"The oil industry is flooded with cash right now. If this story is true the US government is subsidizing an industry that is recording record profits. Sorry, I don't get it."
Not really.
Let's say you have 1,000 to invest.
You can invest it in Deal A that gives you a return of 15%
Or you can invest in Deal B that gives you a return of 20% with the same risk as Deal A.
No brainer, huh?
This is true in oil --- there are better places to put oil company's money than marginal areas like this.
Hence, the deal was sweetened, for the twin purposes of: (1) getting some, versus no, money and (2) encouraging domestic supply for security reasons.
I'm speaking more from the perspective of the Alberta oil patch. I'm not that famiar with the American market.
The Calgary oil trusts are flush with cash and short on projects.
I interviewed the guy that put the Velvet Energy deal together. The trusts threw money at him and his stock went from 0.20 to $8.50 at which point a Texas producer took them out.
That is a serious oil play and Velvet was just a small exploration company.