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The US oil industry is flailing despite a $10 billion pandemic lifeline

Reuters/Andrew Cullen
Winter for the US oil and gas industry.
  • Michael J. Coren
By Michael J. Coren

Climate reporter

Published

The US oil and gas industry has received more than $10 billion from the federal government to cushion losses during the pandemic, according to a recent report analyzing federal financial data. That has offered a temporary reprieve even as the industries’ woes, which started well before the arrival of the coronavirus, have continued amid rock-bottom oil prices.

A consortium of non-profits—Bailout Watch, PublicCitizen, and Friends of the Earth—analyzed federal data showing more than 26,000 fossil fuel companies have tapped US cash, loans, and equity purchasing programs since March. The money mostly came in the form of tax cuts and paycheck support for workers. In addition to that, they got some $90 billion through indirect support, such as massive bond purchasing programs by the US Treasury.

“Viewed together, these benefits amount to a multipronged government bailout for the fossil fuel industry,” the report stated. “By directing aid to companies whose problems long predated the pandemic, the government has artificially prolonged the industry’s decline and postponed the coming transition to clean energy sources.” 

 

The biggest benefit came from a little-known amendment to the tax code by the $2.2 trillion CARES Act. This allowed companies to accelerate tax credits and reclaim old losses to offset their current tax bills. While not explicitly targeting fossil fuel companies, the provisions disproportionately benefited the industry, which actively lobbied for them. Oil sector representatives also advocated for tailored bailout programs beyond Congress, says Lukas Ross of Friends of the Earth, a report author. In April, Texas senator Ted Cruz and other Republicans asked the Federal Reserve Board to loosen criteria for oil and gas firms to access its Main Street Lending Program. The Fed eventually made the requested changes.

“When you look at the specific design of these programs, they were designed to support the oil and gas industry, most explicitly on the tax side,” says Ross. “They have gotten a lifeline and the rest of us can’t even get a $400 check.”

Energy companies saw their revenue evaporate when the economy stalled after many cities and states went into lockdown. Domestic producers watched the price of crude petroleum fall 71% between January and April, among the largest declines on record. The recent infusion of direct help like tax breaks and indirect support such as US Treasury purchases of $432 million in oil and gas bonds from private investors threw a lifeline to companies.

But many were already unprofitable. That’s the biggest difference between the bailout of US fossil fuel companies and other industries. While airlines received huge cash infusions or benefits from the US government—more than $60 billion in loans, payroll support, and grants—they employ roughly four times more people and have proved profitable over the last decade.

That’s in contrast to the US shale industry, which relies on fracking to extract oil and gas out of formations. It has catapulted the US to the top of the world’s fossil fuel producers, but it has never recorded a net profit despite investing billions of dollars since 2010. Unless oil prices rose well above $45 to $50 per barrel, where they have languished since 2018, many firms were unlikely to survive on their own.

That is likely to leave the US—and taxpayers—footing the bill for a moribund industry after the pandemic. Despite the federal help, the law firm Haynes and Boone reports 36 US oil producers have filed for bankruptcy in the first eight months of 2020. That comes on the heels of 190 bankruptcies in the US shale industry since 2010, reports the consulting firm Deloitte,  representing a combined $450 billion in unpaid debt.

 

 

 

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