The White House is inviting the country's top oil executives to a meeting tomorrow about the oil crisis as a wave of layoffs, spending cuts and bankruptcies send shock waves through the industry.
The meeting is intended to discuss the Trump administration's response to the novel coronavirus epidemic that has sapped demand for energy and comes amid an international oil price war, a double punch that has caused chaos in the drilling industry, sources said. Trump told reporters yesterday that he may meet with independent oil producers over the weekend as well.
"We have a great oil industry, and the oil industry is being ravaged," Trump said.
Expected to attend the White House tomorrow are Exxon Mobil Corp. CEO Darren Woods, Chevron Corp. CEO Mike Wirth, Occidental Petroleum Corp. CEO Vicki Hollub and Energy Transfer Partners CEO Kelcy Warren, according to sources familiar with the discussions.
Greg Garland, who is CEO of the refining company Phillips 66 and also chairman of the American Petroleum Institute, is also scheduled to attend, as are two top shale drillers, Continental Resources Inc. Executive Chairman Harold Hamm and Devon Energy Corp. CEO Dave Hager. One source said the attendee list was fluid and could grow.
The goal is to convince Trump of the gravity of the situation in the oil industry and to encourage him to push Saudi Arabia to back off increased oil production, according to a source.
The price war between top oil producers Russia and Saudi Arabia has sent prices plunging, but Trump suggested yesterday there's an easy fix: "I think that they will work it out over the next few days," he said of the two countries. "It's too simple not to be able to."
The slump threatens the president's boast that the U.S. has achieved "energy dominance," and although he noted that low gas prices could help the struggling airline industry, Trump said of the oil sector, "I want to get that industry back where it was. We were doing records in that industry."
Dan Eberhart, a GOP donor and CEO of Colorado-based Canary LLC, one of the largest private oil field service companies in the nation, said there has been a "frenzy" of calls between industry leaders, congressional lawmakers and White House officials with the industry facing an unprecedented situation.
"The White House very much gets it," said Eberhart. "Typically, cheaper gasoline prices at the pump is better for consumers, the oil industry can take a back seat. But Trump now believes that this is going to cause economic disruption in the red states and the middle of the country, and this is a huge problem."
Industry analysts have suggested the U.S. has few options to convince Russia and Saudi Arabia to back off, but diplomatic talks have ramped up in recent days with Trump talking to Russian President Vladimir Putin on Monday and Energy Secretary Dan Brouillette speaking the following day with his Russian counterpart. Trump said Saudi Arabia and Russia are talking.
"If they're unable to solve it, I think I know what to do to solve it," Trump said of Russia and Saudi Arabia. "We don't want to lose our great oil companies, we're the No. 1 producer of oil in the world."
He declined to tell reporters how it could be solved "or pretty well solved" and suggested the situation was "very bad" for both countries.
Saudi Arabia in March took steps to essentially flood the oil market to achieve a greater share, after Russia refused to go along with more production cuts. Saudi Arabia is arguably not making money but has a chance of achieving its strategic goal of putting some U.S. companies out of business, analysts have said. And Russia has made it plain that it is happy to target U.S. shale producers, who were major beneficiaries when OPEC and Russia agreed to cut their production in 2016.
Members of Congress and various oil and gas sectors have pitched a number of potential fixes, including banning imports of foreign oil, levying tariffs and granting royalty relief for producers, but the industry is split on a single fix, according to industry sources. Former Energy Secretary Rick Perry told Fox News on Tuesday night that he would recommend a 60- to 90-day ban on refining anything but U.S. oil, warning "we're on the verge of a massive collapse."
But an industry source said a ban would do little to help, noting that Continental Resources and the North Dakota congressional delegation have in the past called for banning foreign oil imports but that it's faced opposition including from U.S. refineries, which generally process less expensive heavier crude and don't have the capacity to handle the lighter crude.
That move would also risk further destabilizing — and infuriating — Canada, which accounts for two-thirds of all imports to the U.S.
Several industry sources said the Department of Energy is expected to finalize a plan that would lease portions of the Strategic Petroleum Reserve to the private sector, taking crude off the market. DOE was seeking final approval for the move, which could account for 75 million barrels of oil.
Treasury Secretary Steven Mnuchin told CNBC yesterday that the administration would continue to ask Congress for approval to buy oil from U.S. producers to fill up the SPR. The administration failed to get the $3 billion provision in the third stimulus bill. And Mnuchin noted that Trump had calls with both Russia and Saudi Arabia to convince them to slow the tide of oil.
"The president is absolutely determined to protect our energy independence and our ability to continue in this industry, which is a very important industry for our workers," he said.
Two industry groups, including one that represents the refiners, told Trump in a letter yesterday they oppose several of the proposed fixes.
"Imposing supply constraints, such as quotas, tariffs, or bans on foreign crude oil would exacerbate this already difficult situation, jeopardize the short and long-term competitiveness of our refining sector world-wide, and could jeopardize the benefits Americans experience as a result of our increasing energy dominance," the presidents of the American Fuel & Petrochemical Manufacturers and the American Petroleum Institute said.
The letter noted that many refineries have announced reductions in output of 25% or more as demand for gasoline has dropped as Americans stay home.
"Right now our sectors are facing headwinds that should not be made worse," they wrote. "Ultimately, it is demand recovery that will help the upstream, midstream, and downstream American oil industry."
Bankruptcy, layoffs and slashed spending
The prices for West Texas Intermediate crude, the U.S. benchmark, dropped below $21 yesterday, and market watchers have warned it could fall further.
Demand for oil could fall by 10% to 20% as the coronavirus epidemic slows down the world's economy, analysts have said.
At current production levels, the industry could run out of storage capacity in 72 days, essentially forcing some oil production to stop and driving the price lower, Ryan Sitton, an oil regulator with the Texas Railroad Commission, said on a webcast.
"This may be the most brutal environment for oil and gas businesses in decades," BP PLC CEO Bernard Looney said in a statement.
BP announced that it is cutting its annual spending by about 25% — and reducing its spending on shale drilling in the U.S. by 50%, according to a statement. It joins Chevron, Royal Dutch Shell PLC and other major oil companies who have slashed tens of billions of dollars from their drilling and production plans this year.
Houston-based Noble Energy Inc. — which announced a $500 million reduction in planned capital spending for 2020 — said it will place roughly 30% of its U.S. workforce on furlough or part time starting Monday, according to Paula Beasley, a Noble spokeswoman.
"Both are designed to be temporary and focused on the next 90-180 days," Beasley said in an email. "The program is flexible. As we adjust our workforce levels to activity levels, we will see both reinstatements and additional furlough/part-time actions."
Beasley said the furlough program provides full health benefits and unpaid leave for those who do not have "immediate work given the lower activity, but whom we expect to return to full-time work as activity resumes."
Occidental also notified its employees in March of pay cuts and other cost-control measures, Melissa Schoeb, a company spokeswoman, said.
The moves "will impact everyone at the company from the management team on down," Schoeb said.
Whiting Petroleum Corp., a Denver-based independent oil producer, filed for Chapter 11 bankruptcy yesterday. The company said in a statement it will restructure $2.2 billion of its debt by giving its lenders control of the company in a prepackaged arrangement. The company's current stockholders will control 3% of the company after the deal, wiping out most of their value.
There are almost certain to be more bankruptcies. Fitch Ratings projected that oil and gas companies will default on $33 billion of debt this year, or roughly 17% of the high-yield debt that's outstanding in the sector.
Rob Wilson, executive director of capital market at the research firm East Daley Capital, said the bankruptcies could allow shale drillers to bounce back after shedding some of their costs.
"Yes, there's more to come," said Wilson of more bankruptcies, "but the assets themselves aren't broken, and in many cases it's just the capital structure that needs to be repaired."
That's similar to what happened in 2016 and 2017, when more than 200 companies filed for bankruptcy.
In this round, though, there may be fewer financiers willing to help distressed companies than there were in the previous downturn, said Randye Soref, a bankruptcy attorney at the law firm Polsinelli. And with the growth in both production and exports, the oil sector is arguably a bigger part of the economy than it was a few years ago.
"You can never get anybody to say we'll bail out all of the oil and gas companies," she said.
Reporters Hannah Northey and Scott Waldman contributed.
Correction: An earlier version of this story misstated the date that Occidental informed employees of cost-control measures.