Energy News Today

The Energy 202: Oil industry lobbies to relax bank lending guidelines due to pandemic

with Paulina Firozi

Oil and gas companies are putting pressure on the Trump administration to loosen bank guidelines put in place under President Barack Obama so they better access emergency loans during the coronavirus pandemic.

The oil and gas sector has been hit hard by the downturn in demand for gas and jet fuel as many people stay indoors during the viral outbreak. Many small to midsize petroleum producers see a little-known, four-year-old lending guidance document as obstructing the main goal of the stimulus packages passed by Congress — to keep workers employed and prevent companies such as theirs from going bankrupt.

“We’re mainly trying to say: The train is moving out of the station. Let’s make sure that there isn’t a car at the back of the train that no one is paying attention to that could derail it,” Lee Fuller, executive vice president at the Independent Petroleum Association of America (IPAA), the trade organization spearheading the lobbying effort, said in an interview.

But Lukas Ross of Friends of the Earth, an environmental group, called the request “a shameless attempt” to get a bailout from an industry already saddled with debt.

“Stimulus money is meant for communities and businesses hit hard by the coronavirus,” Ross said. “It is not for oil companies drowning in debt from long before the crisis.”

At issue is an 86-page handbook published in 2016 for bank examiners, directing them to more closely scrutinize loans to oil and gas firms.

The Office of the Comptroller of the Currency (OCC), which regulates the nation’s largest banks, wanted to keep a tighter leash on lending to petroleum producers when underground oil and gas reserves are used as collateral.

Back then, the banking regulator wanted to make sure petroleum producers would be able to pay back the loans. But now the guidelines could restrict the oil industry’s access to emergency loans since much of that money is funneled through private banks subject to the 2016 guidance.

Four days after President Trump signed a $2 trillion coronavirus bill in March, Fuller emailed two OCC officials to explain why the IPAA, which represents small to midsize oil and gas producers, thought the Obama-era handbook may get in the way of them accessing the new emergency credit.

The trade group listed four sections of the manual it wanted the office to either revert to the 2014 version — or delete outright. The proposed changes included removing sections on how regulators assess a potential borrower’s debt-to-earnings ratio, future cash flow and prices at which it can sell its crude oil and gas.

Taken together, the IPAA’s proposal would give banks more flexibility in deciding which petroleum producers are creditworthy enough to get loans.

“Restoring the original provisions of the April 2014 Handbook would allow banks the discretion to make capital available prudently to domestic energy…

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2020-06-26 19:30:09

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