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To the rescue — maybe
Canadian government delivers long-promised aid package for oil, natural gas sector Gary Park for Petroleum News
At first blush, it showed every sign of peace breaking out between Canada’s two leading antagonists in the oil and gas world - Prime Minister Justin Trudeau and Alberta Premier Jason Kenney.
The terms of a surrender were released more than three weeks after federal Finance Minister Bill Morneau promised that emergency aid would be unveiled in a matter of “days, potentially hours.”
That delay troubled industry leaders who felt the Trudeau administration was making little effort to combat the crippling impact of COVID-19 on an industry that employs 800,000, shares up to C$20 billion a year from Alberta among all of Canada’s other nine provinces and is the largest source of export revenues.
Even so the end result attracted unusually high praise from Kenney.
The package, released April 17, included C$1.7 billion to start cleaning up abandoned and inactive wells in Alberta, Saskatchewan and British Columbia and C$750 million (C$575 million earmarked for the Newfoundland offshore) for a fund to help fossil-fuel producers lower their methane emissions.
In addition, medium-sized oil and gas producers will be able to access credit from the federal Business Development Bank of Canada and Export Development Canada with the promise of further liquidation measures for the largest producers at an unspecified date. However, the government has yet to announce which companies qualify as medium-size and which are large.
Program ‘demand driven’ Morneau declined to put a price tag on the amount of new credit being offered, saying only that the program would be “demand driven.”
But details released by the Business Development Bank said it would provide total loans ranging from C$15 billion to C$60 billion, offered at commercial rates and repayable within four years.
The liquidity element answered the most urgent plea from the industry and Alberta Energy Minister Sonya Savage, who noted the industry is stuck around US$20 a barrel for West Texas Intermediate, despite the agreement by OPEC, its allies and Russia to cut more than 9.75% from global production.
“We won’t come out of a low price environment for months, so those companies need liquidity,” she said, estimating the demand would likely be in the range of C$15 billion to C$30 billion to ensure survival of the industry.
Savage conceded that “this isn’t (the federal government’s) whole package. We understand there’s more to come, but this was an important piece.”
Trudeau said the package he rolled out would create 10,000 jobs (about 5,200 in Alberta alone to tackle about 140,000 “orphan” wells that prevent landowners from selling their property and are an environmental blight across the landscape).
The C$1.7 billion well cleanup effort includes C$200 million for the Alberta Orphan Well Association, an industry-funded body in charge of cleaning up about 6,200 of the estimated 91,000 wells left behind by failed oil and gas businesses.
Called ‘really good start’ What stunned many in the industry were the almost immediate tributes to Trudeau and the federal government by Kenney and Saskatchewan Premier Scott Moe, who said the money would be a lifeline for skilled rig hands, most of whom are currently unemployed.
Peter Tertzakian, executive director of ARC Energy Research Institute, noted the entire package was targeted at the non-oil sands sector, which dominates industry employment, but added “it’s a really good start.”
Tim McMillan, head of the Canadian Association of Petroleum Producers, noted that with the price of select heavy crude currently below US$5 for Western Canadian Select “there is nobody who is OK.”
Grant Fagerheim, chief executive officer of Whitecap Resources (which averaged daily production in 2019 of 75,000 barrels of oil equivalent), observed: “You never look a gift-horse in the mouth, but (this aid) isn’t going to be a game-changer for our sector. Maybe this is the warmup band.”
Darren Gee, chief executive officer of Peyton Exploration (which had average daily production last year of 484 million cubic feet equivalent), was less tactful, declaring himself to be “disappointed” with a package he rated as “woefully inadequate.”
Ensign Energy Services President Bob Geddes said the program will keep oilfield service workers on his company’s payroll during a massive industry slump.
“It puts a bunch of our service rigs to work,” he said. “It absolutely helps.”
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