How Can Feds Help Oil, Gas Industry? Stay Out Of It, Insiders Say
http://www.rigzone.com/news/oil_gas/a/144163/How_Can_Feds_Help_Oil_Gas_Industry_Stay_Out_Of_It_Insiders_Say/?all=HG2#sthash.KHK1OqDl.dpufAs U.S. oil and gas continues its “lower for longer” path, the question arises of whether a bailout – such as the one granted to the automotive industry at the end of the 2000s – has become part of the national discourse.
The automotive industry’s rescue amounted to a bill of $9.3 billion once the government was reimbursed for its effort; even with the multi-billion dollar cost, Treasury leaders said it was worth it.
“The government’s actions not only saved GM and Chrysler but they saved many businesses up and down the supply chain,” the Treasury Department said in a statement. “The decision to rescue the American auto industry helped the economy recover from the financial crisis and enabled the auto industry to come roaring back.”
But the same approach to the oil and gas downturn wouldn’t likely have the same impact. To begin, the industry itself doesn’t want it. But what’s more, the circumstances are very different, said economist Ray Perryman, president and CEO of The Perryman Group in Waco, Texas.
“The auto industry involved a few very large companies and hundreds of thousands of jobs, and loans that were repaid with interest. While there are large firms in the oil industry, they are primarily diversified energy companies that have other interests (including refining, which is doing well). The oil industry has large numbers of smaller firms in oil and gas whose assets can be absorbed by others,” he told Rigzone. “The industry structure was quite different.”
The key difference between the woes of the auto industry and those of energy is that the automotive industry needed a structural fix that was decades in the making. Meanwhile oil and gas is experiencing the downside of its cycle, he said.
When commodity prices were high, many oil and gas companies took on substantial debt for exploration and production (E&P), which left them highly leveraged. Some now face restrictive covenants and investor expectations. Still, Perryman doesn’t expect a major federal bailout of the industry, nor does he believe one will be needed.
But there are steps the government could take. Allowing exports was one move the federal government took that will assist the industry, and tweaking bankruptcy law might also be worth considering. In addition, some forbearance on regulations and requirements that add to the industry’s expense and resources during this difficult time could be palatable, Perryman said.
But, as happens in many industries as they go through challenges, there will be some companies that don't survive. That will be an opportunity for those with significant cash reserves to grow through purchasing those assets and leases, Perryman said. “This pattern is difficult for those who cannot sustain their operations, but [it] is inevitable and a part of the way in which capitalist economies progress. There will be some reshuffling, but the industry will endure,” he said. “Some accommodations to ease the pressures would be beneficial, but any wholesale changes to meet a cyclical phenomenon would not be appropriate.”...
In the short term, such an assist could be helpful, Bill Schrom, CEO of Houston-based Geotrace Technologies, told Rigzone. However, he added, it would be “very bad” in the long-term.
“It creates false economies. Holding on to old assets causes new technology launches to be slowed. A tax starts off nice but the proceeds often get deflected to protect other deficiencies in other areas of government spend[ing] and taxes always go up,” he said....
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