After Much Anticipation, Federal Government Announces Support for the Oil & Gas Sector
Canada’s oil and gas industry is under severe strain. An international price war, along with a demand slump caused by the global COVID-19 pandemic, is having a devastating impact on the industry.
Earlier today, to help revive the sector, the Federal Government, announced relief measures. These relief measures follow announcements by both the Government of Alberta and the Government of Saskatchewan and collectively, result in the implementation of a series of energy sector initiatives aimed at enhancing immediate liquidity – and longer-term certainty – of energy companies.
The specific initiatives announced by the Federal Government on April 17, 2020 include:
- $1.7 billion dedicated to clean up abandoned oil wells in Alberta, Saskatchewan and British Columbia to create up to 5,200 jobs; and
- creation of a $750 million emission-reduction fund, with a focus on methane, including $75 million dedicated to help the offshore industry cut emissions in Newfoundland and Labrador.
The Federal Government also advised that it is working to expand credit for medium-sized energy companies so that they can maintain operations and keep their employees. We will provide additional information as details become available.
In Alberta, the province announced the following initiatives to provide economic relief to Alberta’s energy industry:
- $113 million in industry relief to fund the Alberta Energy Regulator (AER) to pay industry levies for a period of 6 months;
- a $100 million loan extended to the Orphan Well Association (OWA) to create up to 500 direct and indirect jobs through reclamation efforts, decommissioning about 1,000 wells, and starting more than 1,000 environmental assessments. The OWA is an independent non-profit organization operating under the delegated authority of the AER with a mandate to safely decommission orphan oil and gas wells, pipelines and production facilities; and
- extending the term of mineral agreements expiring in 2020 by one year, which provides increased certainty for industry by allowing additional time to raise capital and plan future activities.
On March 31, 2020, the Government of Alberta also announced that it finalized an agreement with TC Energy Corporation to provide financial support to accelerate construction of the Keystone XL pipeline starting April 1, 2020. Specifically, the Government of Alberta will:
- contribute up to $1.5 billon dollars in equity investment in 2020; and
- provide a $6 billion loan guarantee in 2021.
On April 14, 2020, the Government of Saskatchewan also announced a series of relief measures for its oil and gas industry. The Saskatchewan energy sector is the second largest contributor to provincial GDP and according to the province, directly or indirectly, employs more than 34,000 people.
Saskatchewan’s relief measures include:
- extending a series of filing and other deadlines to assist the oil and gas sector in stabilizing operations, as their employees transition to working from home. It is important to note that these extensions do not impact health or environmental safety and apply to routine reporting activities, which will be addressed when the sector returns to normal operations (see Industry Relief Bulletin – Ministry of Energy and Resources for more information and details);
- extending mineral rights, scheduled to expire in 2020, by one (1) year. This includes rights granted under the terms of an oil and gas lease, exploration license or permit. The extension will provide oil and gas disposition holders with the time necessary to properly evaluate their properties once the current situation stabilizes; and
- reducing the industry portion of the Oil and Gas Administrative Levy by 50% for the 2020 fiscal year and delaying the invoicing of the remaining balance until October 1, 2020. This will provide the sector with relief of $11.4 million to address immediate liquidity challenges.
To discuss how you or your organization might be impacted by these initiatives and regulatory changes, or if you have questions about the impact of COVID-19 on your business, please contact your McCarthy Tétrault trusted advisor or one of the authors.