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Covid-19 | Bulletin

Aid Package to the Canadian Oil and Gas Industry in Response to COVID-19

Fasken
Reading Time 4 minute read
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On April 17, 2020, the Canadian federal government released details of the long-awaited measures to help the oil and gas industry, which has been hit hard by low oil prices and the coronavirus outbreak. As stated by Natural Resources Minister, Seamus O’Regan, the goal of the oil and gas relief measures is two-fold: (1) to address short-term liquidity needs of oil and gas companies; and (2) to help oil and gas companies in their efforts to achieve net-zero emissions. 

Details of the Aid Package

The relief measures include: 

1.  Providing up to $1.7 billion in funding to the governments of Alberta, Saskatchewan, and British Columbia to clean up orphan and/or inactive oil and gas well sites.

2.  Establishing a $750 million Emission Reduction Fund (“ERF”) to be managed by Natural Resources Canada.

3.  Expanding eligibility for the Business Credit Availability Program to support at-risk medium-sized energy companies and help them maintain operations and keep their employees on the job. 

In regard to the funds to be directed towards the cleanup of orphan and abandoned wells, Prime Minister Justin Trudeau stated that this initiative will both bring people back to work and help the land owners affected by these wells. In Alberta alone, this investment is estimated to help maintain 5,200 jobs.  Trudeau also noted that he has received confirmation from the Alberta government that it will strengthen regulations in respect of orphaned and abandoned wells.

The ERF will provide repayable contributions to firms to make them more competitive, while creating and maintaining jobs through greenhouse gas emission reduction efforts. The ERF will primarily focus on emissions caused by methane and is aimed to assist companies in meeting their methane reduction targets. $75 million of the ERF will be allocated to the offshore sector.

As a result of these two measures, the federal government estimates that approximately 10,000 jobs across the country will be created or maintained.   

In respect of the credit support being offered to at-risk medium-sized energy companies, the federal government will be expanding the eligibility for the Business Credit Availability Program announced on March 13, 2020.  This support will be available to medium-sized businesses with larger financing needs, beginning with companies in Canada’s energy sector, to help them maintain operations and keep their employees on the job.  Through the Business Credit Availability Program, the Business Development Bank of Canada and Export Development Canada will provide up to $65 billion in direct lending and other types of financial support, such as loan guarantees and co-lending programs for small and medium enterprises.

Finance Minister Bill Morneau indicated that the credit available to at-risk medium-sized oil and gas companies will be up to $15-16 million per company and will be on commercial terms.

Prime Minister Trudeau indicated that the federal government will continue to look at other relief possibilities if there is a need. In expanding on this statement, Finance Minister Morneau stated that, as a next step, the federal government is looking at some potential aid to larger oil and gas companies to help provide them with a bridge to the future. According to Morneau, the federal government is in discussion with these companies but does not have an exact date for when further details will be released.

When asked if the federal government will suspend environmental regulations and laws applicable to the energy sector, Trudeau stated that this is not something the government is looking to do as it must not “neglect the environmental crisis” affecting Canada and the world.

Finance Minister Bill Morneau indicated in his briefing of the aid package that the oil and gas industry is not interested in Ottawa taking an equity stake in oil and gas companies.

Response to the Announcement

In announcing the aid package, federal government officials repeatedly focused on how the aid will protect oil and gas workers and assist the industry in reducing emissions, and appeared to take efforts to avoid creating the perception that the aid could be viewed as a bailout of oil and gas companies. This messaging was likely an attempt to win broad support of the aid package. 

Early indications are that the federal government has achieved this goal. Alberta premier Jason Kenney indicated that the three measures combined are very good news and measures the province of Alberta desperately needed.  However, he also stressed that more action is required to provide liquidity to the oil and gas sector as the reduction in output by OPEC+ of 9.5 million barrels per day has had no impact on global oil prices. 

In regard to the response from environmental and other NGOs, we note a collection of these organizations recently sent a letter to the federal government asking that the aid package not include “a bail out to oil and gas companies in the form of share purchases or loan guarantees” but rather include measures to “hasten a just transition and protect workers as production continues to decline in the coming years”. Whether the federal government’s measures announced today will be acceptable to these groups remains to be seen, but early indications suggest they are generally supportive. Greenpeace Canada, for example, tweeted that they believe the aid package is a step in the right direction in putting people to work. 

Fasken will continue to monitor and provide updates on the details of the aid package as they are released as well as the responses from industry, government and environmental groups. 

 

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