with Paulina Firozi
Oil and gas companies are putting pressure on the Trump administration to loosen bank guidelines put in place under President Barack Obama so they better access emergency loans during the coronavirus pandemic.
The oil and gas sector has been hit hard by the downturn in demand for gas and jet fuel as many people stay indoors during the viral outbreak. Many small to midsize petroleum producers see a little-known, four-year-old lending guidance document as obstructing the main goal of the stimulus packages passed by Congress — to keep workers employed and prevent companies such as theirs from going bankrupt.
“We’re mainly trying to say: The train is moving out of the station. Let’s make sure that there isn’t a car at the back of the train that no one is paying attention to that could derail it,” Lee Fuller, executive vice president at the Independent Petroleum Association of America (IPAA), the trade organization spearheading the lobbying effort, said in an interview.
But Lukas Ross of Friends of the Earth, an environmental group, called the request “a shameless attempt” to get a bailout from an industry already saddled with debt.
“Stimulus money is meant for communities and businesses hit hard by the coronavirus,” Ross said. “It is not for oil companies drowning in debt from long before the crisis.”
At issue is an 86-page handbook published in 2016 for bank examiners, directing them to more closely scrutinize loans to oil and gas firms.
The Office of the Comptroller of the Currency (OCC), which regulates the nation’s largest banks, wanted to keep a tighter leash on lending to petroleum producers when underground oil and gas reserves are used as collateral.
Back then, the banking regulator wanted to make sure petroleum producers would be able to pay back the loans. But now the guidelines could restrict the oil industry’s access to emergency loans since much of that money is funneled through private banks subject to the 2016 guidance.
Four days after President Trump signed a $2 trillion coronavirus bill in March, Fuller emailed two OCC officials to explain why the IPAA, which represents small to midsize oil and gas producers, thought the Obama-era handbook may get in the way of them accessing the new emergency credit.
The trade group listed four sections of the manual it wanted the office to either revert to the 2014 version — or delete outright. The proposed changes included removing sections on how regulators assess a potential borrower’s debt-to-earnings ratio, future cash flow and prices at which it can sell its crude oil and gas.
Taken together, the IPAA’s proposal would give banks more flexibility in deciding which petroleum producers are creditworthy enough to get loans.
“Restoring the original provisions of the April 2014 Handbook would allow banks the discretion to make capital available prudently to domestic energy producers,” Fuller wrote in the April 1 email, which was released to Friends of the Earth in response to a Freedom of Information Act request and shared with The Energy 202.
But Gregg Gelzinis, a senior economic policy analyst at the liberal think tank Center for American Progress, said the guidelines were put in place to protect banks from potential insolvency if oil prices crash. They worried reserve-based lending had gotten riskier for banks to do after a slide in oil prices between 2014 and 2016.
The changes the petroleum industry wants, Gelzinis added, “would permit banks to load up on more oil and gas risk, making it more likely that we have some bank failures down the line or at least weaken the position of some banks in the face of other oncoming losses from the coronavirus crisis.”
“The brazenness of asking for line-item edits to the supervisor’s manual,” Gelzinis added, “just shows how emboldened industry lobbyists are in this environment.”
So far, the bank regulator has not acted on the oil and gas lobby group’s suggestions.
OCC spokesman Bryan Hubbard wrote in an email that the office has not yet responded to the IPAA’s request “and would not speculate on pending or potential policy actions.”
The IPAA also raised its concerns with officials at both the White House and Energy Department, Fuller said. He added the IPAA “raised a lot of concerns about the way the guidelines were put together” at the end of Obama’s presidency, to no avail.
The OCC is an independent regulator. While officially housed in the Treasury Department, Treasury Secretary Steven Mnuchin, who is running much of the economic relief effort, by law cannot interfere with OCC decisions, according to Gelzinis.
While nominally independent, the acting comptroller of the currency, Brian P. Brooks, took his temporary appointment in May and has echoed Trump’s warnings that state and local shutdowns to stop the spread of the virus could harm the economy.
In a letter he sent this month to mayors and governors, Brooks wrote that “certain aspects of these orders potentially threaten the stability and orderly functioning of the financial system.”
It remains to be seen whether the Obama-era guidelines actually get in the way of getting emergency loans to oil and gas firms.
It was just last week when the Federal Reserve launched its new, $600 billion program to provide low-cost, government-backed loans to businesses with fewer than 15,000 workers.
Yet the program is off to a slow start. It is unclear whether enough private banks will participate. Under the program, firms apply through a bank, which can then sell 95 percent of the loan to the Fed.
The oil and gas companies, as well as Republican lawmakers from petroleum-producing states, have also leaned hard on the Fed for favorable terms for the emergency loans.
The Trump administration is proposing to drill on more than two-thirds of the National Petroleum Reserve-Alaska.
The Bureau of Land Management said Thursday it wants to remove wildlife protections for the nearly 23 million-acre area, the largest swath of U.S. public land, which have been in place for more than four decades, my colleagues Juliet Eilperin and Steven Mufson report. Under the current plan, finalized in 2013, only half of the reserve is open to drilling.
The area is oil rich, holding as much as 8.7 billion barrels in undiscovered crude and 25 trillion cubic feet of natural gas, according to a recent U.S. Geological Survey analysis. But environmentalists and some Alaska Natives, who hunt in the area, object to the expansion of oil and gas operations and probably will challenge the decision in court.
A watchdog agency found that Trump’s July 4 gala last year cost $13 million.
That total is twice as much as previous Independence Day celebrations, according to a new estimate from the Government Accountability Office. The report was requested by Senate Democrats.
“The report says the additional cost was driven by the expense of transporting several military vehicles to the Mall and the additional security needed for Trump, who attended the event,” Fredrick Kunkle reports. “The president also delivered a 47-minute speech at the Lincoln Memorial, praising Americans’ sacrifice and extolling U.S. military might. Abrams tanks and Bradley Fighting Vehicles were stationed on the Mall, while a B-2 bomber, F-22 fighter jets and other aircraft flew overhead.”
On Trump’s schedule for Independence Day weekend this year: a massive fireworks display at Mount Rushmore, ending a decade-long ban on pyrotechnics at the spot.
The attorney general of the District of Columbia is suing four oil majors for allegedly misleading the public about climate change.
ExxonMobil, BP, Royal Dutch Shell and Chevron got slapped with the lawsuit from Attorney General Karl A. Racine on Thursday, Emily Davies reports.
Racine said the four firms violated the District’s consumer protection law by painting a “false picture” of what their gasoline and other products were doing to heat the atmosphere. Representatives for Exxon, Shell and Chevron rejected the allegations, with Chevron calling the suit “meritless.” BP declined to comment.
The District is just the latest entity to sue publicly-traded oil companies over climate change. And just on Wednesday, Minnesota Attorney General Keith Ellison made his state the first to file a climate lawsuit against the privately-held Koch Industries and the American Petroleum Institute, a major Washington-based lobbying group.