The Energy 202: Offshore oil producers say Trump administration’s coronavirus

with Paulina Firozi

Offshore oil producers and their allies in Congress are asking the Trump administration to make it easier for them to get a break on payments to the government amid the coronavirus pandemic.

Drillers working in the Gulf of Mexico argue they have been left high and dry during a historic rout in oil markets that saw the price per barrel briefly plummet below $0.

The lobbying effort comes after the White House declined last month to offer blanket royalty relief to all offshore oil producers. 

Instead, the Trump administration said it would consider granting relief on a case-by-case basis and encouraged companies for apply for a break through existing royalty relief programs. 

But offshore drillers say there are too many hoops they need to jump through to secure a much-needed pause on payments. Companies producing oil and gas on federal lands, by contrast, are having an easier time getting royalty relief, they say.

“I do think that there is a lack of satisfaction” with relief efforts, said Tyler Gray, president and general counsel of the Louisiana Mid-Continent Oil and Gas Association, a trade group for the oil and gas industry in Louisiana and the Gulf of Mexico.

Given the hurdles, only four offshore producers have begun the process of applying for royalty relief, according to the Interior Department, which manages both on- and offshore oil and gas leasing. None have yet received it. 

The bureaucratic tangle for offshore producers comes even as President Trump has promised aid for the domestic oil sector, which is ailing as driving, flying and industrial activity have been severely curtailed to stop the spread of the virus. 

“We have a great oil industry,” Trump told reporters last month, “and the oil industry is being ravaged.”

At issue are restrictions for which offshore wells are eligible for royalty relief. 

Only money-losing wells that would turn a profit if they got a break on payments can qualify for relief, according to guidance from the Bureau of Safety and Environmental Enforcement, an Interior Department agency that manages offshore drilling. 

But the agency is too restrictive in what counts as a cost for a particular well, lobbyist Erik Milito wrote in a letter sent Monday to the agency. Milito heads the National Ocean Industries Association, which represents offshore energy producers. 

Income taxes, certain capital costs and payroll for most corporate support staff, for example, cannot be included in the revenue-minus-cost equation that determines whether a well is running at a loss.

Even if those expenses are counted, oil is trading for so little that “mere granting of royalty relief will not make many leases economic under current circumstances,” he said.

Without modifications, Milito warned, the royalty relief program “will fail along with many of the leases operated by offshore oil and gas companies, stranding oil and gas — likely forever.”

Offshore producers have five dozen Republican members of Congress in their corner.

Sixty members of Congress also are urging the Trump administration to change its formula for counting a well’s expenses.

“While the current process is a good first step, we would like to work with you to implement these additional reforms to help keep businesses afloat,” they wrote to Interior Secretary David Bernhardt on Thursday.

The letter had powerful backers: It was led by House Minority Whip Steve Scalise (R-La.) and also signed by House Minority Leader Kevin McCarthy (R-Calif.).

Bernhardt understands offshore issues well, having had the National Ocean Industries Association as a client while working as a lawyer and lobbyist for before joining the Trump administration.

So far, landlocked oil producers were more easily able to get a break on payments.

Since late last month, 76 wells operated by six companies have been afforded relief by the Bureau of Land Management, the Interior Department agency that oversees onshore leasing. 

And that’s just in Utah. As of Wednesday, data for other states has not yet been posted, but one company told me and Will Englund that it has been granted relief for “several” wells in Wyoming.

The BLM, whose procedure for royalty relief is separate from BSEE’s, gives onshore producers more liberty in determining whether a well is running at a loss and can qualify for relief.

The offshore royalty relief program has long been cumbersome and time-consuming to use, said Gray, head of the Louisiana Mid-Continent Oil and Gas Association, in part because companies need to submit applications for each individual well. He noted that between 2004 and 2019, only 13 offshore operators applied for royalty relief, according to data from BSEE. 

“Obviously, something is not working,” he said.

The Interior Department emphasized that it is simply following existing rules in granting relief.

“These laws and regulations have existed for decades and across multiple administrations,” spokesman Nicholas Goodwin said by email, when asked about the House letter. “The Bureau of Land Management and the Bureau of Safety and Environmental Enforcement each have separate, longstanding regulations that provide for the processing of applications for ‘royalty relief.’ ” 

The department, he added, “has not authorized royalty relief beyond these preexisting processes.” 

Coronavirus fallout

The president appeared barefaced — at least publicly — during a visit to a Ford manufacturing plant in Michigan. 

He declined to wear a mask even after a request from the carmaker that he wear one – and a letter from the state’s attorney general that urged him to wear a mask during his visit, citing a “legal responsibility.” 

The president later told reporters that he wore his mask during parts of his tour, but he did not wear one in front of the cameras, Anne Gearan reports.

When asked about the fact that Ford executives were wearing masks, which are required at the plant, Trump said: “Well, that’s their choice. I was given a choice.” 

Trump visited Michigan as the state is reeling from unprecedented flooding inundating the city of Midland this week. 

He told reporters before his trip: “We have our people from the Army Corps of Engineers there.  We have FEMA there. I spoke with the governor, Gov. Whitmer, yesterday, and we have a very good understanding.” 

Residents and business owners in the area found devastation when they returned to the area on Thursday. 

“If FEMA doesn’t help us, we’ve lost everything — and say adios to this town, because with everything that’s happened, and all the other business owners … they lost everything,” Connie “C.J.” Methner, who owns a hairstyling shop, told the Detroit News.

Days-long downpours in Southwest Virginia and the western Carolinas led to flash flooding and mudslides.

“Flood warnings continued in parts of this high-terrain region Thursday as rainfall rates approached two inches per hour, exacerbating the flood situation,” Matthew Cappucci reports. “Residents were told to evacuate a dozen homes in southwest Roanoke amid concerns that the Spring Valley Dam might fail … Questions about the Virginia dam’s integrity come barely two days after twin dam collapses in Michigan resulted in record floodwaters gushing down the Tittabawassee River into the community of Midland.” 

Virginia Gov. Ralph Northam (D) said the dam was stable but that residents should remain alert:

Dam failures could become more frequent. 

“No one can say yet whether the intense rainfall that preceded this disaster was made worse by climate change,” the New York Times reports. “But global warming is already causing some regions to become wetter, and increasing the frequency of extreme storms, according to the latest National Climate Assessment. The trends are expected to continue as the world gets even warmer.” 

A utility workers union wants safety standards for its members. 

The president of the Utility Workers Union of America is calling for a federal infectious-disease standard for its workers who are on the front lines, entering private homes and public spaces to keep power lines running and to fix gas leaks, E&E News reports

The union’s president, James Slevin, was “among several union officials on a call with reporters led by the AFL-CIO to outline the precautions that have helped electric, natural gas, water and communications operations continue while much of the U.S. population stays home to slow down the spread of COVID-19.” 

A storm season is coming

Parts of the country are in for an unusually active Atlantic hurricane season. 

The National Oceanic and Atmospheric Administration is forecasting a 60 percent chance of an above-average season, with a 70 percent chance of 13 to 19 named storms. NOAA said six to 10 of those storms will become hurricanes and three to six could be major hurricanes, Andrew Freedman reports.

There’s only a 10 percent change the hurricane season is below average, the agency says. 

The Federal Emergency Management Agency stands to be tested this season. 

“With the hurricane season falling in the midst of the coronavirus pandemic, FEMA, which is the main federal disaster response agency, is likely to face a challenge that is unparalleled in its history,” Freedman writes. “The agency historically has dealt with multiple hurricanes and floods, notably during the 2005 hurricane season, when three hurricanes struck Florida within weeks of each other. But it has not had to address a pandemic at the same time as a regional crisis like a hurricane.” 

FEMA will try to minimize how many people authorities evacuate in emergencies. 

It’s an unprecedented move for the agency to try to reduce the number of residents it evacuates ahead of a hurricane. But the change is an effort to prevent any spread of the coronavirus in shelters, E&E News reports

A 59-page guidance for the 2020 hurricane season, which is “written with NOAA and the federal Centers for Disease Control and Prevention, departs from traditional advice urging evacuation, as well as the message authorities gave in March and April when they advised people facing tornado warnings to go to shelters despite the risk of contracting the novel coronavirus.”

The guidance comes as state officials look for alternatives to shelter for evacuees. That could mean hotel rooms or dorms that are safer for people considering whether to flee their homes.

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