By Timothy Puko and Rebecca Elliott
WASHINGTON -- The Trump administration is considering offering
federal stimulus funds to embattled oil-and-gas producers in
exchange for government ownership stakes in the companies or their
crude reserves, according to people familiar with the matter.
The plan is among several possible options being weighed amid a
historic drop in oil demand that has U.S. energy companies reeling.
But it faces long odds given likely opposition from congressional
Democrats to using stimulus funding for the oil industry.
Separately, Texas regulators declined to act Tuesday on a
proposal to limit state oil production, even as the U.S. shale
industry scales back anyway. The Railroad Commission of Texas,
which regulates the oil-and-gas industry in America's largest
oil-producing state, deferred until May 5 a decision on whether to
make operators curtail production for the first time since the
1970s.
Mr. Trump announced his intentions Tuesday morning on Twitter,
saying he had directed the Energy and Treasury departments to craft
a plan to make funds available for the oil-and-gas industry.
"We will never let the great U.S. Oil & Gas Industry down,"
the president wrote. He said he wants the plan "so that these very
important companies and jobs will be secured long into the
future!"
His announcement came a day after U.S. benchmark crude prices
sank into new territory, with front-month contracts falling below
zero for the first time in history, meaning those who held oil
contracts had to pay people to take them away.
On Tuesday the most actively traded U.S. contracts -- the West
Texas Intermediate futures for delivery in June -- fell again, by
43% to $11.57 a barrel.
At a White House briefing Tuesday evening, Treasury Secretary
Steven Mnuchin acknowledged that the administration may need to ask
Congress to authorize assistance.
"The president is determined we want to maintain our energy
independence, " Mr. Mnuchin said.
Congress provided the Treasury Department $17 billion to make
loans to companies deemed essential to national security as part of
the $2.2 trillion coronavirus relief package enacted last month.
Lawmakers were clear those loans were meant for firms that are
major suppliers to the Department of Defense or have top-secret
security clearance, Mr. Mnuchin said.
"Obviously the energy business is very important to the U.S.,"
Mr. Mnuchin said, adding, "this has national security issues, but
different."
At Mr. Trump's direction, the Energy Department has already been
exploring ways the government could effectively give money to oil
companies not to drill, according to the people The government
would likely take ownership of oil, with the companies leaving it
underground until the government directed them to tap it, these
people said.
The plan would work similarly to the federal Strategic Petroleum
Reserve, where the government stores oil in underground caverns.
Mr. Trump has directed the Energy Department to buy oil to refill
those reserves, citing bargain-basement prices and the need to give
the industry a boost.
Just as with the strategic reserve, the government could sell
oil it takes control of under the new program and potentially make
its money back -- and more -- if and when the price of oil
rebounds.
But that kind of spending to buy such reserves would need
congressional authorization, and Democrats have been reluctant to
approve help for the oil industry, analysts said. Critics of the
oil industry say it doesn't deserve a government bailout. Many
consider the oil industry a contributor to climate change, and say
producers ran up irresponsible debt and paid gaudy executive
salaries even while returning scant profits.
"Congressional help [is]) a high bar," said analysts at Height
Securities LLC in Washington. "We view President Trump's tweet
primarily as a sign of support after this week's historic price
movement in oil markets."
Oil industry executives fear they will fall between the cracks
for federal stimulus spending -- too big to qualify for
small-business loans, but ineligible for loans for large companies
because of their reliance on contractors to fill their
rank-and-file workforce, lobbyists said.
And Federal Reserve loan programs have been limited to those
with stronger credit ratings or less debt, which is likely to
exclude many oil-and-gas companies that have borrowed heavily in
recent years.
Bethany Aronhalt, a spokeswoman for the American Petroleum
Institute, the country's largest oil-and-gas trade group, welcomed
the president's tweet and said access to loans is "vitally
important to all industries impacted by this crisis."
Congress has already rejected a plan to spend billions of
dollars to add nearly 80 million barrels to refill the government
reserve. Mr. Trump had proposed the measure for the big stimulus
package negotiated in late March but it didn't make the final bill,
leaving the Energy Department looking for alternatives to fund
it.
Mr. Trump's new effort would explore working through
emergency-loan programs the Treasury Department has launched with
the Federal Reserve as a way around congressional opposition.
The people familiar with the effort said it is in only very
early stages, with one person saying Mr. Trump is largely driving
the effort. Monday evening, amid widespread media coverage of U.S.
crude's historic fall to minus $37.63 a barrel, Mr. Trump made a
flurry of calls to both Energy Secretary Dan Brouillette and Mr.
Mnuchin to prompt action, the person said,
The White House may build on the Energy Department's plan and
allow oil-and-gas companies to use energy reserves as collateral to
get government loans, or doing the same with ownership shares of
the companies themselves, according to the people familiar with the
matter. Or the initiative could lead to the administration
clarifying some rules to ensure the energy companies -- and others
-- are eligible, according to one of the people.
Texas debated whether to cut production in response to a
proposal by West Texas shale drillers Pioneer Natural Resources Co.
and Parsley Energy Inc. The idea split the railroad commission's
three members, who are all elected. Two said the commission needed
more time to consider cuts and ensure a measure wouldn't get tied
up in court.
"We need to make darn sure when we make the motion that it fits
legal requirements," said commissioner Wayne Christian.
Officials in North Dakota and Oklahoma also are considering
curtailments of oil production in their states.
--Christopher Matthews and Kate Davidson contributed to this
article.
Write to Timothy Puko at tim.puko@wsj.com and Rebecca Elliott at
rebecca.elliott@wsj.com
(END) Dow Jones Newswires
April 21, 2020 19:34 ET (23:34 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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