Responding to concerns expressed by smaller independent producers and oilfield service companies seeking the money and banks that would provide it, the federal government's new emergency oil and gas loan guarantee board extended the application deadline to Jan. 31. The board, which was created by Congress on Aug. 17 and began to accept applications on Oct. 27 for up to $500 million of guaranteed loans, also modified a requirement for an underlying audit in some cases and removed a provision that gave the government a senior position on an applicant's other outstanding debt. "I think this will be a big help," said Charles Hall, a former Den Norske Bank oil and gas lending executive in Houston who has relocated to Washington to be the board's executive director. "The money is needed now. Applicants have a compelling need. One of the biggest issues we face is generating lender support. We won't have a program without them. We need to educate them about what it can do." The board intends to respond to applications within 60 days of the Jan. 31 application deadline. "This is not a grant program or a bailout for banks. It's an emergency program to help oil and gas producers get loans, not a permanent agency. The transactions will have to make economic sense and be commercially viable. There's pressure to get this done, and done quickly. Each member of the board and staff is compelled to make this work," Hall maintained. Scott Espenshade, vice president of economics and capital markets at the Independent Petroleum Association of America, applauded the deadline extension, audit requirement modification and removal of the collateral debt provision. But several important questions about the program still have to be answered. "We have asked the Commerce Department and loan guarantee board for additional clarification. They did an admirable job, getting the regulations out in 60 days. But there are still questions," Espenshade said. The program is limited to producers or service companies that have experienced financial losses since January 1997. Loans guaranteed under the program must be repaid by Dec. 31, 2010. A bank is liable for 15% of the loan; the government, up to 85%. Espenshade said, "There's been a real pull-back in making oil and gas loans for $10 million or lower. Loans that small require the same work as larger commitments that make more money. Only a handful of capital partners still are willing to serve this part of the market. "We know the board and the Commerce Department want to see this program work. We do too," said Espenshade. "There's a real capital crunch that's somewhat masked by the improved cash flow coming from recent higher oil prices. "A company with a lot of proved undeveloped reserves may be operating adequately, yet limping along instead of full-out, as it should be in the current price environment. We want to see these companies work out problems that have been caused by 18 months of low prices." -Nick Snow