The US may be starting to reopen, but that doesn’t change the fact that for millions of Americans, COVID-19 has been an unmitigated disaster. Thousands are dying every day, and unemployment has soared to the highest levels since the Great Depression.
For the fossil fuel industry, though, this is a once-in-a-lifetime opportunity. And they’re not about to let it go to waste.
Fossil Fuel Companies Were in Trouble Long Before COVID-19
For years, oil companies were able to borrow cheap money from Wall Street against the promise of future returns, with many ultimately taking on more debt than they could handle long before the world had even heard of COVID-19.
For companies focused on shale oil, the problem came down to what was called “the Fracker’s Dilemma.” The short version is that the majority of fracking wells produce most of their oil soon after going into production. If companies wanted to keep production levels constant, they had a simple choice: Use the revenue from the current well to pay back existing debt or shareholders on one hand? Or use it finance new wells?
Many kept drilling – and borrowing, with the sector becoming the largest issuer of junk bonds in the US. The result was that by the end of 2018, one analyst told the Minneapolis Star Tribune, “[W]e’ve spent about $1 trillion in U.S. oil shale and we’ve returned about $700 billion to the companies in the form of cash flow for a whopping, negative 38% cash-on-cash return.”
In plain English, the story is that in December 2018, fracking companies had spent roughly $1 trillion and only made $700 billion. That’s right – the much-heralded shale revolution didn’t actually make money.
Coal companies weren’t in a great position either. Electricity from coal dropped by a record margin in 2019 as countries turned to cleaner sources of energy and began acting on climate plans. In the US, the move away from coal power led to eight companies filing for bankruptcy.
The Coronavirus Was the Last Last Straw
Things went from terrible to outright nightmare for the sector in 2020 when demand for oil plummeted as people stayed home and traveled little under quarantine restrictions.
Then Saudi Arabia and Russia launched a price war that flooded the market with cheap oil no one wanted or was using, leaving producers scrambling just to find somewhere, anywhere to put the stuff and prices for future delivery momentarily falling below zero to -$40 a barrel.
Oil prices recovered slightly, with the international benchmark Brent crude at almost $30 a barrel as of May 6, but still down significantly from the heady days of $100-plus a barrel in the last decade.
At the end of 2019, the industry was looking at a mountain of debt coming due between 2020 and 2023 and investors increasingly wary of lending it even more. With oil prices in the gutter, oil companies are finding themselves locked out of credit market and unable to refinance, opening the door to a wave of bankruptcies.
The Trump Administration to the Rescue
Despite intense lobbying, the industry couldn’t sneak any special favors into the CARES Act recovery bill that Congress passed last month to keep the US economy alive. But it could make sure that the renewable sector and the hundreds of thousands it employs got not help whatsoever.
Passing the bill wasn’t the end of the story. Almost immediately, large fossil fuel companies with ties to the administration started getting recovery loans intended for small businesses.
Then, the industry kept lobbying and succeeded in getting the Federal Reserve to loosen guidelines for its Main Street lending program to allow companies with up to 15,000 employees or $5 billion in annual revenue to apply.
Meanwhile, even with the world awash in cheap oil no one seems to want, the administration is pressing forward in selling off public lands for, well, oil drilling.
By any measure, it’s a bailout. Worst of all, it’s a bailout for the very companies fueling the climate crisis and filling the air we breathe with dangerous chemicals that increase our risk to COVID-19. We can’t afford it. The Earth can’t afford it. Not in the middle of a public health crisis. Not ever.
The ReWIND Act Says No
If you’re looking at the brazenness of this bailout and thinking, “Whiskey. Tango. Foxtrot,” you’re not alone.
The good news is that we can stop it and make sure recovery funds actually go to workers and families. Not CEOs with the right connections and investors backing dangerous fossil fuels. But we need Congress to act.
Introduced by Senator Merkley and Representative Barragàn, the ReWIND Act (Resourcing Workforce Investments, Not Drilling Act) aims to stop the bailout by preventing the administration from:
- Bailing out its fossil fuel friends with CARES Act funds
- Allowing these companies to use taxpayer funds to take care of Wall Street by paying old debts, not workers
- Letting banks use recovery money to buy stakes in oil companies
- Give away drilling rights on public lands in a time of record low oil prices
- Give companies a free pass to drill on our lands without paying fair royalties
But to pass the act, it first needs sponsors and promotion. Which is where you come in.
The pandemic has turned our world upside down, but together we build a just, healthier, and sustainable future for all Americans. It starts with stopping the bailout for some of the worst polluters on the planet.
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