is likely to press for a federal rescue package in the wake of a dramatic decrease in the price of oil resulting from insufficient demand in the market and a dispute between OPEC and non-OPEC nations over production levels." House Democrats have their own priorities. "We expect the progressive wing of the caucus to push for concepts like a moratorium on mergers, as has been proposed by" Rep. David Cicilline (D-R.I.), the firm (Hogan Lovells) writes. "We also expect House Democrats to pursue pre-existing priorities such as federal spending on building infrastructure, deploying rural broadband, and fighting climate change." READ MORE

Excerpt from Politico's Morning Energy: POLL — MORE THAN HALF OF VOTERS SUPPORT RENEWABLE BAILOUT: Support among U.S. voters for a government bailout of the renewable energy industry amid the coronavirus pandemic has remained steadily above 50 percent, according to a new Morning Consult poll. The poll, conducted from April 29-30, found 56 percent of voters supported a bailout of the renewables industry, up just 2 percent from an earlier survey from March 31-April 1 that asked the same question. The U.S. renewable energy industry has seen delayed construction and thousands of jobs lost amid the pandemic, as the Associated Press highlighted over the weekend.

The Morning Consult poll released early this morning also shows that support for the renewable industry is higher than that for a bailout of the oil and gas industry, but it showed support for the latter also went unchanged between the two polls, even as oil prices dipped below zero last month. Thirty-eight percent of voters said they would support a bailout of the oil and gas industry. READ MORE