The fate of a $500 million federal loan guarantee program forsmall oil and gas producers and their suppliers (H.R. 1664), okayedby the Senate last week, is still up in the air as the measureheads for a U.S. House-Senate conference committee and a vote inthe 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.Sen. Phil Gramm, R-TX, also a fiscal conservative, opposedgovernment getting into the private sector. The final vote was63-34.

The bill calls for the heads of the Federal Reserve, theCommerce Department and the Securities and Exchange Commission toset up a committee to lay out rules and run the program. Varioustests would be applied to create a pool of producers eligible forloan guarantees of up to $10 million each. They would have to showthey had suffered losses through price and production declinessince 1997 and meet the test for independents under the InternalRevenue Service Code, which essentially means they have no refiningor marketing divisions. Drilling companies or other supplierswould have to show they had exhausted other options and that a bankloan package would only be available under the loan guaranteeprogram. Loan guarantee applications would have to be submitted by2001 and the loans paid back by 2010.

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