Oil Bankruptcies Could Shift Clean-Up Bill to U.S. Taxpayers

Oil Bankruptcies Could Shift Clean-Up Bill to U.S. Taxpayers

ABI Bankruptcy Brief

October 1, 2020

ABI Bankruptcy Brief

Oil Bankruptcies Could Shift Clean-Up Bill to U.S. Taxpayers

A new report found that U.S. taxpayers could be left footing a bill of tens or even hundreds of billions of dollars to clean up oil and gas wells across the country as a growing number of producers collapse into bankruptcy, the Financial Times reported. A tiny proportion of the costs of “plugging” America’s active wells are currently covered by insurance mechanisms, the report from the Carbon Tracker think tank estimates. That means that when companies go bust, the bill for doing so will often be left to the state authorities. “If companies are in dire straits, plugging these wells is probably one of the very last things on the list of management ideas for how to use cash,” said Robert Schuwerk, one of the authors of the report. “If they happen to go bankrupt, and nobody wants to pick up the well out of the bankruptcy, then the state’s going to end up picking up the tab.” The findings come as a growing number of U.S. oil and gas producers are being forced to seek protection from their creditors in the wake of this year’s price crash — prompting concerns over what becomes of their liabilities. A total of 36 oil and gas producers filed for bankruptcy in North America in the first eight months of the year, according to Houston law firm Haynes and Boone. They had combined debt loads of around $51 billion — more than half of which was unsecured.

For more on oil and gas bankruptcies, be sure to read When Gushers Go Dry: The Essentials of Oil & Gas Bankruptcy, Second Edition, available for purchase in the ABI Store.

Initial Jobless Claims Drop Under 850,000

The number of people filing initial unemployment claims for the last full week of September dropped to a seasonally adjusted 837,000, a drop of 36,000 from the previous week, The Hill reported. The weekly number remains elevated beyond the worst levels recorded before the COVID-19 pandemic, where it has been for over six months. But the drop also puts claims at the lowest level they've been since the pandemic arrested the economy in March. The unadjusted data also saw a significant drop of 40,263, reaching 786,942 in the week ending Sept. 26. Today's data on the total number of people claiming benefits, which lags the initial claims numbers by two weeks, found a significant uptick of nearly half a million claimants, reaching 26.5 million.

Fraud Schemes Exploit Weak Spots in Unemployment Claims System

The for-sale ad appeared last week in an underground internet bazaar that specializes in selling stolen accounts and data: It was for access to a filched unemployment insurance claim in California that had been approved and offered benefits worth $17,550. The black-market sale of jobless benefits is just one sign that the unemployment insurance system — the main artery for delivering financial assistance to laid-off workers — has been besieged during the coronavirus crisis by criminal networks intent on bilking the government out of hundreds of millions of dollars, the New York Times reported. In California, fraud was so pervasive that officials have suspended processing jobless claims for two weeks to put new controls in place and reduce a bulging backlog. The U.S. Labor Department recently made fraud detection a priority, dedicating $100 million to combat the problem. But several state officials and cybersecurity experts say some of the efforts have been misdirected, designed to uncover workers misrepresenting their eligibility instead of large-scale identity theft. “The focus continues to be on lying instead of stealing,” said Suzi LeVine, the commissioner of the Employment Security Department in Washington, one of the first states to be flooded with fraudulent claims. But most fraud is now being engineered by cybercriminals, some of them working together, who have stolen or bought other people’s identities and are using them to raid state unemployment systems. Since March, Washington State has turned up nearly 87,000 impostor cases. From January 2018 to June 2019, there were 184.

Consumer Spending Rose in August, but Incomes Pose Hurdle for U.S. Recovery

U.S. household income fell sharply in August while worker layoffs remained high, developments that could weigh on the economic recovery as it shows signs of slowing amid the coronavirus pandemic, the Wall Street Journal reported. Personal income — a measure of what Americans received from salaries, investments and government assistance programs — fell 2.7 percent in August from a month earlier, the Commerce Department said today. The decline was due entirely to a drop in unemployment benefits, the data showed. The drop offers a mixed outlook for the U.S. economy. By most measures it continues to recover from the pandemic-induced recession, but also appears to be losing some momentum. Household income was still up nearly 2 percent in August compared with February, before the pandemic hit the U.S., boosted by one-time federal stimulus checks, stock-market gains and weekly unemployment insurance payments, which remain higher than normal despite a drop in August. Consumer spending has continued to grow. Households stepped up outlays on goods and services by 1 percent in August from a month earlier, the Commerce Department reported. But the gain was far smaller than earlier in the summer, when spending grew 9 percent in May, 7 percent in June and 2 percent in July. While consumer spending on retail goods such as bicycles and cars has risen above pre-pandemic levels, spending on services — such as restaurant outings — remains below February levels. (Subscription required.)

Commentary: COVID-19 Recession Disproportionately Hurting Minorities, Younger Americans and Low-Income Families*

The economic collapse sparked by the pandemic is triggering the most unequal recession in modern U.S. history, delivering a mild setback for those at or near the top and a depression-like blow for those at the bottom, according to a Washington Post analysis of job losses across the income spectrum. While recessions often hit poorer households harder, this one is doing so at a scale that is the worst in generations, the analysis shows. The nation overall has regained nearly half of the lost jobs, but several key demographic groups have recovered more slowly, including mothers of school-age children, Black men, Black women, Hispanic men, Asian Americans, younger Americans (ages 25 to 34) and people without college degrees. White women, for example, have recovered 61 percent of the jobs they lost — the most of any demographic group — while Black women have recovered only 34 percent, according to Labor Department data through August. And workers with college degrees are 55 percent recovered, compared with less than 40 percent for workers with high school degrees. The Great Recession of 2008 and 2009 caused similar job losses across the income spectrum, as Wall Street bankers and other white-collar workers were handed pink slips alongside factory and restaurant workers. The 2001 recession was more unequal than the Great Recession: After the 9/11 terrorist attacks, travel and tourism jobs vanished and low-wage employment fell 7 percent below the previous year’s level, while high earners remained largely unscathed. Yet even that inequality is a blip compared with what the coronavirus inflicted on low-wage workers this year. “It’s an even more unequal recession than usual,” said Ben Bernanke, who led the Federal Reserve through the Great Recession. “The sectors most deeply affected by Covid disproportionately employ women, minorities and lower-income workers.”

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI. 

Some Workers Face Looming Cutoffs in Health Insurance

As millions of other Americans have lost health care coverage amid the coronavirus crisis, some have signed up for a plan under the Affordable Care Act. For those who qualify for Medicaid under the law, “there is still a safety net that wasn’t there 10 years ago,” said Sara R. Collins, a vice president at the Commonwealth Fund. But that net is already fraying, with thousands of small businesses that had always expressed difficulty in providing employee health insurance under Obamacare now in far worse trouble because of the pandemic. Not only are businesses shedding workers, with the nation’s unemployed numbering roughly 13.6 million, but employers are also cutting expenses like health coverage, and projections of rising numbers of uninsured have grown bleak. Tens of millions of people could lose their job-based insurance by the end of the year, said Stan Dorn, the director of the National Center for Coverage Innovation at Families USA, the Washington, D.C., consumer group. “The odds are we are on track to have the largest coverage losses in our history,” he said. While estimates vary, a recent Urban Institute analysis of census data says at least 3 million Americans have already lost job-based coverage, and a separate analysis from Avalere Health predicts some 12 million will lose it by the end of this year. Both studies highlight the disproportionate effect on Black and Hispanic workers. Health insurers, whose profits have soared as people stayed away from hospitals and doctors, have been stingy in offering businesses much in the way of breaks, according to a Harvard report. Just 14 percent of the companies said they received premium credits or a longer grace period. The insurance companies insist they are providing refunds to their customers, but some business owners say they have had more luck with their landlords or the electric company than their health insurer.

ABI Sessions Next Week at the Insolvency 2020 Virtual Summit: Restructuring an Industry Shut Down by COVID, Virtual Trial Guide, Next Big Wave of Chapter 11s and More!

ABI sessions continue next week at the Insolvency 2020 Restructuring, Insolvency and Distressed Debt Virtual Summit to examine the key issues facing the commercial bankruptcy landscape. Panels include:

Oct. 5 
• Premier Sponsor Showcase: Polsinelli
• Premier Sponsor Showcase: CohnReznick

Oct. 7
• Keynote with Dr. Will Miller: Coping and Growing Through the Pandemic
• How to Restructure an Industry that Has Been Shut Down, and How to Prove Feasibility When You're Starting from Ground Zero

• Anatomy of a Virtual Trial: A How-To Guide to Trials in the Age of COVID-19
• Next Big Wave of Chapter 11s: Corporate Real Estate
• Networking Hour: Featuring Special Guest Dr. Will Miller

Also, don’t miss great programing from Summit partners NCBJ, ABA and M&A Advisors on Oct. 8!

Sixteen leading insolvency organizations are participating in the Virtual Summit through Oct. 27 to bring thought leaders from the worlds of restructuring, insolvency and distressed debt for insightful online programming and engaging networking via a state-of-the-art virtual platform. Click below to learn more about how the Insolvency 2020 platform provides attendees with an enhanced online conference experience:

For more information and to register, please click here.

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New on ABI’s Bankruptcy Blog Exchange: House PPP Forgiveness Plan Is Better than Nothing, Bankers Say

Lenders are disappointed with a low proposed cutoff for blanket forgiveness, but they said the proposal, which waives applications for some loans, is a good first step, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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