Canadian oil and gas companies are urging Ottawa to free up credit and cash to help them survive the twin shocks of COVID-19 spread and a crude price war, pitching ideas ranging from tax deferrals to backstopping bank loans.
The country’s oil patch is on “life support” after the Saudi-Russian oil price war coincides with the spread of COVID-19 through the major oil-consuming regions of Asia, Europe and North America.
Ottawa is considering ways to backstop banks to ensure they allow oil companies to access existing and new lines of credit, preventing massive job losses, said an industry source who has participated in meetings with Finance Minister Bill Morneau and Natural Resources Minister Seamus O’Regan.
The source spoke on condition of anonymity because discussions are confidential and at a sensitive stage.
The energy industry has also asked for cost relief, including postponement of royalty collection and waiving or deferring Canada Pension Plan and Employment Insurance premiums, as well as federal sales tax, the industry source said.
A separate source directly familiar with government thinking said negotiations are still active with the oil-producing provinces of Alberta, Saskatchewan and Newfoundland & Labrador.
Addressing liquidity is the main federal priority, the source said. The government is mulling whether to help the energy industry by expanding a C$10 billion credit support package for businesses that it unveiled on March 13, the source added.
Morneau said on Wednesday that small- and medium-sized energy companies are “particularly vulnerable.” He has previously said the oil aid package will include funds to clean up non-producing wells that have no legal owner.
Legislators approved on Wednesday a broad C$107 billion ($75.4 billion) support package, and Prime Minister Justin Trudeau’s government has said it is also planning targeted support for the energy, hospitality and aviation sectors.
A spokesman for Alberta’s Energy Minister could not be immediately reached.
Marty Proctor, chief executive of Seven Generations Energy Ltd (VII.TO), said he has spoken directly with both the federal and Alberta governments about upcoming support, and left feeling assured.
“They are talking about trying to encourage banks to work with their business partners, so that gave me some confidence,” Proctor said in an interview.
“It sounds to me like both governments are working hard to find good solutions.”
While banks are facing stronger demand for short-term cash flow, they are unlikely to lower their lending standards, said David Beattie, senior vice president at Moody’s Investors Service.
Aiding oil companies would be the wrong move in light of climate change, and workers should get the support instead, dozens of environment, health and other groups said in a joint letter to Trudeau on Monday.
Service companies who work for oil producers face especially great difficulties, said Gary Mar, chief executive of the Petroleum Services Association of Canada.
“Unlike (producers), we don’t have oil and gas to sell. If we’re not working, we don’t have cash flow.”