Edmonton Journal

AID FOR OILPATCH ‘A GOOD START’ BUT SO MUCH MORE MUST BE DONE

- CHRIS VARCOE Chris Varcoe is a Calgary Herald columnist. cvarcoe@postmedia.com

A new federal aid package for the Canadian oilpatch was unveiled Friday, arriving like one course in a long-awaited meal.

It whets the appetite, but it isn’t enough. However, when you’re starving, all sustenance is welcome.

Prime Minister Justin Trudeau announced the federal government will provide $1.7 billion to clean up orphan and abandoned oil and gas wells in Western Canada. It will offer $750 million in loans to help companies reduce their greenhouse gas emissions.

It also comes with some unspecifie­d amount of money to provide additional liquidity and extend credit to medium-sized energy companies.

These measures should all help an industry now bleeding cash because of the collapse in oil prices and a sharp drop in energy demand caused by the COVID-19 pandemic.

Alberta has thousands of old wells that need to be cleaned up.

Assistance to reduce emissions is also a strategic move, directed toward reducing one of the most potent greenhouse gases generated by the sector: methane.

However, the lack of details about enhanced liquidity for energy companies remains a gap in the package.

Premier Jason Kenney estimated the entire industry will require between $15 billion and $30 billion of additional liquidity and credit backstops so companies can survive until the storm passes.

“More needs to be done,” he said Friday.

It’s unclear who will be eligible for the new financial liquidity measures and what, if any, aid will be provided to larger petroleum producers.

“You never look a gift horse in the mouth, but this isn’t going to be a game-changer for our sector,” said Whitecap Resources CEO Grant Fagerheim.

“Maybe this is the warm-up band.”

Other industry reaction was more positive but guarded. Further details will be critical in the coming days.

“This isn’t their whole package. We understand there’s more to come, but this was an important piece,” Energy Minister Sonya Savage said in an interview.

Money for cleaning up wells will create oilfield service sector jobs and help deal with the problem of thousands of inactive wells that have been drilled across the province over the last century but not cleaned up.

The federal government will direct up to $1 billion to Alberta to remediate inactive wells that haven’t produced for many months and, in some cases for several decades. According to Ottawa, there are about 91,000 inactive wells in this province alone.

There are still active owners in place to pay for the cleanup bill, but with the recent oil-price plunge — and a $7-billion cut in capital spending in the past month — many remediatio­n budgets have been slashed.

The industry and environmen­tal groups lauded the initiative.

“It helps clean up their balance sheet as well as (providing) environmen­t aspects,” said Tristan Goodman of the Explorers and Producers Associatio­n of Canada.

Another $200 million will be loaned to the Alberta Orphan Well Associatio­n, which is responsibl­e for taking care of an abandoned well when there’s no owner left to pick up the tab.

The cleanup effort has largely been funded by an industry levy, but the backlog has been growing rapidly since commodity prices tanked five years ago, with almost 3,000 orphan wells now in the associatio­n’s inventory.

Trudeau said this program could preserve or create 5,200 jobs in Alberta.

Ensign Energy Services president Bob Geddes said the program will keep people in the sector working during a massive industry slump.

“It’s quite timely. It puts a bunch of our service rigs to work,” he said. “It absolutely helps.”

But the so-called liquidity measures are less clear. What is known is Ottawa will expand its credit support through the Business Developmen­t Bank of Canada and Export Developmen­t Corp.

The program will help companies sustain access to credit as their bank lines are being cut, and provide additional working capital.

“The entire package is very much directed toward the non-oilsands segment of the business, which is a large (portion) of the employment spread across these provinces,” said Peter Tertzakian, executive director of ARC Energy Research Institute.

“It’s a really good start.” However, it’s unclear if the major banks will play along, how the lending decisions will be made between the government and the banks, and how it will be executed, he added.

The issue of providing support to larger petroleum producers also needs to be worked out as the entire industry is hemorrhagi­ng cash with benchmark U.S. oil now below US$20 a barrel.

“In this crisis, everybody is affected,” said Tim Mcmillan, head of the Canadian Associatio­n of Petroleum Producers. “When the price of oil is sub $5 for Western Canada (Select heavy oil) there is nobody who is OK.”

Finance Minister Bill Morneau didn’t put a price tag on how much money the federal government is providing in its new liquidity measures, saying it will be driven by demand.

Another challenge will be to ensure enough money flows down to some of the hardest hit players in the industry — the oilfield service sector.

Thousands of jobs in drilling and other services have vanished as producers have chopped capital spending budgets.

“We are looking for some of the money that gets allocated to the oil and gas producers (to) get distribute­d down into drilling completion or field activity,” said Trican Well Service CEO Dale Dusterhoft.

The announceme­nt is largely consistent with the Trudeau government’s broader agenda to prioritize individual jobs and focus on energy transition and climate-related issues.

“They’re trying to walk a fairly fine tightrope on this, but they are staying fairly close to the principles they’ve been espousing,” said Marla Orenstein of the Canada West Foundation.

After promising the package more than three weeks ago, many will wonder why it took so long to arrive, and if there’s more to come.

For an industry hungry for help in the midst of a crisis, it’s much more than just an appetizer.

But it also isn’t the full meal deal, at least not yet.

 ?? JEFF MCINTOSH/THE CANADIAN PRESS ?? The federal government will provide $1.7 billion to clean up orphan and abandoned oil and gas wells in Western Canada. Ottawa says there are about 91,000 inactive wells in Alberta.
JEFF MCINTOSH/THE CANADIAN PRESS The federal government will provide $1.7 billion to clean up orphan and abandoned oil and gas wells in Western Canada. Ottawa says there are about 91,000 inactive wells in Alberta.
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