with Paulina Firozi
At least two oil and gas firms that boosted investors’ portfolios by buying back stock in 2019 received $15.5 million this year from a program designed to rescue small businesses gutted by the coronavirus pandemic.
Those petroleum companies are among several across the U.S. economy that critics say inflated the value of their shares in recent years with buybacks and other measures that ultimately left less cash on hand to pay employees and deal with the unforseen pandemic.
The Trump administration and Congress are facing a broader backlash over the effectiveness of the Paycheck Protection Program, which was designed to aid companies during the pandemic with fewer than 500 workers by offering loans that are forgivable if employers keep workers on the payroll.
But the Small Business Administration’s emergency program has been plagued by funding shortfalls and bureaucratic snafus. One of the emerging concerns around it is that companies that put short-term returns for investors over the long-term health of their businesses are being rewarded with low-interest loans.
Companies engage in stock buybacks when they want to take tighter rein of their businesses, effectively taking shares off the market and driving up the prices of those that remain.
Such actions “greatly benefit executives whose compensations are tied to share price,” said Greg LeRoy, executive director of Good Jobs First, an advocacy group that tracks corporate subsidies. “That also means you’re giving yourself less flexibility to respond to a crisis or hire more people.”
While recipients are banned from engaging in stock buybacks with the proceeds of the PPP loans, companies that have relied on the practice in the past are free to apply for the money — and have been getting it.
One of the biggest PPP loans went to Houston-based Independence Contract Drilling.
The drilling rig operator, which works in the Permian Basin and elsewhere in Texas, received $10 million in stimulus money.
Yet in the second quarter of last year, the company’s board of directors approved buying back up to that same amount — $10 million — in stock, even though the company posted a loss in 2018.
By the end of December, the company had completed the repurchase of around $480,000 in stock.
Similarly, Amplify Energy Corp., an independent oil and gas producer also based in Houston, got a $5.5 million small-business loan last month. That company, too, has a history of stock buybacks. In 2019, it spent $26.2 million to take nearly 4.4 million shares off the market.
A third firm, Ohio-based oil producer Everflow Eastern Partners, received a $327,000 small-business loan after spending $129,582 last year to purchase equity from investors.
Everflow President Bill Siskovic said the company was not buying back stock. In Everflow’s case, he said, investors can compel it once a year to repurchase equity at a certain price. Everflow is structured as a master limited partnership, a legal form often used by oil and gas firms to lighten their tax loads.
“This is required annually by the partnership agreement and is not initiated by the company with any intention to buy back units,” Siskovic wrote by email.
Independence Contract Drilling and Amplify Energy did not reply to requests for comment.
Oil and gas companies are not the only ones who bought back their stock recently but are now looking for government aid.
The hotel giant Hilton, for one, announced a $2 billion stock buyback on March 3, even as the global spread of the novel coronavirus became clear. A month later the hotel industry was lobbying hard for access to the coronavirus aid.
Airlines, too, have also used the practice to boost their stocks. United Airlines has approved $5 billion in buybacks since 2016, while American Airlines spent $13 billion on buybacks over the past decade. The airline industry, like the petroleum sector, has been devastated by the downturn in travel. But unlike for the oil industry, Congress set aside more than $60 billion last month specifically to keep airlines and airports aloft.
And Ruth’s Chris Steak House, a $250 million restaurant chain that repurchased shares in 2019, received $20 million in emergency small-businesses loans.
Funding for the PPP program quickly hit its $349 billion limit in mid-April; Congress quickly gave it another $310 billion infusion.
Altogether, companies working in the oil and gas sector have received tens of millions in small-business stimulus loans.
According to Accountable.US, another nonprofit watchdog group, the sector received about $100 million from the PPP. According to an analysis by Vice News, oil and gas companies received at least $72 million.
“It’s insulting to hard-working Americans who are still waiting for economic relief that this administration is giving loans meant to help small businesses to big oil corporations,” Accountable.US president Kyle Herrig said.
Oil and gas companies with too many employees to qualify for small-business loans are seeking aid elsewhere — mainly from the Federal Reserve, which is preparing to launch its own emergency lending and bond-buying programs.
GOP lawmakers from petroleum-producing states have pushed the central bank to make sure oil and gas firms can have access to the Fed-backed money. In response, a group of six Democratic senators called on Federal Reserve in a letter last week to reconsider recent changes that will make it easier for some oil companies to get emergency loans and to take climate-related financial risks into account when lending.
“This pandemic was not the source of the oil and gas industry’s dire financial condition, as is the case for countless small businesses with an urgent need for the Fed’s assistance,” read the letter led by Sens. Brian Schatz (D-Hawaii) and Sheldon Whitehouse (D-R.I.). “That makes it all the more troubling that the Fed is prepared to lower the standards of the Main Street program to accommodate an industry that poses both a credit risk and a more profound climate transition risk to taxpayers.”
Michigan auto factory workers are trickling back to work.
It could be a sign of what’s to come for the auto sector across the country.
“Some auto suppliers in Michigan, a Midwest industrial powerhouse hard hit by the pandemic and its economic fallout, reopened plants on Monday with skeleton crews to get ready for the planned May 18 restart of auto production,” Reuters reports. That’s when General Motors, Ford and Fiat Chrysler have said they plan to resume vehicle production at their facilities in North America.
Natural gas export projects have been interrupted.
The coronavirus pandemic put a pause on the two-decade-long natural gas expansion effort around the world, the New York Times reports, a push to shift away from coal and compete with oil for electricity and heat generation.
“Now, tankers carrying gas in its compressed, cooled liquid form are sitting idle off the coasts of Europe as factories and businesses are only slowly coming back on line, if at all, and many people are forced to wait out the pandemic at home,” the Times reports. “ … Investment decisions for proposed multibillion-dollar liquefied natural gas export terminals — which can take up to a decade to plan, permit and build — have been delayed or canceled in Australia, Mozambique, Qatar, Mauritania, Senegal and the United States in recent weeks.”
Elon Musk said his California factory restarted production against county guidance.
He also dared officials to arrest him in “one of the most prominent examples of a powerful public figure defying local health orders amid the novel coronavirus response,” Faiz Siddiqui reports. “Tesla on Saturday filed suit against Alameda County, where its Fremont, Calif., factory is located, seeking an injunction against orders it stay closed. The suit alleged violations of the due process and equal protection clauses of the 14th Amendment.”
Tesla is restarting production today against Alameda County rules. I will be on the line with everyone else. If anyone is arrested, I ask that it only be me.
— Elon Musk (@elonmusk) May 11, 2020
A spokeswoman for Alameda County said it was working with the company to avoid further escalation.
Treasury Secretary Steven Mnuchin told CNBC he agrees with Musk on the need to reopen. “He’s one of the biggest employers and manufacturers in California, and California should prioritize doing whatever they need to do to solve those health issues so that he can open quickly and safely,” he said in an interview.
Texas Gov. Greg Abbott (R) chimed in on Twitter as well, sharing a story from CNBC that reports Musk could save “billions of dollars in taxes over time if he moves his company and his home to Nevada or Texas.”
Elon Musk could save billions in taxes if Tesla moves its headquarters to Nevada or Texas.
Just saying. https://t.co/z1sxLGJ5qG
— Greg Abbott (@GregAbbott_TX) May 11, 2020
There’s been a steep decline in electricity prices in the United States, Europe and parts of Asia.
“Closures of office blocks, shops and factories have throttled power demand, dwarfing the amount of electricity required to work from home,” the Wall Street Journal reports. “Globally, the International Energy Agency expects the biggest decline in electricity consumption since the Great Depression. It is as if Germany and France were both turned off for the year.”
Chesapeake Energy, in trouble even before the oil price crash, warns its future is in question.
The company, once one of the biggest companies in the U.S. fracking boom, said it has hired advisers to “explore options including bankruptcy and raised doubt about its ability to remain a going concern as it reported a first-quarter loss of about $8.3 billion, compared with a loss of $21 million during the same period a year earlier,” the Wall Street Journal reports. “Chesapeake is among dozens of U.S. shale firms facing possible bankruptcy. At a U.S. benchmark oil price of around $20 a barrel, analytics firm Rystad Energy expects some 140 U.S. oil-and-gas companies to file for bankruptcy protection this year.”
Oil and gas producers in Oklahoma want support for setting output cuts.
The Oklahoma Corporation Commission didn’t take any action after hearing proposals at a multi-hour meeting from oil and gas producers on measures to stabilize oil prices.
The energy regulators “heard proposals seeking to declare some oil production in the state waste, and a plan submitted by trade group Oklahoma Energy Producers Alliance (OEPA) that included mandated output cuts,” Reuters reports. “ … The price collapse has companies in major oil-producing states pushing for regulatory action to stave off further declines.”
Global warming watch
The Upper Missouri River Basin was at its driest level in 1,200 years for the first decade of this century.
Scientists say the drought at the mouth of the nation’s longest river was a result of climate change-fueled temperature spikes that led to reduced snowpack in the Rocky Mountains in Montana and North Dakota, Darryl Fears reports.
Study co-author Erika Wise, an associate professor in the geography department at the University of North Carolina at Chapel Hill, said the recent findings “show that the upper Missouri Basin is reflecting some of the same changes that we see elsewhere across North America, including the increased occurrence of hot drought that’s more severe than usual.”
In other news
Environmental groups are suing the Interior Department over the temporary appointment of a pair of officials.
The Western Watersheds Project and Public Employees for Environmental Responsibility filed a lawsuit in federal court arguing that the Interior secretary violated the Constitution and federal law when he kept David Vela and William Perry Pendley in place as “de facto” leaders of the National Park Service and Bureau of Land Management, respectively.
Neither have been confirmed by the Senate nor appointed by President Trump, the lawsuit notes. The groups point to an order signed by Interior Secretary David Bernhardt last week to extend the tenures of the two officials until June 5.
The lawyer who helped PG&E fire victims negotiate a settlement has ties to some of the utility’s investors.
Mikal Watts, a prominent Texas personal injury lawyer, played a major role in brokering a proposed $13.5 billion settlement for about 70,000 fire victims impacted by the fires sparked by PG&E’s equipment, the Wall Street Journal reports.
“But as fire victims continue to cast votes this month on whether to approve the settlement, some victims and lawyers are questioning whether Mr. Watts has acted in the best interest of his clients, after he revealed a financial connection to some of PG&E’s largest investors,” per the report. “They are asking a federal judge to consider whether the votes of Mr. Watts’s clients should be discounted or recast.”