There’s a national conversation taking place on what to do to help the oil and gas industry, and that conversation is including several prominent voices from the Bakken.
Among them, the North Dakota Petroleum Council met by teleconference this week with Energy Secretary Dan Brouillette to talk about issues facing the oil industry, a meeting arranged by Sen. Kevin Cramer, R-N.D.
“With President Trump directing his Administration to craft an oil and gas industry support plan, there is no better place to look for solutions than the North Dakotans on the front lines of this fight,” Cramer said. “I appreciate the Petroleum Council hosting today’s event and Secretary Brouillette for accepting my invitation to hear from our producers and provide them with an update.
North Dakota Petroleum Council President Ron Ness, meanwhile, said the meeting gave NDPC members a chance to ask questions and receive clarification on the latest legislation and regulations that are being considered to help the industry.
“We appreciate Senator Cramer bringing Secretary Brouillette for a productive call with our members today,” said Ron Ness, NDPC President. “They are tireless champions for our industry, and we thank them for taking the time to discuss our concerns and the issues we face. We are optimistic that we are on the right path.”
North Dakota Petroleum Council members weren’t the only ones weighing in.
Canary CEO Dan Eberhart, who is a prominent donor both to Trump and the Republican party, sent the president a letter urging him to lift tariffs on steel and other manufactured goods.
Eberhart has participated in several White House calls during the oil and gas crisis, representing small- to mid-cap oilfield service companies.
“Our company is spending roughly $80,000 a month in direct and indirect payments on tariffs, and the total will likely top $1 million in 2020,” Eberhart told President Trump in the letter. “Only about 20 percent of that amount is paid directly – $206,263 in tariffs in 2019 and $44,383 in duties. However, the indirect costs are far higher due to the increased prices we have to pay our domestic suppliers in Houston that must also rely on Chinese importers and providers of raw materials.”
Canary and its direct competitors pay a $2.5 million tariff in the pressure control portion of the oilfield sector, Eberhart added. “When we also consider wholesalers and their clients (our indirect competition), the cost of tariffs on the sector is $120 million — or $10 million per month.”
This only includes a small slice of the market in which Canary specializes, and doesn’t take into account major service providers like Schlumberger, Halliburton, and Baker Hughes.
“When you include the entire domestic oilfield services industry, the likely annual cost of these tariffs is in the billions of dollars,” Eberhart said. “It is also important to realize that the oil field services industry includes countless small- and medium-sized businesses, from independent drillers to mom-and-pop vendors and suppliers.” These entrepreneurs cannot afford the additional burden of tariffs right now.”
President Trump has promised repeatedly to help struggling U.S. oil companies, but so far a cohesive plan has proven difficult.
There was talk of purchasing oil for the Strategic Petroleum Reserve, but that was blocked by Democrats. It would have handled only a tiny portion of the supply glut in any case, and would not have solved the real problem, which is overwhelming demand destruction, caused by the coronavirus pandemic and exacerbated by an international price war started by OPEC and Russia.
There have been efforts, including by NDPC and other trade groups, to ensure that energy companies have just as much access to CARES Act aid as any other sector, but many oil and gas companies didn’t quite fit the parameters for that aid.
The industry may find the most traction from the Federal Reserves expansion this week of the Main Street emergency lending program. That program is not specifically intended for oil and gas, but could still give liquidity to many oil and gas companies that are struggling to find it amid widespread investor cynicism that predates the coronavirus pandemic.
Federal Reserve Chairman Jerome Powell announced changes Thursday that appeared to address issues raised by Texas Republican Senator Ted Cruz, who had said the program was not structured properly for oil and gas industries with large amounts of debt.
Under the new changes, announced Thursday, businesses with up to 15,000 employees and up to $5 billion in annual revenue can now qualify for loans. That’s up from $10,000 employees and $2.5 billion in annual revenue. The minimum loan size was also reduced to $500,000 from $1 million.
Analysts, however, said it’s unclear how the federal government can directly help the industry with the COVID-19 crisis.
Most of the ideas, such as a price collar on oil prices, setting a floor of $40, or embargoes on oil from Saudi Arabia, would ultimately come with more bad than good, Bakken analyst Sarp Ozkan, with Enverus, said. Some of the measures that have been floated would also require more time to implement than the crisis from COVID-19 is projected to last.
“Really, the best help that can happen for global crude right now is a (COVID-19) vaccine,” he said.