Oil companies say thanks, but no thanks to federal government’s $1.6B offering

Frustrated execs say loans would likely not be used until pipelines built

CALGARY The federal government unveiled $1.6 billion in new loans and financial support for beleaguered Canadian oil and gas companies Tuesday, but energy executives said the funding won’t solve their problems.

The federal government said it is setting aside $1 billion in financial support from Export Development Canada for companies to make capital investments and buy new technology, another $500 million in new loans over the next three years from the Business Development Bank of Canada, $100 million for energy and economic diversification projects, and $50 million for an unnamed oil and gas project.

“When Alberta hurts, so does Canada,” Natural Resources Minister Amarjeet Sohi said in Edmonton as he and Minister of International Trade Diversification Jim Carr announced a funding package designed to boost the oil and gas sector as it struggles through a period of low commodity prices and lack of new export pipelines.

“It’s the availability of capital at a tough time. It’s significant when companies will need it,” Carr said of the funding, adding the federal government is continuing to work on advancing new pipeline projects the industry has said it desperately needs.

“Nothing is more important than building pipeline capacity,” Sohi acknowledged. He noted that the federal government understands the need for more pipelines and that the loans were an interim solution until those pipes, including the Trans Mountain pipeline expansion it purchased for $4.5 billion, are built.

Frustrated oil and gas executives said they appreciated the offer of support, but the loans would likely not be used until new pipelines were built.

“Don’t frustrate all of Canada by putting this financial burden on them with a handout without addressing the root cause,” Grant Fagerheim, president and CEO of Whitecap Resources Inc., said of the financial support. “It isn’t overly helpful to the Canadian oil and gas space.”

Executives said they think companies wouldn’t want to take out new loans, even if they’re offered at lower interest rates, until they know the loans can be repaid.

“We’ve got a revenue problem. We need to have more revenue coming in the door,” said Andy Mah, president and CEO of Advantage Oil and Gas Ltd., adding that Canada needs “many” new pipelines built and a better, faster process for pipeline approvals.

“They’re not listening. There’s a disconnect. It just seems to be like, ‘Here’s a Band Aid’,” Mah said of the loan announcements.

Fagerheim and Mah said they don’t expect to use the federal support programs, but there will likely be some small and micro-cap oil and gas producers, distressed companies and potentially some oilfield services providers that may apply for the loans and financial supports.

Sohi said the funding was available immediately.

“I do think there’ll be some uptake, but I’m not sure it’ll be as broad or as helpful as the federal government is hoping,” said Tristan Goodman, president of Explorers and Producers Association of Canada, adding the offer of financial assistance is “an attempt to move forward.”

Financial analysts were divided on how effective the funds would be for the oilpatch.

The funds were “absolutely” helpful as oil and gas companies’ “balance sheets have taken quite a hit”, said Joan Pinto, associate energy specialist at CIBC Capital Markets. “I’m hoping that this would be the same sort of action that the federal government took when we had softwood lumber tariffs coming into play,” Pinto said, adding that low-interest loans at that time helped the forestry industry through a difficult period.

GMP Firstenergy analyst Bob Fitzmartyn, however, called it, “the worst possible message they could send,” adding that the loans would be interpreted as a subsidy.

“I don’t know who’s going to take advantage of borrowing money. Maybe people getting their (credit) lines cut?” he said, adding that companies are not currently replacing their equipment or investing in new equipment given the outlook for oil and gas prices.

West Texas Intermediate oil prices slid seven per cent at one stage Tuesday to US$46.19 per barrel, its lowest point this year.

Don’t frustrate all of Canada by putting this financial burden on them with a handout without addressing the root cause.