The Federal Reserve on Thursday changed the terms for its Main Street Lending Program, making it easier for oil companies to borrow from a fund meant to help small and midsize companies hurt by the coronavirus pandemic.
Before Thursday, eligibility for the Fed’s Main Street Lending Program was limited to companies with no more than 10,000 employees and $2.5 billion in revenues.
The change comes after GOP lawmakers from oil states, such as Sens. Kevin Cramer of North Dakota, Ted Cruz of Texas, and Alaska’s Lisa Murkowski, pushed the administration and central bank to aid oil companies as prices have tumbled for several weeks because of a bloated crude market made worse by weakening demand as the coronavirus slowed global economic activity.
In an April 21 letter, the lawmakers asked the Federal Reserve to adjust the terms of the program to make more oil companies eligible for the help.
“Our energy producers should not be unfairly excluded from credit due to an arbitrary date and their viability should be protected with enhanced support for their credit and access to capital,” the senators wrote. “Assisting these companies could be the difference between maintaining our domestic energy production and workforce or shedding more U.S. jobs and returning to dependence on foreign sources of oil.”
In its announcement Thursday, the central bank said companies with up to 15,000 employees and $5 billion in revenues could apply for the loans.
“It is another arrow in the quiver, encompassing a larger pool of borrowers, such as North Dakota’s oil and gas industry,” Cramer said of the new credit option for oil companies.
The changes allow borrowers to use the money to pay pre-coronavirus debt, a change Cruz demanded in an April 24 letter to Treasury Secretary Steven Mnuchin and Fed Chairman Jerome Powell.
Cruz said the Federal Reserve’s lending programs created by coronavirus relief legislation are “not sufficiently structured to support the urgent needs of companies who engage in or support oil exploration, production, transport, storage, and refining” activities.
“To survive, the oil and gas industry needs to be able to access short-term liquidity in order to pay full-time employees, interest on debt service, equipment leases, taxes, and utility costs,” Cruz said. “Allowing the current government-created crises to dry up all liquidity will cripple our country’s domestic exploration and oil refining capabilities.”
The American Petroleum Institute, which represents more than 600 companies, has been reluctant to support such aid from the government, instead saying that loans should come from private lenders. The trade group didn’t immediately respond to a request for comment on the changes to the Fed’s lending program.
The Independent Petroleum Association of America has been more vocal in pushing for direct government support, writing on Tuesday to the Treasury and Energy departments that more than 50,000 jobs have been lost and hundreds of thousands more are at risk without help.
Barry Russell, the group’s president and CEO, said the “companies that created America's energy resurgence deserve the same opportunities” as other distressed industries to access government aid.
Democrats and environmental groups have been critical of efforts to create special help for fossil fuel companies, which they say created their own financial troubles before the coronavirus pandemic and have contributed to climate change.
"These changes directly reflect demands from polluters and their favorite members of Congress,” said Friends of the Earth senior policy analyst Lukas Ross. “Long before the coronavirus, the drillers were in deep trouble. Now frackers want to pay back their debts with our money. Trump’s Big Oil bailout must be stopped.”
The Fed’s changes to its lending program build on other measures the administration is taking to help oil companies as they grapple with the low prices and are running out of storage for their excess oil.
The Energy Department has allowed nine oil companies to lease storage in the Strategic Petroleum Reserve. In exchange, the companies will leave some of the oil in the stockpiles for the federal government when they withdraw what they’ve stored there.
Oil state lawmakers have also continued to push for Congress to approve $3 billion for the Energy Department to buy some of the excess oil to fill up the stockpiles, but that idea has so far proven politically difficult.