On March 27, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law. The Act doesn’t expressly provide relief to energy companies, but many of its provisions will impact businesses operating in the oil and gas space, including the expansion of small business loans under the Paycheck Protection Program (PPP).
The morning of April 16, the Small Business Administration (SBA) announced that the initial $349 billion for PPP loans had run out. On April 21, the Senate reached a deal approving over $480 billion in additional coronavirus relief, including $310 billion for the PPP, with $250 billion refilling the program and $60 billion set aside for smaller institutions, such as credit unions and community banks. The House approved the package on April 23, and the President’s approval and signature are expected in short order.
Small businesses that retain their workers can obtain federally guaranteed PPP loans through the SBA. The Act expands the definition of “small business” for the PPP to mean businesses that, inclusive of their affiliates:
Oil and gas companies will be subject to the SBA’s affiliation rules for purposes of determining the number of employees that a borrower has. Four “affiliation tests” apply per SBA guidance:
For more information on applying the affiliation rules, follow this link.
Many oil and gas companies fall into sectors of the energy industry that have an SBA size standard exceeding 500 employees. Small businesses in the energy industry sectors listed below qualify for PPP loans if they and their affiliates employ no more than the indicated number of employees:
|NAICS US Industry Title||Number of Employees|
Drilling Oil and Gas Wells
|Fossil Fuel Electric Power Generation||750|
|Natural Gas Distribution||1,000|
|Natural Gas Extraction||1,250|
|Pipeline Transportation of Crude Oil||1,500|
|Pipeline Transportation of Refined Petroleum Products||1,500|
The amounts of individual PPP loans are limited to the lesser of:
The SBA will guarantee 100% of the loans issued to small businesses under the PPP during the period of February 15, 2020, through June 30, 2020. PPP loans don’t include collateral or personal guaranty requirements. The loans, to the extent not forgiven, will have a 2-year term and an interest rate of 1%. At least 75% of the loan amount must be used for specified payroll costs.
Small business borrowers will be eligible for loan forgiveness as further described in our client alert available here.
Due to the evolving nature of relief under the CARES Act, please keep your Foley contact apprised of any steps that you take so we are best positioned to assist once further guidance is released. For a more in-depth discussion of the details of the PPP, please see Foley’s most up-to-date client alert on this topic.
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