The Federal Reserve and U.S. Treasury Department began a corporate bailout in March. Since then, oil and gas companies issued $99.3 billion in new bonds, a report by Friends of the Earth, Public Citizen, and BailoutWatch found.
The Federal Reserve bought debt from 19 oil and gas companies, and those companies have since sold debt investors over $60 billion in new bonds. Their bond sales represent about 60 percent of energy debt issuance during that period. Twelve of the 19 companies received downgrades of their short-term debt, long-term debt, credit, or default ratings from major credit rating agencies since the bailouts in March.
The total tally of new bonds issued this year by oil and gas companies is $129 million, which is a record going back at least a decade. This year marked the highest level of energy debt issued since 2010. “This surge in borrowing was made possible by the Fed’s promise to purchase large quantities of corporate debt,” the report stated.
There is a big gap between the favorable treatment given to corporations and the treatment of municipalities, small businesses, and individuals, the report noted. States and municipalities have been offered much more restrictive loan terms than have private companies although municipal bonds are far less likely to default than corporate debt. Chevron and Wisconsin serve as good examples. The Federal Reserve bought a Chevron bond at a rate of about 0.9 percent over four years. Wisconsin has the same credit rating as Chevron but has to pay about 1.3 percent over three years.
“This bailout is an unprecedented rescue of a dying industry,” said co-author Alan Zibel, research director of Public Citizen’s Corporate Presidency Project, in a statement.
“Instead of bailing out climate-destroying fossil fuel companies, we must assist small businesses, local governments, and individuals facing dire financial straits.”
Alan Zibel
The oil and gas industry declined until Trump’s corporate bailout
Earlier this year, before the pandemic and the oil price war between Russia and Saudia Arabia caused global demand to sink to an all-time low, the oil and gas industry “showed unmistakable signs of decline,” according to the report. Moody’s. The credit rating agency forecast in February a higher risk of default and a harder time borrowing for the oil industry. Some companies may not have made it if the Federal Reserve had not stepped in.
Despite the intervention of the Federal Reserve, the oil and gas industry will continue to decline. The consulting firm Rystad Energy forecasts that up to 190 oil-related bankruptcies by the end of 2022 if prices stay low. The firm also warns that investors, including the Federal Reserve, are less likely to be repaid. The report by the three environmental organizations points out that “a bad investment by the central bank can harm taxpayers.”
A total of 12 fossil fuel companies that received investments by the Federal Reserve received downgrades of their debt or credit ratings from major rating agencies since March. EQT Corporation is one of those companies, and its debt was downgraded to junk by Moody’s before the pandemic. Yet the company was able to sell $500 million in bonds in the second quarter of this year.
The Bureau of Land Management bails out a company that owes back taxes
The Federal Reserve is not the only one to give bailouts to oil companies. The Bureau of Land Management provided US Realm Powder River a 96 percent discount on 23 federal leases in Wyoming even though it owes $4 million in unpaid federal royalties and failed to pay local taxes for the last three years. According to a report by the Western Values Project, US Realm Powder River is either the sole or majority lessee on 16 Bureau of land management leases on over 7,976 acres that were given a reduced royalty rate to 0.5 percent.
“Once again, the Trump administration has opted to put polluters over people without a second thought while taxpayers foot the bill,” said Western Values Project Director Jayson O’Neill.
What you can do
There is something you can do if you are tired of the oil and gas industry bailout from the government. Vote on November 3. Let your voice be heard at the ballot box.
Photo by Zbynek Burival on Unsplash
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