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Alberta to give tax reprieves, extend leases in first wave of aid for embattled oilpatch, sources tell FP

Alberta to give tax reprieves, extend leases in first wave of aid for embattled oilpatch, sources tell FP
Business
Sources say the measures are part of the support package for the oilpatch, which saw Canadian benchmark oil prices plunge below US$8 at one point this week.

Some of the measures will likely come Friday afternoon, while others may be rolled out over the next few days. The federal government is 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 both levels of governments prepare aid packages for Alberta’s biggest industry, energy executives say they’re looking for worker support, cost reductions and liquidity to survive the unprecedented crisis.

“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.

As coronavirus spreads around the world, causing major economies to shut their borders and quarantine their citizens, global oil demand has fallen sharply. Economists believe in the U.S., where commuters consume  9.2 million barrels of oil per day in gasoline, or almost 10 per cent of global oil demand, quarantines could dramatically affect demand.

At the same time, a price war between OPEC 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.

We’re dealing with three or four issues culminating almost overnight

Tristan Goodman

“In the past, we were dealing with one issue at a time. Here we’re dealing with three or four issues culminating almost overnight,” Goodman said. “There isn’t a historical event that’s actually comparable.”

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.

Pressed on what liquidity would look like, Goodman declined to provide specifics as discussions with the government are ongoing, but said that “many options can be looked at historically.”

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.

“The federal government has already flowed funds into the EDC and BDC that are meant to buoy up the financial system,” said Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers.

“They are already in many of the lending syndicates and by taking this infusion of money, I believe it is $10 billion, that gives them the capacity to further bolster other financial partners,” he said.

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 long-term 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.

He noted that large-cap oil and gas producers are currently sitting on about $18.5 billion of net debt, mid-cap companies have $6.9 billion in net debt, small-cap have $2.6 billion and the oilfield services industry is sitting on a $7.3 billion debt pile.

As a result, the $15-billion package currently being considered by the federal government, according to a report in the Globe and Mail, would “help in smoothing out” credit issues in the energy industry, Gilles noted.

However, Gillies echoed the calls of some domestic players in saying that cost reductions in the form of tax breaks would be more helpful.

“If the government is looking to help companies in the interim, we believe a reduction or holiday from various taxes (payroll taxes, carbon taxes, power costs) would be more helpful,” Gillies wrote.

The Business Council of Alberta also released a letter to Prime Minister Justin Trudeau outlining specific policy proposals to address the current crisis, including immediate universal income supports to all Canadians, a suspension of income and property taxes for business in the short term and zero-interest loans and loan guarantees.

The letter was signed by the CEOs of 65 companies in the province, including Canadian Natural Resources Ltd. president Tim McKay, Cenovus Energy Inc. CEO Alex Pourbaix, Suncor Energy Inc. CEO Mark Little and TC Energy Corp. CEO Russ Girling.

With a file from Jesse Snyder

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