PPP Loans Flow to Energy Companies Backed by Deep-Pocketed Private Equity

Congress designed the Paycheck Protection Program (PPP) to help small businesses remain afloat and ensure they continued to pay their employees, rent, mortgage interest and utilities, during the coronavirus pandemic. The program came under fire early on when some small businesses, particularly minority-owned businesses, were unable to get loans while larger companies with access to alternate funding sources received PPP loans.

In establishing the $669 billion government program, Treasury Secretary Steven Mnuchin said the program isn’t meant to help companies that have access to other sources of capital. Nonetheless, companies backed by private equity firms, home to some of the world’s wealthiest financiers, received taxpayer-backed PPP loans.

Small Business Administration (SBA) officials have urged the private equity industry – which has approximately $1.5 trillion in available cash – to assist their portfolio companies weather the pandemic.

Even though the government broadly excluded private equity firms from the PPP program, many private equity-backed companies found ways to navigate around those restrictions. Thousands of private equity-backed companies got PPP loans equal to around $13 billion, according to an analysis by Pitchbook.

Of those, the data show that at least 72 fossil fuel-connected companies backed by private equity firms received loans in amounts ranging from $350,000 to $10 million, from producers to oil field services to equipment companies. Combined, these private equity-backed fossil fuel companies were granted between $110 million and $240 million in taxpayer loans through PPP.

More recently, private equity firms KKR, Blackstone, Apollo, Carlyle, TPG, and Ares told Bloomberg that the portfolio companies they back have not used SBA funds.

Spur Energy
KKR executives claim to have urged their portfolio companies who apply for and received PPP loans to return them to the government.

But one of KKR’s newest energy partnerships has yet to do so. Formed last year with KKR’s financial backing, Spur Energy is focused on acquiring and developing oil and gas assets across the United States. In April 2020, Spur Energy was granted a PPP loan of $2 million to $5 million. This government loan came after Spur Energy and KKR acquired new assets in the Permian Northwest Shelf and the New Mexico Shelf in 2019.

Spur Energy’s financial sponsor is a leading global investment firm. KKR has $222 billion in assets under management and according to Pitchbook, $42.2 billion available to invest. In the second quarter of 2020, it raised $16 billion, a record quarter figure for the firm and made over $698 million in profit in the first 6 months of the year – seemingly plenty of money to help its portfolio companies weather the pandemic’s market uncertainty.

Laramie Energy
Another example involves a natural gas fracking company, Laramie Energy, which received $1 to $2 million loan to retain 27 jobs. It is also backed by private equity, having raised capital exceeding $500 million from five funds: Avista Capital, aPriori Capital, Par Pacific Holdings, Energy Spectrum, and Wells Fargo Energy Capital. Wells Fargo’s Energy Group is one of the largest capital providers in the energy space, with approximately $42 billion committed to public and private companies. In April 2020, Energy Spectrum closed its eighth venture capital fund, amounting to $969 million, which the firm is currently investing. Despite second quarter EBITDA losses, Par Pacific Holdings, which owns 46 percent of Laramie Energy, increased its liquidity by 49 percent or nearly $70 million during the quarter.

Laramie is the third largest producer of gas in Colorado’s Piceance Basin, but faced financial losses before the pandemic. After suspending local drilling, Laramie lost nearly $90 million in 2019, compared to equity earnings of about $10 million in 2018. Laramie’s total Adjusted EBITDAX decreased by 27 percent from 2018 to 2019. Oil and gas analysts attribute the nosedive to falling natural gas prices as early as 2016 and the passage of the 2019 Colorado Senate Bill 181, which prioritizes the protection of public health and safety, the environment, and wildlife over the development of extractive natural resources.

Casillas Petroleum
Another oil and gas production company, Casillas Petroleum received a PPP loan between $350,000 and $1 million in April 2020. Casillas’ private equity sponsor, Kayne Anderson Capital, manages over $27 billion of assets. According to Pitchbook, Kayne Anderson has over $7 billion available to invest. The last Kayne Anderson Energy Fund raised $2 billion in 2016. Kayne Anderson has raised at least $1 billion for its eighth energy fund, according to federal filings, and continues to seek commitments.

The list below shows private equity-backed oil and gas companies that were awarded PPP loans, based on data from the SBA and Pitchbook.