Canadian government announces CAD $1.6 billion in loans to the energy sector

Following the third large-scale protest in as many weeks from energy industry supporters against the federal government’s lack of action, on Tuesday Canada’s Natural Resources Minister Amarjeet Sohi announced CAD $1.6 billion to help Alberta’s struggling energy industry. He said the money, largely in the form of commercial loans, is available immediately. “We understand that for the long-term success and growth of the oil sector, nothing is more important than building the pipeline capacity to expand our non-U.S. global markets,” Minister Sohi said in Edmonton as he and Minister of International Trade Diversification Jim Carr announced the 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.

 

CAD $1 billion will be set aside through Export Development Canada for oil and gas companies to make capital investments and purchase new technology. CAD $500 million will be made available through the Business Development Bank of Canada (BDC) over the next three years to help smaller oil and gas companies navigate the downturn. A further CAD $150 million will be used for clean growth and infrastructure projects, with CAD $100 million for energy and economic diversification projects, and CAD $50 million for an unnamed oil and gas project. Alberta’s Premier Rachel Notley plans to buy as many as 80 locomotives and 7,000 rail tankers, which is expected to cost hundreds of millions of dollars. The package does not include money for the rail cars to help move a glut of oil behind the low price of Canadian oil.

 

Energy executives said the funding won’t solve the problem. Frustrated, said they appreciated the offer of support, but the loans would likely not be used until new pipelines were built. Whitecap Resources Inc. President and CEO Grant Fagerheim said, “Don’t frustrate all of Canada by putting this financial burden on them with a handout without addressing the root cause. It isn’t overly helpful to the Canadian oil and gas space.

 

Both Mr. Fagerheim and Advantage Oil and Gas Ltd. President and CEO Andy Mah 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. 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,” Mr. Mah said, adding that Canada needs “many” new pipelines built and a better, faster process for pipeline approvals. Mr. Fagerheim and Mr. Mah both said 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.

 

President of Explorers and Producers Association of Canada Tristan Goodman said, “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.” GMP FirstEnergy analyst Bob Fitzmartyn called the package “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?” Mr. Fitzmartyn said, and that companies are not currently replacing their equipment or investing in new equipment given the outlook for oil and gas prices.

 

While the world sells its oil at about USD $50 a barrel, Alberta’s oil at one point fetched only USD $11 a barrel. West Texas Intermediate oil prices slid 7 percent at one point on Tuesday to USD $46.19 per barrel, its lowest point this year.


If you enjoyed this news feature, please consider becoming a patron of The Visionable