Alberta to give tax relief, extend leases for oilpatch

Government rolls out first wave of aid for industry amid price rout, virus crisis

CALGARY The Alberta government said it’s granting extensions for oil and gas leases for one year and paying the industry’s regulatory levies as a first step in providing relief to the oilpatch.

The measures are part of the support package for the industry, which saw Canadian benchmark oil prices plunge below US$8 at one point this week.

The Financial Post had reported early on Friday that these measures were expected soon.

The government said it will pay $113 million in Alberta Energy Regulator levies for a period of six months and extend the mineral agreements by one year to give the industry additional time to raise capital and plan future activities.

The provincial government has already extended a $100-million loan to the Orphan Well Association to boost the association’s immediate efforts to reclaim land, decommission about 1,000 wells, and start more than 1,000 environmental assessments, that will create up to 500 direct and indirect jobs.

“Alberta’s energy sector supports more than 500,000 jobs across Canada,” the government statement noted. “These jobs are currently at risk and government must act to do everything it can to ensure energy sector firms remain operating and employing Albertans.”

Alberta Premier Jason Kenney also said economist Jack Mintz will chair its Economic Recovery Council, set up to advise on managing the crisis.

The feds are also reportedly eyeing a bailout for the industry.

“We will continue to work with the industry and other stakeholders on how best to support workers in the sector,” Finance Canada spokesperson Pierre-olivier Herbert said in a statement. “This could include making significant investments in orphan wells remediation, to help both companies and workers in the province.”

As coronavirus spreads around the world, causing major economies to shut their borders and quarantine their citizens, global oil demand has fallen sharply.

Moreover, a price war between the Organization of the Petroleum Exporting Countries led by Saudi Arabia against Russia has created a glut of supply in major consuming markets, which has cratered crude prices in the past two weeks, creating a credit crunch for oil producers around the world.

“I don’t think the industry could survive like this for much more than several weeks or we’ll start to see significant changes in insolvency rates,” said Tristan Goodman,

president of the Explorers and Producers Association of Canada, which represents small- and mid-sized oil and gas producers, and who is in discussions with the provincial government to arrange an aid package. The Canadian oil and gas industry is looking for three things, Goodman said.

Support for workers, sharp cost reductions in the form of tax breaks and regulator-fee holidays, and liquidity to weather the storm.

“For the liquidity, what we’re really looking for, there’s going to have to be some level of support provided into the industry. It’s really hard to do that without picking winners and losers,” Goodman said.

One of the options that has already begun is new money available to the Export Development Canada and Business Development Bank of Canada to support oil and gas and other troubled industries, said Tim Mcmillan, president and CEO of the Canadian Association of Petroleum Producers.

Mcmillan said both levels of government have been highly receptive to the issues brought forward by the industry so far, but cautioned the current collapse is expected to be a long-term struggle for the industry.

“Saudi Arabia and Russia are using the health crisis to go after market share,” Mcmillan said.

But more debt may not be a longterm solution for the industry.

“In our view, we would prefer to see the federal government not intervene by providing more debt as we don’t believe the solution for too much debt is more debt,” Stifel Firstenergy analyst Ian Gillies wrote in a research note Friday.

Government must act to do everything it can to ensure ... firms remain operating and employing Albertans.