Daily on Energy: Trump oil loan plan comes into focus

That’s what energy observers are asking after the Trump administration unveiled changes to a Federal Reserve lending program in a way that could benefit the oil industry, while dropping an idea to take stakes in struggling oil companies.

“It could be an alternative for them to save them from having to cough up any equity,” said John Kilduff, founding partner at the asset management firm Again Capital, speaking of the changes to the Fed’s Main Street lending program for “midsize” businesses.

Kilduff has consulted with the White House economic team on the government equity idea, which he told Josh he supported.

But as Josh scooped Thursday night, the Energy Department said the administration “is not taking equity positions in or nationalizing energy companies” after the idea received pushback from industry groups and conservatives.

What’s in it for oil?: The expansion of the Main Street program, however, could provide the opportunity for giving financial aid to indebted oil companies that expanded production during the shale boom. It enables lenders to use the new cash infusion to pay off old loans, while giving companies with higher debt-to-earnings ratios access to more types of loans.

The Fed announced it was expanding the Main Street program to help companies with up to 15,000 employees, up from the previous guidelines of 500 to 10,000 employees and $5 billion in revenue, double the earlier amount. That could benefit Occidental Petroleum, the biggest producer of oil in the Permian Basin, a company with 14,000 employees that has asked policymakers to “provide liquidity to the energy industry.”

And the Fed raised the maximum loan administered to companies from $150 million to $200 million. Energy Secretary Dan Brouillette has previously said lending programs need “to be something closer to $200 or $250 (million) to be of any real benefit” to oil companies, and he touted the changes to the Fed program Thursday, calling it “great news in support of struggling U.S. energy companies.”

It’s not just for oil: Industry groups note the changes to the Main Street loan program are broad and not limited to oil companies, but Democratic critics — including Senate Minority Leader Chuck Schumer — and environmentalists accused the Trump administration of delivering a “stealth bailout” for oil.

The American Petroleum Institute, the largest U.S. oil lobby, has opposed oil-specific financial aid plans, but welcomed the changes to the Main Street program, noting it provides “economy-wide” benefits.

“These changes will allow more businesses across the economy that were viable before this crisis, including retailers, manufacturers and some energy businesses, to access capital during these challenging times,” Frank Macchiarola, API’s senior vice president of policy, economics and regulatory affairs, told Josh.

The U.S. Chamber of Commerce and National Retail Federation also endorsed the changes.

The bottom-line: David Livingston, a senior analyst with the Eurasia Group, a geopolitical risk firm, said the Main Street changes “may end up disproportionately helping smaller firms that were struggling to refinance their existing debt load,” but he does not think the oil industry was “the primary motivator of the Fed’s move.”

With U.S. oil prices tracking upward this week, Livingston said, the Main Street program changes could allow the administration to put off other action to help the industry.

“The Fed’s actions relieve pressure on [Treasury Secretary] Mnuchin and Brouillette and allows them to avoid even more controversial actions,” Livingston told Josh. “The Fed’s move isn’t a silver bullet, but it does likely provide the oil and gas sector extra breathing room to do more orderly consolidation and bridge financing.”

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Josh Siegel (@SiegelScribe) and Abby Smith (@AbbySmithDC). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.

GOP ENERGY CHAIRMAN LISA MURKOWSKI TALKS OIL CRISIS: The Energy Department’s announcement that it’s dropping the government equity idea came after Senate Energy Committee Chairman Lisa Murkowski told Josh in an interview Thursday afternoon that she was “not a fan” of the concept.

Murkowski, however, said she does support financial aid programs for small- and medium-sized oil companies “to address the devastation these businesses have seen as a result of this pandemic.”

These businesses have been especially hit hard in her home state of Alaska, where only one company, ConocoPhillips, the state’s largest producer, is operating on the rich North Slope.

“This was a pretty dang healthy industry,” Murkowski said. “When you think about where the industry was a year ago, we were moving so fast, and we were on top of the world. We were No. 1 in everything. The financials couldn’t have looked better. In Alaska, we were coming into this season as hot as any.”

Small indebted companies deserved help too, to a point: Murkowski added it’s unfair to suggest that smaller, indebted companies that have limited access to private capital are undeserving and risky bets for government help.

The financial problems of these companies, she said, are “not through any fault or mismanagement of an individual company.”

But she suggested there could be circumstances in which the government should reject a loan if a company’s financial status and performance were especially poor before recent months.

“In fairness, there may be some on the margins, and maybe you look at them on a case-by-case basis,” she said.

MURKOWSKI…TURNING BACK SAUDI TANKERS COULD HARM REFINERS: Murkowski said U.S. refiners could face “unintended consequences” if President Trump were to block a fleet of incoming tankers set to deliver some 40 million barrels of oil here over the next month, or if the Saudis were to turn back the crude under pressure.

That is a softening of her recent position on the issue. Murkowski had previously joined other oil-state Republican senators in encouraging the tankers to go back where they came. She had argued the new oil would worsen the nation’s oversupply problem and lack of storage and force historically low oil prices down further.

Murkowski told Josh she learned to appreciate the perspective of U.S. refiners who say stopping the crude would disrupt the global energy market, narrow their options for imports, and raise their prices.

“When I made that statement, it was well-intentioned from the perspective of we have limited capacity, and we need to look to our own domestic industries so we don’t need Saudi Arabia,” she said. “But in fairness, we need to be aware of unintended consequences and recognize any trade restrictions, whether it’s telling tankers to turn around, or an import ban, all can have unintended consequences, and we need to be very cautious.”

AMERICAN OIL GIANTS CHEVRON AND EXXON BATTERED BY PANDEMIC: The two largest U.S. oil majors took their turn Friday releasing first quarter final reports, and the picture isn’t pretty.

Exxon Mobil posted its first quarterly loss in at least three decades, $610 million. It reported $2.4 billion in profits a year earlier. It is cutting capital spending by 30%, to $10 billion. Exxon also said it could shut-in about 400,000 barrels per day equivalent of oil production in the second quarter of 2020.

Chevron reported earnings of $3.6 billion for the first quarter of 2020 compared, with $2.6 billion from the first three months of 2019, but it expects “financial results in future periods to be depressed as long as current market conditions persist.”

It is cutting its 2020 capital spending another $2 billion, to $14 billion, after previously announcing a 20% capex cut from $20 billion. And it is scaling back oil production by 200,000 to 300,000 barrels per day equivalent in May and up to 400,000 barrels per day in June (12% of Chevron’s total production notes Bloomberg’s Javier Blas.)

But some things stay the same: Despite the financial uncertainty, both Exxon and Chevron are keeping their dividend level, after European rival Shell cut its dividend to shareholders for the first time since World War II.

The American oil majors, especially Exxon, also struck a different note than their European competitors on what COVID-19 means for the future of the energy system. A day after Shell warned of a “crisis of uncertainty” and it, along with BP, vowed to double down on investments in renewables, Exxon CEO Darren Woods said “the long-term fundamentals that drive our business” won’t change (i.e. demand for oil and gas will remain strong).

“Economic activity will return, and populations and standards of living will increase, which will in turn drive demand for our products and a recovery of the industry,” Woods said in a statement.

“I don’t think events like this change people’s underlying behavior or wants and desires,” he later told reporters on a press call.

MORE MURKOWSKI…SHE CALLS FOR BALANCED APPROACH TO ENERGY FUTURE: Murkowski told Josh the coronavirus presents an “opportunity to look critically at our energy” to chart a more sustainable future.

Despite her support for her state’s oil industry, Murkowski frequently describes the effect climate change has in Alaska, with melting permafrost, shifting wildlife migration patterns, food security problems, and economic challenges for fisheries.

“Just as the oil industry has been impacted, we know the renewable industry has been impacted as well,” Murkowski said. “They have seen significant job losses particular in wind and solar.”

Murkowski said she would like to hold hearings in the Energy Committee “trying to project forward what this may mean for demand for oil in the future,” if people travel less or maintain work-from-home routines.

“We don’t have a crystal ball, but I do see this is as a time when we have recognized very clearly the world needs conventional resources, we know that there is no magic here, there is no light switch we can just transition, but how do we build on the positives we have seen [with clean energy] and recognize we may be looking at a new dynamic going forward, something none of us anticipated when we began this year.”

HOUSE REPUBLICANS SEEK TAX BOON FOR RENEWABLES: Republicans House lawmakers called on the IRS Thursday to extend so-called “safe harbor” provisions for renewable energy projects under construction on federal lands and waters.

The lawmakers asked IRS Commissioner Charles Rettig in a letter to allow projects to continue to qualify for production and investment tax credits for 10 years because of disruptions in the supply chain and permitting delays that have slowed down the construction process.

“These headwinds are strongest for projects located on federal lands and waters, which require far more capital and are more time-intensive than projects on non-federal property,” wrote Paul Gosar of Arizona, Louie Gohmert of Texas, Greg Gianforte of Montana, Scott Tipton of Colorado, and Paul Cook of California.

The letter mentions renewable energy projects like offshore wind could lose access to tax credits since they require the construction of overhead or submarine transmission, which take a lot of time to permit and build.

WHAT THE IMPROPERLY CLAIMED CREDITS MEAN FOR 45Q: A Treasury Department watchdog report made public Thursday revealed nearly $900 million in carbon capture tax credits were claimed inappropriately by companies that weren’t complying with requirements to monitor and report the stored carbon dioxide with the EPA.

For some Democratic lawmakers and environmentalists, the prior abuse of the credits calls into question the 45Q program, particularly as it relates to enhanced oil recovery projects. Senator Bob Menendez, a New Jersey Democrat who requested the watchdog’s probe, is asking the IRS to suspend credits for EOR projects pending a full investigation. Some environmentalists are saying the EOR portion of the program should sunset.

The report also reveals IRS has taken enforcement actions: The IRS has disallowed more than $500 million in credits to companies that didn’t have the proper monitoring program in place, the Treasury Department inspector general said. Carbon capture supporters say that proves the IRS is on the job, sending a signal to companies that they can’t cut corners if they expect to earn future 45Q credits.

Abby breaks it all down in a story posted last night.

‘DISAPPOINTING’ TO SEE NUCLEAR PLANT SHUTTER, ENERGY OFFICIAL SAYS: New York closed down the Indian Point Unit 2 on Thursday, four years before its license expires, in a move Rita Baranwal, the Energy Department’s top nuclear energy official, criticized.

“The region will not only be losing 1,000 megawatts of clean and reliable power this year, but millions of dollars in local tax revenues and hundreds of high-paying jobs when Unit 3 shuts down next April,” Baranwal said in a statement. She added nuclear power plants “should be allowed to safely run out their lifespan,” and that her office is “committed to preserving the U.S. fleet.”

Not everyone shared her sentiment, though: “The Indian Point nuclear plant should NEVER have been built so close to the New York metropolitan area,” said Edwin Lyman, director of nuclear power safety for the Union of Concerned Scientists, in a tweet responding to Baranwal. “The consequences of a severe accident or terrorist attack at the plant could be enormous. Do some research.”

LATEST IN THE RFS FIGHT: API has petitioned the EPA to reconsider the volumes of biofuels it is requiring to be blended into the fuel supply in 2020, citing a federal appeals court ruling that restricted the agency’s ability to grant exemptions to small refiners.

The Tenth Circuit’s decision “demolishes the foundations of the EPA’s projections” for the 2020 volumes, which API said in its petition were based on an expectation a certain amount of small refinery exemptions would be granted. The API is asking the EPA to “decline to reallocate volumes for small-refinery exemptions not granted as of the date of the final rule” or to reduce its projections to account for exemptions that now won’t be granted due to the court ruling.

Biofuels producers say there aren’t grounds yet for the EPA to reconsider: The EPA hasn’t even fully acknowledged whether it will apply the Tenth Circuit’s ruling nationally, several biofuels groups, including the Renewable Fuels Association, wrote in a letter Friday. The Trump administration had considered appealing the ruling, but ultimately decided not to, and the Tenth Circuit declined petitions from refiners for the full court to rehear the case.

The ethanol groups also say the EPA has previously abused the small refinery exemption program to the harm of biofuels producers, and thus shouldn’t revise down the 2020 volumes. Even applying the Tenth Circuit’s decision nationally, they wrote, “would come nowhere near fully redressing the demand destruction wrought by the exemptions.”

API QUESTIONS HARVARD STUDY ON AIR POLLUTION AND COVID-19 DEATHS: “We caution the Agency and the panel from relying solely on the findings from this and similar studies to determine where to allocate resources and time,” wrote Uni Blake, a senior policy adviser with the oil lobby, in a recent letter to a special Science Advisory Board panel the EPA set up to help guide the agency’s research on the virus.

Blake said a review of the Harvard study — which finds a small increase in long-term exposure to fine particle pollution leads to a large increase in the COVID-19 death rate — found “some limitations that need to be addressed.” Those include that the Harvard researchers revised down their estimates of the associated increase in the death rate, from 15% to 8%, which API argued “suggests some fragility in the overall study results.”

Some Trump administration appointees to the EPA’s advisory boards also recently raised questions about the Harvard study, which hasn’t been peer reviewed yet.

SUSTAINABLE JET FUEL NEEDS TARGETED POLICIES TO TAKE OFF: Current renewable fuels policies and transportation-sector greenhouse gas initiatives largely exclude aviation, making it difficult for sustainable jet fuel to grow, writes Fred Ghatala, director for carbon and sustainability at Advanced Biofuels Canada, in a report released Thursday by the Atlantic Council.

Ghatala said policymakers must give sustainable jet fuel specific policy treatment, especially given the cleaner fuels are one of the main paths to decarbonize the aviation sector (battery-powered and hydrogen-fueled jets are expected to be limited). In the report, Ghatala suggests a number of technology-neutral policies he says could earn bipartisan support, including establishing loan guarantee or tax credit programs for sustainable jet fuel, providing an excise tax exemption, or tailoring incentives for sustainable jet fuel under existing clean fuels standards like the RFS or low-carbon fuel standard.

The Rundown

Wall Street Journal Chevron, BP, Shell told to cut oil output after global pact

Reuters Exclusive: Wells Fargo shifts energy bankers to focus on bankruptcies

New York Times Billons in clean energy loans go unused as coronavirus ravages economy

Wall Street Journal Coal producers struggle after years of investor payouts

Bloomberg Mobile power plants are taking to the high seas

Calendar

FRIDAY | MAY 1

The Senate will return May 4. The House hopes to return soon.