A plan being weighed by Treasury Secretary
Mnuchin said he is considering a lending program for the companies that are seeking aid as they cope with a devastating plunge in prices.
“One of the components we’re looking at is providing a lending facility for the industry,” Mnuchin told Bloomberg News on Thursday. “We’re looking at a lot of different options and we have not made any conclusions.”
Taking a stake in oil companies was one of many options the White House was examining, Mnuchin told reporters Friday.
Industry allies have promoted several ideas, such as loans to distressed producers in exchange for government stakes or lifting restrictions on existing aid programs, which could complicate negotiations on future stimulus packages.
President Donald Trump
Trump suggested Friday that one option would be to “buy oil at a great price into the future.”
“That gives them the infusion we need and we have oil at a great price into the future, so that’s something I’d like you to think about,” he said to Mnuchin during a White House bill signing ceremony.
The effort comes as analysts predict a wave of bankruptcies among oil producers struggling to survive an unprecedented collapse in crude prices and demand tied to coronavirus-spurred lockdowns that have grounded planes and kept cars off the road. Oil is set to edge lower for this week after a plunge Monday in New York sent prices below zero for the first time in history.
Mnuchin wouldn’t say whether the program would be housed at the Treasury Department or at the Federal Reserve, which has created loan facilities to help businesses hard hit by the economic collapse triggered by the outbreak.
But congressional Republicans have warned that the lending created by the $2 trillion stimulus package isn’t enough to head off the “growing emergency.”
“We face a real and present danger of seeing hundreds -- if not thousands -- of oil producers shuttering,” 11 Republican senators warned in a letter this week to Mnuchin and Federal Reserve Chairman
Industry advocates are pushing for changes to ensure oil companies can tap loans restricted to firms that had credit ratings of at least BBB-/Baa3 as of March 22, 2020. Some oil companies saw their debt downgraded even before that deadline as they were pummeled by both the pandemic-spurred collapse in fuel demand and a surge in crude unleashed by a Russia-Saudi Arabia battle for market share.
That March 22 ratings deadline could be a big obstacle for shale producer
Republicans led by Senators
Administration officials have indicated they are receptive to changes. “We are working very closely together to ensure all the folks in the producing community have access to those types of loans, that type of liquidity,” Energy Secretary
Mnuchin signaled he’s unwilling to tap a separate $17 billion pool set aside for national security interests, telling reporters Tuesday that program was really designed for companies that are either major suppliers to the Department of Defense or have top-secret clearance.
Another option is for the Fed to purchase non-investment grade debt from distressed energy firms, ClearViewEnergy Partners said in a research note to clients. “Treasury could guarantee loans to distressed firms in return for equity stakes or senior debt, and Washington could use its voting shares to compel shut-ins” in oil production from their wells.
For oil companies that aren’t credit-worthy enough to tap the Fed, Mnuchin said he is discussing “alternative structures with banks” because firms “would have to fit into the normal constraints” to take advantage of a Fed facility.
Any effort to use emergency virus funding to help the oil industry is sure to enrage Democrats who have warned about steering federal dollars to fossil fuels while other businesses struggle.
“It would be short-sighted misuse of taxpayer resources” to accede to requests to use loan proceeds to pay off or settle pre-coronavirus debts, the lawmakers said in the letter to Powell.
New Jersey Representative
“I refuse to put the American people on the hook for rescuing oil companies from a crisis that they themselves had a hand in creating,” said Pallone, the chair of the House Energy and Commerce Committee.
Oil and gas producers have recently stepped up lobbing for aid, with Occidental even
(Updates with new Mnuchin, Trump comments starting in fourth paragraph.)
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