COVID-19, also known as Coronavirus, has impacted people the world over, effectively stopping day-to-day life in many regions of the world. Many industries are being impacted negatively by the spread of the virus, with the oil and gas industries among the hardest hit. In recent days, White House Insiders have stated that the Trump Administration may be considering an oil industry bailout among other industries. Yet, oil industry insiders are pushing back, saying they don’t want to be bailed out.
The Crisis
An oil industry bailout is reportedly on the table, and although the United States is currently the leading oil and gas producer, it is facing a deep crisis. Oil prices seem to be in a steady freefall due to increased supply and diminishing demand. This crisis is caused by a perfect storm of a price war between Russia and Saudi Arabia and the coronavirus pandemic that has consumers canceling flights, shuttering factories, and staying home.
The trouble is that shale oil companies have taken on massive amounts of debt to pay for their current drilling projects. Many companies are in debt and won’t be able to stay afloat if oil prices stay at their current price point or go even lower. Oil companies won’t even be able to go to the banks because their lines of credit could be pulled.
Some oil companies, such as Canary LLC have already started limiting spending and have instituted a hiring freeze. Chevron has said it may be instituting spending cuts and cost-saving moves, and Occidental has slowed spending, as well.
The White House Response
The Trump Administration is reportedly currently considering federal assistance for the shale industry as hundreds of thousands of jobs, mostly in Republican states, could hang in the balance. If the low prices continue, companies will have to enforce massive layoffs, and there will be widespread bankruptcies in the oil industry, similar to what the industry faced during the oil crash of 2014-2016. If a bailout is eventually offered, it will likely be in the way of low-interest government loans.
Thanks, But No Thanks
Reportedly, the oil and gas industry is not interested in any sort of bailout from Washington. Companies do not want to deal with the strings that will undoubtedly be attached to a bailout from Washington. Mike Sommers, CEO of the American Petroleum Institute, made it clear in an interview that the oil industry is not seeking a bailout, saying, “The banks and the auto industry accepted bailouts. I would argue they are still paying for that government intervention. They will never live that down. We don’t want to invite more government intervention in this industry.”
While a formal bailout plan has not been announced, it is clear that some or all of the oil industry is not interested and will hedge their bets on the market rebounding in time to save the industry from a prolonged recession.
Continued Support Amid Crisis
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