WASHINGTONâ€”As the coronavirus pandemic and low oil prices walloped U.S. frackers this spring, Texas billionaires Dan and Farris Wilks got a $35 million relief loan to help one of their fracking companies stay afloat. At the same time, they were on a buying spree in the countryâ€™s oil patch.
Since spring, businesses controlled by the Wilks brothers have hunted for deals among fracking firms going through bankruptcy and taken or increased stakes in at least six other companies, corporate filings show. But when it looked like the oil-and-gas industry would be shut out of a key pandemic lending program, they and others in the industry turned their attention to Washington, making an appeal for help in meetings with home-state senator Ted Cruz.
The twin dynamics of acquisitions and government rescue show how the economic tumult caused by the pandemic has reshaped the landscape for a key U.S. industry. One result: The Wilkses have expanded their presence in a still-youthful industry where they first invested in 2002, soon to become billionaires as fracking flourished.
But the industry was already under pressure from international competition and a sagging oil price by the time the pandemic hit, and its mounting woes prompted the Wilkses and others to turn to allies in Washington, including Mr. Cruz. The Republican senator helped convince the Trump administration and the Federal Reserve to change the rules for pandemic loans to ensure oil and gas firms could participate.
Soon after the U.S. government changed the rules of its lending program in April, a Wilks family company, ProFrac Holdings LLC, applied for and received a $35 million loan, federal records show. ProFrac, a supplier of pumping equipment and services, is just one slice of the sprawling portfolio of fracking businesses that the Wilks family owns in part or outright across the American West and Canada.
The Wilks brothers are longtime financial backers of Mr. Cruz. The brothers donated $15 million to a super PAC called Keeping the Promise that championed Mr. Cruzâ€™s 2016 presidential campaign, making them the largest financial backers of his political career.
Mr. Cruz â€œworked to ensure small and medium-sized businesses directly harmed by the economic impacts of this pandemic had access to emergency liquidity,â€ said Lauren Blair Aronson, a spokeswoman for the senator. â€œThe result of his leadership was a program that has helped about 25 U.S. energy producers, including roughly a dozen in Texas, and helped protect over 300,000 oil and gas jobs in Texas.â€
BailoutWatch, a nonprofit group that tracks pandemic aid to industry, said Mr. Cruzâ€™s efforts to get relief for the oil-and-gas industry amount to a reward for a campaign contributor.
â€œProFracâ€™s loan is blatant misappropriation of taxpayer dollars,â€ said Chris Kuveke, an analyst for the organization, which has received funding from Climate Nexus, a group that advocates for clean energy. He said Mr. Cruzâ€™s biggest political benefactors ended up receiving one of the relief programâ€™s largest loans to the fossil-fuel industry. â€œItâ€™s hard not to connect the dots.â€
Spokespeople for the brothersâ€™ main investment firm, Wilks Brothers LLC, and ProFrac didnâ€™t provide comment for this article.
â€œ â€˜ProFracâ€™s loan is blatant misappropriation of taxpayer dollars.â€™ â€
Dan and Farris Wilks struck it rich in the early days of the fracking boom. In 2002, the sons of a bricklayer formed a business then known as Frac Tech to service wells, eventually selling it for $3.5 billion in 2011.
As newly minted billionaires, the brothers took to conservative politics; and in the 2016 Republican primary, they funded one of four super PACs aiming to boost the candidacy of Mr. Cruz.
This spring, their ProFrac business benefited from the federally backstopped Main Street Lending Program, which Congress established to help small- and medium-size companies survive the economic upheaval triggered by the pandemic.
Commercial banks provide funds to borrowers and then can sell up to 95% of the loans to the Federal Reserve, thereby off-loading the increased risk of default during the pandemic. The Treasury Department covers the Fedâ€™s losses on any loans that borrowers donâ€™t repay, effectively making U.S. taxpayers the ultimate backstop.
Under the programâ€™s initial rules, which the Federal Reserve published in April, many in the oil-and-gas industry worried the initiative wouldnâ€™t be enough to help companies like ProFrac survive. One problem was size: The Fed initially capped Main Street loans at $25 million, a figure deemed too small for an industry struggling under heavy debt.
Program participants also werenâ€™t allowed to use the government-backed loans to pay off or restructure existing debt. That restriction effectively ruled out the many struggling businesses in the oil patch that had big loans coming due at a time when a global slowdown in travel was keeping oil prices depressed.
According to Mr. Cruzâ€™s office, the senator spoke early in the pandemic with nearly 40 firms in the oil business, including the Wilks brothers, to determine what sort of government aid was needed to keep them afloat. Mr. Cruz hosted a conference call with offshore oil producers in late March, followed by a conference call with independent producers in early April, according to the senatorâ€™s office. (The Wilkses didnâ€™t take part in either of those events.)
In late April, Mr. Cruz sent a letter pressing Federal Reserve Board Chairman Jerome Powell and Treasury Secretary Steven Mnuchin to lift the restrictions within the Main Street program that worked against lending to oil and gas firms.
Less than a week later, the Fed amended program terms to permit the use of federal loans to pay down debt, and boosted the total value of loans that could be backstopped under the program. Three weeks after the change, ProFrac secured its $35 million loan. In all, the Fed has purchased more than $828 million in loans to oil-and-gas companies, according to Bailout Watch.
Overall, the Fed reported that more than $6 billion in Main Street loans had been issued as of Nov. 30. The program is scheduled to expire Dec. 31.
The ProFrac aid came as the Wilkses were on an acquisition tear, which has continued in the months since.
As the pandemic was hitting in earnest in the spring, THRC Holdings LP, a holding company controlled by Wilks Brothers, took a nearly 10% stake in ProPetro Holding Corp. PUMP -1.56% on March 25, corporate filings show. Days later, Wilks Brothers offered a $15 million bankruptcy loan to take over Carbo Ceramics Inc., a struggling fracking-industry supplier.
Another filing shows that Dan Wilks, his wife, Staci Wilks, and Wilks Brothers had amassed more than 18% of the shares outstanding in Cathedral Energy Services Ltd. CET -2.86% by April 3, when the Canadian company disclosed the stake to investors.
The family disclosed a more than 8% stake in oil-and-gas exploration firm QEP Resources Inc. QEP 1.68% in June, and a nearly 8% stake in Dawson Geophysical Co. DWSN 0.47% in October. The family sought unsuccessfully to expand its stake in the Canadian service firm Calfrac Well Services Ltd. CFW -15.38% , filings and court records show.
The share purchases, along with the conversion of some debt to equity as part of the bankruptcy, boosted the familyâ€™s holdings to more than 20% of FTSIâ€™s Class A shares. The transactions also represented a return to the Wilks brothersâ€™ roots: FTSI was once known as Frac Tech, the firm that launched the pairâ€™s fortunes before they sold it a decade ago.
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