White House Likely to Pursue Federal Aid for Shale Companies Hit by Oil Shock, Coronavirus Downturn

March 10, 2020

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by Jeff Stein, Will Englund, Steven Mufson and Robert Costa (Washington Post) ... The White House is strongly considering pushing federal assistance for oil and natural gas producers hit by plummeting oil prices amid the coronavirus outbreak, as industry officials close to the administration clamor for help, according to four people familiar with internal deliberations.

President Trump has touted the growth of oil and natural gas production under his administration, celebrating their rise in politically crucial swing states such as Pennsylvania. But many oil and gas firms were hammered Monday by the price war that broke out between Saudi Arabia and Russia, driving oil prices down in their steepest one-day drop in almost 30 years.

White House officials are alarmed at the prospect that numerous shale companies, many of them deep in debt, could be driven out of business if the downturn in oil prices turns into a prolonged crisis for the industry. The federal assistance is likely to take the form of low-interest government loans to the shale companies, whose lines of credit to major financial institutions have been choked off, three people said.

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Even major oil companies are threatened by the oil price slump. Occidental Petroleum on Tuesday slashed its dividend to 11 cents a share from 79 cents and cut capital spending by a third.

Trump said at a news conference Monday that the administration will seek to provide help for parts of the economy hard hit by the coronavirus, including the hospitality, cruise and travel industries. A senior administration official said Tuesday the shale industry would probably be included for help but may not be at the top of the list for assistance.

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One of the companies hardest hit was Continental Resources, founded by Harold Hamm, a Trump supporter and an adviser to the president on energy issues. It lost more than half of its market value Monday, though it recovered about 8 percent by midday Tuesday. Hamm’s 77 percent personal stake in the company lost $2 billion of its value Monday.

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Another senior administration official confirmed the relief for shale companies was under consideration but cautioned political blowback over the idea may eventually lead campaign advisers and others in administration to talk Trump out of it.

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Speaking at the ninth annual Shale Insight Conference in Pittsburgh last year, Trump said shale production is “saving energy producers millions of dollars in compliance costs, while maintaining sterling environmental standards.”

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Moody’s Investor Service reports that oil and gas firms have $40 billion in debt coming due this year. Given the sector’s shaky outlook, investors have been reluctant to put more money into the industry.

Falling demand linked to the covid-19 epidemic has put pressure on oil prices. Last week, Saudi Arabia pushed hard for a reduction in the amount of oil produced by OPEC nations and those, such as Russia, that are aligned with OPEC. But Russia balked, and Saudi Arabia then turned 180 degrees and announced a sharp increase in production, intended to drive prices down. Oil fell to nearly $30 a barrel Monday but recovered somewhat Tuesday. On Tuesday, the kingdom said it would begin producing 12 million barrels a day starting April 1, up more than 2 million barrels from current levels.

Russian oil officials said they saw no point in cutting production if the main beneficiaries would be American shale producers.

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But help for natural gas producers may prove a politically difficult lift for the administration, in part because they faced sagging prices even before the coronavirus outbreak, some experts said.

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“We are in the midst of a crisis where people are literally having to skip work and may miss paychecks or face medical debt” because of coronavirus, said Robert Hockett, a professor at Cornell University who has advised Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) on economic policy. “The idea you would look to help out shale companies now is like something out of a satire or a bad movie. It’s absurd.”

Still, even some liberals suggested they may be able to support the idea. Jared Bernstein, who served as an economic adviser to then-Vice President Joe Biden, said the Obama administration propped up many firms with low-interest loans during the 2008 financial crisis and said such an idea may make sense.

“I have no problem with helping firms beset by what’s going on, particularly those taking a sharp cash flow hit," Bernstein said. “I would just prefer to do a loan guarantee rather than a cash transfer bailout process we did with Wall Street.” READ MORE

Moscow got itself into an oil price war with Saudi Arabia, a major gamble for Russia’s economy (Washington Post)

The oil price war’s ultimate loser is America (Washington Post)

Shale’s New Reality: Almost All Wells Drilled Now Lose Money (Bloomberg)

Oil Lobbyists Call on Trump to Buy the Dip for Strategic Reserve (Bloomberg)

Republicans lukewarm on oil industry rescue (Bloomberg/Governors Biofuels Coalition)

Saudi Arabia pushes oil production to record high (The Hill)

What an oil industry wants (Politico's Morning Energy)

‘This is not a bailout’: Mnuchin defends Trump plan to rescue firms affected by coronavirus--White House faces questions about why it is seeking to offer some firms emergency assistance but not others (Washington Post)

What's an oil industry to do? (Politico's Morning Energy)

Oil industry push for Trump bailout draws political headwinds (Politico)

Senate GOP eyes energy aid in response to market fallout (E&E News)

How oil prices could affect 2020: HOW LOW OIL PRICES COULD COST TRUMP (Politico’s Morning Energy)

GOP SENATORS CALL ON SAUDIS TO CALM MARKETS: (Politico's Morning Energy)

Trump’s Energy Dominance Dream Submits to Reality (Bloomberg/Yahoo!)

Trump's oil buy may not be so easy (Politico's Morning Energy)

DEMOCRATS LOOK TO ATTACH CLIMATE TO AIRLINE BAILOUT: (Politico's Morning Energy)

Cattle and biofuels clamor for aid, as Schumer proposes broader plan (Fern's Ag Insider)

MERKLEY, SENATORS INTRODUCE LEGISLATION TO BAR TRUMP ADMINISTRATION FROM USING PANDEMIC AS EXCUSE TO GIVE HANDOUTS TO FOSSIL FUEL INDUSTRY (Office of Senator Jeff Merkley (D-OR))

Coronavirus and Oil-Price Plunge Buries Shale and Occidental’s Big Bet (Wall Street Journal)

With $39 billion in debt, can Houston-based Occidental Petroleum survive the oil crash? (Houston Chronicle)

Occidental slashes dividend and spending as oil prices crash (Reuters)

U.S. EPA considers delaying compliance deadline for biofuels law (Reuters)

Despite Reg Rollbacks, Fracking Businesses Struggle Due to Oil and Gas Glut (Our Daily Planet)

Excerpt from Politico's Morning Energy: THE ASKS: The oil industry is offering up a list of ideas to President Donald Trump it says will help them weather the current market onslaught, sources said. This includes buying crude oil off the market to put into the Strategic Petroleum Reserve, offering low-interest loans, speeding up drilling permits on federal land and lowering the royalty rate on oil and gas produced on public lands.

The asks are coming from smaller, independent companies who make up the bulk of industry and went into the market crisis already heavy with debt and shaky finances. They've made their case to Trump with a warning that layoffs could start soon, said Dan Eberhart, president of Canary Energy. "The number of Covid-19 cases rising and the stock market dropping are what's keeping Trump up at night," Eberhart told ME. "What should be keeping him up is the avalanche of bad economic data that will begin showing up in about a month."

The companies, many of which were facing economic trouble before Monday's market crash, are presenting the situation as the U.S. oil sector being bullied by Russia and Saudi Arabia, who have said they will greatly increase the amount of oil they produce. The White House through its assistance would "Punch Russia and Saudi in the genitals and tell them to stop bullying," is how one lobbyist described the pitch. Major oil and gas companies scoffed at the idea that their smaller competitors should get any help, however, especially given that the market needs less oil, not more. "What happens when they get help?" a source at one major oil company told ME. "They'll just pump more oil." READ MORE

Excerpt from Politico's Morning Energy: The idea of an industry bailout has been a tough sell on and off Capitol Hill, the trio reports. When reports emerged that the White House was considering federal assistance for the oil and gas industry, critics took to social media to blast the idea as a "ShaleOut" and mock the executives asking for aid as advocating socialism. Even top Republicans on Capitol Hill said they didn't see the need to help the oil industry. "I don't think they need any bailouts," said Sen. John Cornyn (R-Texas), whose state has been the biggest contributor to U.S. oil output growth over the past decade. In fact, conversations with more than a dozen Senate Republicans showed that most said it was too soon to make any decisions to help the industry, and that any action would depend on how long the price war between Saudi Arabia and Russia persists.

Democrats and greens also panned the prospect. More than 20 environmental groups, including Friends of the Earth, Sunrise Movement and Greenpeace USA, wrote to congressional leadership to urge against any coronavirus aid package to fossil fuels. "According to recent reports, support for the domestic shale industry could become part of a potential coronavirus aid package," the letter says. "This must be stopped at all costs." And earlier this week, House Natural Resources Chairman Raúl Grijalva decried the idea during a hearing with Interior Department officials.

On Wednesday, ahead of Trump's remarks, White House officials met with at least one oil trade group. A spokeswoman for the American Petroleum Institute confirmed to ME that API and "several member company representatives" were at the White House Wednesday morning for a meeting with policy staff to discuss the markets, coronavirus and the economy.

"As we've been saying since Monday, we are not advocating for any form of policy relief," spokeswoman Bethany Aronhalt said. "Our focus is on ensuring the free market works." On a call with reporters earlier this week, API President Mike Sommers said that the group would not ask for help from the Trump administration. The push for federal action to help the industry is being led by independent oil producers, not the majors like Exxon Mobil or Chevron, which are better able to withstand the price shock. READ MORE

Excerpt from Bloomberg/Yahoo!: A mandate here, an SPR-fill there and who knows what else to come. Energy dominance is just a new bumper sticker promoting the same old objective: government support for domestic fossil fuels whenever competition or some other disruption threatens, be it a novel virus or novel energy technologies or usage patterns. It remains deeply strange, if drearily predictable, that this most advanced of economies should have a federal energy policy — in the loosest sense of the word — prioritizing technologies and extractive industries which were cutting-edge a hundred years ago while frequently undercutting emerging ones.

For those vulnerable oil champions nonetheless hopeful of a new handout, there is a bigger question they should be considering. What does it say about the health of their sector that the big three actors on the global stage today consist of a shale industry with a chronic balance sheet problem and two sclerotic petrostates playing chicken with their foreign-exchange reserves? READ MORE

Excerpt from Politico's Morning Energy: The Trump administration's economic stimulus package could quickly balloon to more than $1 trillion as major industries across the U.S. press for some sort of aid amid the coronavirus crisis. But as the president looks for economic solutions for the airline industry (more on that below) or casinos, questions still remain on how exactly he'll fill up the spare capacity in the Strategic Petroleum Reserve, Pro's Zack Colman and Eric Wolff report.

Trump on Friday called on the Energy Department to fill up spare capacity in the SPR by purchasing 77 million barrels of oil to top off the 635 million barrels currently in the reserve. A DOE official says the administration is confident it can act without new congressional approval, based on authority in the Energy Policy and Conservation Act of 1975. But the person did not comment on where the department would find the more than $2.5 billion needed to make the purchases. "The administration may have authority, but they don't have the money," a Democratic aide told POLITICO. "That needs to be appropriated."

Another factor complicating any purchases for the reserve is that the DOE storage facilities that hold light, sweet crude — the type produced from most shale fields — are mostly full. That means that although some shale producers would benefit, most of the DOE purchases by competitive bid would probably consist of light and medium sour crudes, the type Saudi Arabia and Russia are flooding into the market, according to ClearView Energy Partners' Kevin Book. DOE could offer to swap cargoes of U.S. crude as payment for barrels bought from foreign sources. READ MORE

Excerpt from Politico's Morning Energy: DEMOCRATS LOOK TO ATTACH CLIMATE TO AIRLINE BAILOUT:The Trump administration is planning to move ahead with a bailout for airlines to the tune of at least $50 billion, as part of its massive economic stimulus package that Congress is weighing this week. But Democrats on the Hill want to make sure that money comes with conditional support for frontline employees and for tackling climate change, POLITICO's Sam Mintz reports.

NO FOSSIL FUEL RELIEF: Twenty House Democrats, led by Rep. Nanette Barragán wrote a letter to Trump urging no relief to the oil and gas sector as the administration formulates its next economic stimulus package. "A bailout tells the American public that fossil fuel investors can rely on U.S. taxpayers to cover their bills when the industry's corporate executives' risky investments don’t pan out," they wrote. It's worth noting few in the industry have actually called for federal assistance and lawmakers in both parties have expressed opposition to any such effort.

Meanwhile, other House Democrats are pushing to have clean energy tax credits extended as part of an eventual stimulus package, Morning Consult reports.

GRAVES TO CALL FOR REDUCED ROYALTY RATES: Louisiana Rep. Garret Graves told the Washington Examiner he, along with other Gulf Coast Republicans, plan to ask the Interior Department to issue a short-term reduction in the royalty rates that oil and gas companies pay for drilling on federal lands and waters to counter the price crash hitting the oil industry. "While we can generally pull oil out of the ground cheaper than Russia in many instances, Saudi Arabia can pull it out of the ground at a much lower barrel cost than us, and part of that is because of our royalty rates," Graves told the Examiner. "We should be taking a fresh look to see if short-term reductions are necessary based on the low price of energy." READ MORE