Waiting game for Alberta
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No sign of promised federal O&G sector bailout beyond individual, company support
for Petroleum News
Facing growing unease as the spread of COVID-19 accelerates and its economic underpinning crumbles, energy-driven Alberta is waiting for the Canadian government to deliver a promised bailout package to keep the province’s oil and gas industry functioning.
A spokeswoman for Natural Resources Minister Seamus O’Regan said all options are being weighed, including financial backing for skilled workers to remediate the environmental liabilities associated with abandoned, or orphan wells.
So far, the government of Prime Minister Justin Trudeau has limited itself to gaining approval of Parliament in an emergency session to release C$27 billion in direct support for individuals and companies and grant C$55 billion in deferred taxes.
But Trudeau was forced by the opposition parties to back off a measure that would have given the government sweeping new powers for the next 21 months to unilaterally spend, borrow and tax Canadians without obtaining the approval of Parliament.
In the midst of this swirl the Trudeau administration released C$5 billion for the agriculture sector, but nothing for the petroleum industry and, as of Petroleum News press time, no sign of when or if a larger financial package will be made available for what is the largest economic sector in Canada.
For now the bleeding continues as Canadian companies slash another C$4 billion in spending, a clawback that could cut oil production by 1.3 million barrels per day, or almost one-third of Canadian output.
All that has emerged from the national government has been a hint from Finance Minister Bill Morneau of a possible change to industry payroll taxes.
Alberta measuresAlberta Premier Jason Kenney has opted to announce his own measures in hopes of helping the energy sector bridge its way to a more significant federal program.
The Kenney administration has temporarily waived about C$113 million in annual fees collected by the Alberta Energy Regulator from the industry and extended oil and gas tenures from 2020 to 2021, giving upstream operators more time to raise capital.
Kenney also appointed an economic advisory panel, led by economist Jack Mintz and including former Canadian prime minister Stephen Harper to look at the province’s medium- and long-term economic recovery after COVID-19.
While those small steps were being taken, word was trickling out from federal sources, including mention of a three-hour meeting between O’Regan and the Canadian Association of Petroleum Producers.
Those sources suggested federal aid could facilitate easier access to credit, especially for small- and medium-sized producers who are rapidly sinking below the surface as they get bled dry by the collapse in stock values and commodity prices.
Credit facility pushedMeanwhile, Kenney has put pressure on the Trudeau administration introduce a credit facility similar to the U.S. Troubled Asset Relief Program, TARP, that saved banks and automobile manufacturers during the 2008-09 financial crisis.
The TARP program would see the federal government buy shares in distressed companies, along the lines of what Canada did for the auto industry in 2008.
To drive home their woes, 65 petroleum industry chief executive officers also asked the federal government to suspend plans to raise the federal carbon tax in C$10 annual increments from C$20 per metric ton to C$50 in 2022 and lower all income tax at every level, while urging banks to provide no-interest loans and loan guarantees.
What the critics don’t want to see is a replay of TARP, whose money flowed to banks and wealthy shareholders.
Since the oil price crash in 2014, more than 50,000 direct jobs have been lost in Canada’s oil patch and analysts doubt they will ever return, while companies have distributed massive dividends among their shareholders, reaching C$10.3 billion to shareholders in 2019 alone.
Bronwen Tucker, an Edmonton-based research analyst with Oil Change International, said trillions of dollars will be needed to build a resilient economy after the COVID-19 crisis, but “handing money over to oil and gas corporations will leave us more vulnerable.”
She said the chance should be taken to “fund a just transition from oil and gas that protects workers, communities and the climate instead of tying their future to a sun-setting and volatile commodity.”
Sector still reelingKenney has insisted that Trudeau “do no further harm” to the oil and gas sector which is reeling from a massive drop in revenues and is in no position to handle the planned increase in carbon taxes, or impose new limits on methane emissions that are rated as many times more potent than carbon dioxide.
The Alberta Energy Regulator says oil and gas operations are responsible for 70% of the province’s methane emissions, but Kenney insists his government’s own regulations to curb those emissions by 45% over the next five years are more effective than proposed new federal rules.
In addition, the Canadian government is sticking with a 2021 target for a ban on certain single-use plastics - a plan strongly opposed by major petrochemical companies that argue product demand should be market-driven and not mandated by government regulations.
The natural gas-derived plastics would be another blow to a sector that provides 7,500 direct jobs and has annual exports of C$8.2 billion.
In February Kenney told a business conference that a company he did not identify is planning a C$10 billion project that would create 10,000 permanent jobs.
Alberta’s Natural Gas Minister Dale Nally said an aggressive federal attack on plastics would constitute an “unimaginable” overreach and flagrant attack on Alberta’s economy.