The loans could also help natural gas companies that operate in Pennsylvania.
A group of GOP senators from Pennsylvania and other Appalachian states wrote in favor of the changes in April.
“Many producers will have debts come due before this health crisis is expected to subside,” the letter stated. “These companies would have been able to pay their debt obligations out of normal cash flows if not for the virus.”
Jeffrey Ventura, CEO of gas driller Range Resources, also lobbied the Fed to loosen its guidelines. A company spokesman did not respond to requests for comment.
The CEO of the Independent Petroleum Assocation of America wrote Fed Chair Jerome Powell in April that loosening the loan guidelines would “limit the number of defaults” in the industry.
“Oil and natural gas producers are not looking for a government handout; they are seeking a bridge to help survive this economic disruption,” the letter stated.
It’s unclear which companies would take advantage of the program. Spokesmen for CNX Resources and Cabot, two of Pennsylvania’s leading drillers, both said their companies would not apply for the loans. EQT and Range Resources did not respond to requests for comment.
The crash in oil prices may have actually helped some of these companies by inflating the price of natural gas.
Since oil wells also produce natural gas, when oil production slows, less natural gas comes onto the market, and the price for natural gas goes up. Gas futures for January 2021 are trading above $3 per million British Thermal Units, well above the current $1.84 price.
Still, some of these companies are holding debts they accumulated from leasing millions of acres of land during the fracking boom that began around 2008.
“For years, shale was all about grabbing land,” said Bill Holland, who covers the natural gas industry for S&P Global Market Intelligence. “So these companies spent big to lease big, big tracts of land in western Pennsylvania, West Virginia, Ohio, in the Utica and Marcellus shales — the land grab. And that debt is still on their books.”
One company that could benefit from the Fed’s new loan program is Chesapeake Energy, which has a big debt payment coming due this year. The company did not respond to a request for comment.
But Holland said it’s unclear whether Chesapeake could qualify for the loan. News outlets are reporting the company, saddled with over $9 billion in debt, is getting ready to file for bankruptcy.