To Weather Perfect Storm, American Energy Producers Need Critical Access to Capital Now
by Ted Cruz on April 30, 2020 at 11:10 AM
With oil prices nosediving by nearly 70 percent and global demand collapsed, the COVID-19 pandemic is wreaking havoc on America's energy producers. To make matters worse, financial institutions and lenders have limited energy producers' critical access to capital, under pressure from Green New Deal enthusiasts. If this continues, the U.S. risks bankrupting a vast majority of its roughly 9,000 energy producers, adding hundreds of thousands of blue-collar workers to the unprecedented number Americans who have already lost their jobs as a result of this crisis.
As news reports have warned:
- "Negative oil prices, ships dawdling at sea with unwanted cargoes, and traders getting creative about where to stash oil. The next chapter in the oil crisis is now inevitable: great swathes of the petroleum industry are about to start shutting down."
- "Energy companies are facing a rough one-two punch: Americans are isolating themselves to stem the tide of the coronavirus, which is resulting in a decreased amount of flight and car travel, dropping the demand for oil. And Russia and Saudi Arabia's output is undercutting the market further. Meanwhile, energy companies are dealing with crippling debt."
- "No one expected 2020 would unleash a world-wide oil-production cut led by the U.S., Saudi Arabia and Russia. But since the new coronavirus hit, the world's thirst for oil has vanished, creating an unprecedented crisis for one of the planet's most powerful industries. [...] Whiting Petroleum Corp. filed for bankruptcy protection this month, the first major producer to fall this crisis. Energy analytics firm Rystad Energy said that at $30 oil, more than 70 U.S. oil-and-gas producers could have trouble making interest payments on their debt this year; at $20 crude, it would increase to about 140 companies."
- "U.S. shale producers, refiners and pipeline companies are scrambling for cash and face likely restructuring as they struggle under heavy debt loads while engulfed in the worst crisis the oil industry has faced. [...] About half of the top 60 independent U.S. oil producers are in danger of restructuring and will need to find ways to boost their cash pile, according to energy lawyers at Haynes and Boone."
- "The price of oil has plunged in recent months because of a sharp drop in demand: The stay-at-home orders around the world have resulted in far less driving and air travel. At one point last week oil futures turned negative as investors worried there wouldn't be enough room to store the oil that is being produced. As a result, drilling for new oil has essentially ground to a halt. [...] Many more oil bankruptcies are expected to follow."
Allowing our energy producers to go bankrupt, as I explained in an op-ed in the Dallas Morning News, won't just affect the men and women who work in the energy industry. It will affect "every household in America, as heating our homes, driving our cars, flying on planes and many other aspects of our daily lives will become more expensive" and it will "make the United States more dependent on foreign countries and foreign oil."
That's why, to help America's energy producers weather this perfect storm, I have called on Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell to immediately establish a new lending facility - a lifeline - that will provide immediate emergency liquidity for oil and gas businesses.
In a letter to Mnuchin and Powell, I wrote:
"Under the authority of Section 13(3) of the Federal Reserve Act, the Federal Reserve, with the approval of the Secretary of the Treasury, should immediately create a new lending facility that will provide emergency liquidity for small-and-medium sized businesses that work directly or indirectly with the oil and gas industry. Without any such assistance the United States risks the loss of hundreds of thousands of Americans jobs and irreparable damage to our domestic energy infrastructure."
As Bloomberg News reported following the release of my letter:
"In a separate letter on Friday, Cruz insisted that the restrictions would prevent small- and medium-sized oil and gas companies from accessing liquidity needed to avoid bankruptcy. Cruz also urged Mnuchin and Powell to ‘immediately create' a new lending facility to aid small- and medium-sized oil and gas businesses. [...] Oil industry leaders say the need for targeted assistance is urgent. ‘Without a serious lifeline, hundreds of thousands of offshore energy jobs could disappear, unraveling the fabric of countless Gulf Coast communities,' said Erik Milito, head of the National Ocean Industries Association that represents offshore oil and wind developers and support companies."
And as the former associate director for regulatory reform at the White House Council on Environmental Quality, Mario Loyola, wrote:
"If the government wants to help producers, it should focus on their real problem, which is not that they're producing too much, but that they're producing at a loss on the sunk costs of major investments. That can be addressed short-term by easing oil producers' access to emergency COVID-19 credit programs, as Senator Ted Cruz of Texas has asked the administration to do, and long-term by easing tax rules on loss carryforwards and carrybacks to better reflect the cyclical nature of the industry and to ensure adequate continued investment in exploration and development-the best hedge against a catastrophic price rise down the road."
Throughout the COVID-19 pandemic and the economic destruction that has followed, I have been a leading advocate for American energy producers. Specifically, I:
- Met with President Trump, members of Congress and business leaders at the beginning of April to advocate for the millions of Texans and Americans whose jobs depend on a vibrant energy sector.
- Announced my intention to introduce bipartisan and bicameral legislation providing $3 billion in funding to purchase crude oil produced in the U.S. for the Strategic Petroleum Reserve (SPR).
- Successfully helped stop Saudi Arabia from taking advantage of the COVID-19 pandemic to manipulate and drive down oil prices.
- As a member of the President's bipartisan task force to re-open the economy, has outlined his priorities for re-opening the economy and helping the American people return to work safely, which will increase demand and stabilize the global marketplace.