Due to air drag, the satellite will get heated as some mechanical energy of the satellite will be converted into heat. This in turn implies that the radius of the orbit will decrease and so the satellite will follow a spiral path falling towards the earth.
Due to the air drag, the total energy will decrease, since some energy is lost as heat. The rate at which potential energy decreases will be larger than the rate at which the total energy decreases.
Thus, options (a and b) are correct.