Lawmakers, regulators and the president have floated an array of possible tactics to aid the U.S. oil industry, but which proposals stick and whether they will staunch the sector's bleeding remains in question.

Issues around lending and oil storage capacity have come to the fore of the conversation in recent weeks, as the oil industry struggles to cope with the precipitous drop in demand the coronavirus pandemic has brought coupled with the fall-off in prices brought on by the Saudi-Russia price war.

President Donald Trump tweeted April 21 that he had directed the secretaries of Energy and Treasury to "formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!"

It is not yet clear how either agency intends to carry out the president's wishes, but Energy Secretary Dan Brouillette said the same day in a CNBC interview that he was working on "formalizing some of the thoughts that we have about what we might do to make sure that this important industry makes it all the way through the pandemic. ... We will be looking at some of the lending facilities ... and make sure that our important energy industry [is] made part of those programs."

However, Brouillette emphasized that he would not consider the measures he and his fellow regulators are pursuing sector bailouts. "The steps the president's directed me to take ... those are not bailouts. In no way, shape or form are those bailouts," he said.

Access to loans

Lawmakers have since echoed the president's call for action from regulators. Eleven Republican U.S. senators sent a letter to Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell asking the officials to "craft a swift response to head-off this growing emergency."

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Specifically, the letter said, the administration and Federal Reserve should amend the eligibility requirement in the credit facility term sheets released April 9 that say companies must have at least a BBB-/Baa3 as of March 22.

Oil and gas producers were fielding blows from the coronavirus and the OPEC+ price war for more than two weeks before March 22, the senators wrote. The government should move the March 22 requirement up to early March, predating "market manipulations" from the price war.

While acknowledging the recent OPEC+ production cuts, the senators said the oil and gas sector needs more support to prevent "real and lasting damage to this critical area of the economy" and prevent hundreds of producers from shutting down. Oil demand has fallen dramatically as much of the population stays home to limit the spread of the coronavirus. With less demand, oil stockpiles recently reached their third-largest build on record.

The government should also only require companies to provide one eligible credit rating, rather than at least two, on the term sheets, according to an April 22 press release from U.S. Sen. Kevin Cramer, R-N.D., and the government should also be more flexible on credit score requirements, so energy companies can more readily access the loans.

"Our energy producers should not be unfairly excluded from credit due to an arbitrary date, and their viability should be protected with enhanced support for their credit and access to capital," the lawmakers wrote. "Assisting these companies could be the difference between maintaining our domestic energy production and workforce or shedding more U.S. jobs and returning to dependence on foreign sources of oil."

Such requirement adjustments could be especially important to producers given their ineligibility for some federal assistance. Mnuchin said that energy companies do not qualify for the $17 billion included in the last stimulus bill dedicated to businesses critical to national security, and the administration may need to ask Congress for additional funding for these companies, Politico reported.

Keeping oil out of the markets

The Trump administration has proposed several ways to use the nation's oil repository, the Strategic Petroleum Reserve, to relieve some pressure on the domestic industry.

The U.S. and Australia reached a deal for the latter to store about $59 million worth of crude oil in the Strategic Petroleum Reserve for at least a decade, S&P Global Platts reported. The U.S. Department of Energy also announced that it was negotiating contract awards with companies to store about 23 million barrels of oil from domestic producers in the reserve, given the dwindling number of places to put the fuel.

"We've got a long history in the U.S. government of buying high and selling low," Brouillette said, noting that current oil prices make now a good time to purchase supplies for the reserve.

The DOE is also reportedly drafting a proposal to pay producers to leave oil in the ground, considering that fuel to be an addition to the national stockpile. The department did not respond to a request for comment on such a proposal.

While the industry is interested in "creative solutions" to address oil storage limitations, "we would be concerned about any policy proposals that would propose keeping oil in the ground and paying producers for not producing," Mike Sommers, president and CEO of the American Petroleum Institute, said on CNBC on April 22.

"No one's making any money at current prices, so we believe that the market is providing the best signal for producers to not produce at this time," Sommers said. "When you have American production going down from 13 million barrels a day in the month of February and going down probably to 11 million barrels a day through the end of this year, we think the prices are giving the appropriate market signals to producers, and we don't think that it's appropriate for the government to get involved with this industry right now."

Obstacles to approval

Any federal funding for oil and gas producers would require congressional approval, opening the door to negotiations over renewable energy tax credit extensions, according to an April 21 note from Height Capital Markets. Despite support from the administration and Republican legislators, Congress failed to include $3 billion in a recent spending package to purchase domestic oil to fill up the nation's reserve, given Democratic opposition to the measure.

"Such a complex negotiation within other stimulus efforts would be expensive and time-consuming," Height analysts said.

The Trump administration could try to "shoehorn a financial lifeline into an existing Department of Energy program," such as the $8.5 billion Advanced Fossil Energy Projects Loan Guarantee program, according to Height. However, the analysts noted, broadening an interpretation of such a program would likely be met with congressional opposition and lawsuits.

S&P Global Market Intelligence and S&P Global Platts are both owned by S&P Global Inc.