The fate of a $500 million federal loan guarantee program forsmall oil and gas producers and their suppliers (H.R. 1664), okayedby the Senate earlier this month, is still up in the air as themeasure heads for a U.S. House-Senate conference committee and avote in the House.

A spokesman for the Independent Petroleum Association of America(IPAA), said the group had been assured by House leaders themeasure would go to a vote on the House floor within the nextseveral weeks. “I am optimistic the bill will pass the House aswell,” IPAA Vice President for Government Affairs Lee Fuller said.

IPAA has been a strong supporter of the legislation under whichthe federal government would guarantee to pay off loans forproducers in the program if the producers default. The measure isnecessary, Fuller said, to help struggling small producerssuffering the effects of super-low oil prices over much of the past18 months. While oil prices have gone up in the last few months,there is no assurance they will stay up and producers still arehaving trouble raising capital. “These loans would help producersget their cash flow back in order,” Fuller said.

Meanwhile, the measure caused some sharp divisions among oilstate legislators in the Senate. Sen. Pete Domenici, R-NM,championed the measure, teaming up with the powerful Sen. RobertByrd, D-WV, on a two-pronged loan guarantee program, one for oiland gas producers and another, much larger program, for the steelindustry.

But the subsidy measures went against the grain for Sen. DonNickles, R-OK, who said the guarantees would not help producers. Hepointed out a loan guarantee program for the steel industry in 1978in which some beneficiary steel companies defaulted leaving thefederal government to pay off $222 million or 77% of the amountguaranteed. A loan guarantee program basically says “we don’tbelieve the marketplace can make loans, we want the federalgovernment to. We want to set up a board of politicians to bemaking loans and making loan guarantees,” Nickles in arguing hisposition on the Senate floor. Sen. Phil Gramm, R-TX, also a fiscalconservative, opposed government getting into the private sector.The final vote was 63-34.

The bill calls for the heads of the Federal Reserve, theCommerce Department and the SEC to set up a committee to lay outrules and run the program. Various tests would be applied to createa pool of producers eligible for loan guarantees of up to $10million each. They would have to show they had suffered lossesthrough price and production declines since 1997 and meet the testfor independents under the IRS Code, which essentially means theyhave no refining or marketing divisions. Drilling companies orother suppliers would have to show they had exhausted other optionsand that a bank loan package would only be available under the loanguarantee program. Loan guarantee applications would have to besubmitted by 2001 and the loans paid back by 2010.

Ellen Beswick

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