PE Parsley Energy Inc

By Timothy Puko and Rebecca Elliott 

WASHINGTON -- The Trump administration is considering offering federal stimulus funds to embattled oil-and-gas producers in exchange for government ownership stakes in the companies or their crude reserves, according to people familiar with the matter.

The plan is among several possible options being weighed amid a historic drop in oil demand that has U.S. energy companies reeling. But it faces long odds given likely opposition from congressional Democrats to using stimulus funding for the oil industry.

Separately, Texas regulators declined to act Tuesday on a proposal to limit state oil production, even as the U.S. shale industry scales back anyway. The Railroad Commission of Texas, which regulates the oil-and-gas industry in America's largest oil-producing state, deferred until May 5 a decision on whether to make operators curtail production for the first time since the 1970s.

Mr. Trump announced his intentions Tuesday morning on Twitter, saying he had directed the Energy and Treasury departments to craft a plan to make funds available for the oil-and-gas industry.

"We will never let the great U.S. Oil & Gas Industry down," the president wrote. He said he wants the plan "so that these very important companies and jobs will be secured long into the future!"

His announcement came a day after U.S. benchmark crude prices sank into new territory, with front-month contracts falling below zero for the first time in history, meaning those who held oil contracts had to pay people to take them away.

On Tuesday the most actively traded U.S. contracts -- the West Texas Intermediate futures for delivery in June -- fell again, by 43% to $11.57 a barrel.

At a White House briefing Tuesday evening, Treasury Secretary Steven Mnuchin acknowledged that the administration may need to ask Congress to authorize assistance.

"The president is determined we want to maintain our energy independence, " Mr. Mnuchin said.

Congress provided the Treasury Department $17 billion to make loans to companies deemed essential to national security as part of the $2.2 trillion coronavirus relief package enacted last month. Lawmakers were clear those loans were meant for firms that are major suppliers to the Department of Defense or have top-secret security clearance, Mr. Mnuchin said.

"Obviously the energy business is very important to the U.S.," Mr. Mnuchin said, adding, "this has national security issues, but different."

At Mr. Trump's direction, the Energy Department has already been exploring ways the government could effectively give money to oil companies not to drill, according to the people The government would likely take ownership of oil, with the companies leaving it underground until the government directed them to tap it, these people said.

The plan would work similarly to the federal Strategic Petroleum Reserve, where the government stores oil in underground caverns. Mr. Trump has directed the Energy Department to buy oil to refill those reserves, citing bargain-basement prices and the need to give the industry a boost.

Just as with the strategic reserve, the government could sell oil it takes control of under the new program and potentially make its money back -- and more -- if and when the price of oil rebounds.

But that kind of spending to buy such reserves would need congressional authorization, and Democrats have been reluctant to approve help for the oil industry, analysts said. Critics of the oil industry say it doesn't deserve a government bailout. Many consider the oil industry a contributor to climate change, and say producers ran up irresponsible debt and paid gaudy executive salaries even while returning scant profits.

"Congressional help [is]) a high bar," said analysts at Height Securities LLC in Washington. "We view President Trump's tweet primarily as a sign of support after this week's historic price movement in oil markets."

Oil industry executives fear they will fall between the cracks for federal stimulus spending -- too big to qualify for small-business loans, but ineligible for loans for large companies because of their reliance on contractors to fill their rank-and-file workforce, lobbyists said.

And Federal Reserve loan programs have been limited to those with stronger credit ratings or less debt, which is likely to exclude many oil-and-gas companies that have borrowed heavily in recent years.

Bethany Aronhalt, a spokeswoman for the American Petroleum Institute, the country's largest oil-and-gas trade group, welcomed the president's tweet and said access to loans is "vitally important to all industries impacted by this crisis."

Congress has already rejected a plan to spend billions of dollars to add nearly 80 million barrels to refill the government reserve. Mr. Trump had proposed the measure for the big stimulus package negotiated in late March but it didn't make the final bill, leaving the Energy Department looking for alternatives to fund it.

Mr. Trump's new effort would explore working through emergency-loan programs the Treasury Department has launched with the Federal Reserve as a way around congressional opposition.

The people familiar with the effort said it is in only very early stages, with one person saying Mr. Trump is largely driving the effort. Monday evening, amid widespread media coverage of U.S. crude's historic fall to minus $37.63 a barrel, Mr. Trump made a flurry of calls to both Energy Secretary Dan Brouillette and Mr. Mnuchin to prompt action, the person said,

The White House may build on the Energy Department's plan and allow oil-and-gas companies to use energy reserves as collateral to get government loans, or doing the same with ownership shares of the companies themselves, according to the people familiar with the matter. Or the initiative could lead to the administration clarifying some rules to ensure the energy companies -- and others -- are eligible, according to one of the people.

Texas debated whether to cut production in response to a proposal by West Texas shale drillers Pioneer Natural Resources Co. and Parsley Energy Inc. The idea split the railroad commission's three members, who are all elected. Two said the commission needed more time to consider cuts and ensure a measure wouldn't get tied up in court.

"We need to make darn sure when we make the motion that it fits legal requirements," said commissioner Wayne Christian.

Officials in North Dakota and Oklahoma also are considering curtailments of oil production in their states.

--Christopher Matthews and Kate Davidson contributed to this article.

Write to Timothy Puko at tim.puko@wsj.com and Rebecca Elliott at rebecca.elliott@wsj.com

(END) Dow Jones Newswires

April 21, 2020 19:34 ET (23:34 GMT)

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