OKLAHOMA CITY (CN) — Oklahoma Governor Kevin Stitt asked President Donald Trump on Saturday to declare the Covid-19 pandemic an “act of God” to shield the oil and gas industry as it grapples with the dual shocks of collapsed demand and surging supply that put U.S. oil futures contracts briefly into the red this week.
A fellow Republican, Stitt asked for the federal declaration to “provide aid to our oil and gas industry and to protect the environment” by limiting over-production with nowhere to store the excess.
“We have seen evidence of this demand destruction, gross oversupply, and lack of available storage in the recent market collapse – causing oil futures to close negative for the first time in recorded history,” Stitt’s letter states. “Many operators desire to voluntarily reduce or cease producing on a temporary basis, without fear of parties taking advantage of an opportunity to cancel leases as a result of the curtailment of productions.
“We are asking your Administration to declare the COVID-19 pandemic a ‘force majeure’ or ‘act of God’ for the narrow purpose of protecting these producers from actions to cancel leases held by production as a resulting of production stoppage.”
The May futures contract for West Texas Intermediate cratered over 300% on April 20 to as low as negative $37 per barrel as sellers began paying buyers to take the oil.
Stitt’s request comes four days after Oklahoma City-based Continental Resources allegedly declared force majeure on a contract to deliver oil to a refinery. The company claims the oil delivery contracts presume a positive price for oil and the ability to sell it without creating economic “waste,” Bloomberg reported Thursday.
A growing number of lawsuits are being filed nationwide over the invoking of force majeure clauses in contracts as stay-at-home and social distancing orders have been in place for over a month, decimating business revenues.
The report comes two weeks after Continental Resources announced a suspension of its quarterly dividend to manage cash flow and a 30% percent reduction of output.
Controlled by billionaire Harold Hamm, the company’s leading assets are in the Bakken shale formation in North Dakota and the Anadarko Basin in Oklahoma. It has stopped all drilling activities and shut-in most of its wells in North Dakota, Reuters reported Thursday.
The Texas Railroad Commission – the most influential U.S. regulator of oil output – disappointed markets when it declined April 21 to vote on forcing oil producers in Texas to cut production and stabilize oil prices.
Commissioner Ryan Sitton failed to convince the other two members of the commission to vote on a 20% production cut that would be contingent on other oil producing states and countries enacting similar cuts.