Crushed by plunging oil prices and demand in the coronavirus pandemic, Canadian oil firms slashed budgets, dividends, and production to save their finances through one of the worst crises in the oil patch in recent memory. Canada’s oil industry welcomed in early May the federal government’s relief financing to help the sector stay afloat, saying it was still waiting for more details about the roll-out of the program.
A month later, Canadian oil companies are still struggling to understand what it takes to qualify for a federal government program. Meanwhile, industry representatives say they are unaware of any firm that can access financing under those programs.
Meanwhile, the Canadian oil patch is struggling with a liquidity crunch amid low oil prices and demand, and some firms have already announced court-supervised restructuring processes or severely reduced borrowing bases by banks.
The industry needs urgent financial relief, yet details about who is and who isn’t eligible for support are lacking. A program for large employers –including in the oil industry – comes with some strings attached, such as strict limits on dividends, share buybacks, and executive pay, and a requirement that companies publish annual climate-related disclosure reports.
The financial support for the oil industry is not bailouts; it’s short-term loans to provide liquidity support to small- and mid-sized companies, plus the Large Employer Emergency Financing Facility (LEEFF) available to corporations, including in oil and gas.
“Liquidity is a major issue for companies: COVID-19 and the oil price crash have caused a rapid fall in revenues. While long-term recovery is expected, access to loans and other sources of funding is vital to allowing otherwise healthy companies to bridge through the current crisis,” the Canadian Association of Petroleum Producers (CAPP) says.
The thing is, no one has yet been able to access federal liquidity support and companies are still studying the programs available.
“We have not seen one company access credit in any of those programs to my knowledge,” Jeff Tonken, chairman of the CAPP and President and CEO of Birchcliff Energy, told Reuters.
Top executives at many Canadian oil firms are still waiting for specifics regarding the program for loans while their companies review the criteria for eligibility. Some managers believe that the federal government’s intentions are good, but the details are unclear, at best. Others feel deceived and question whether the federal government is sincerely intent on helping the oil industry.
“It is a black box. I think the issue is nobody knows what you have to do to qualify for it or what the criteria are. And the concern is we needed that liquidity yesterday,” Athabasca Oil Corporation’s CEO Rob Broen told Calgary Herald columnist Chris Varcoe.
Todd Brown, chief executive at Cequence Energy Ltd, tells Calgary Herald that the company was told it wouldn’t be eligible to access financial relief, even if the firm has just announced a strategic process to identify and pursue potential strategic options and alternatives through a court-supervised restructuring proceeding.
“I feel deceived. I feel like it was a fanfare by the federal government to try and provide window dressing to an industry that I am not sure it supports,” Brown told Calgary Herald’s Varcoe.
Many Canadian oil firms are frustrated with the lack of clarity in the federal support programs, and no one in the industry has heard of anyone being able to access financing through them yet. The federal government has pledged to start rolling out the support this month, but for some firms in the Canadian oil patch, it could be too late.
Delphi Energy, for example, said in April that it would explore strategic alternatives through a court-supervised restructuring proceeding. Bellatrix Exploration completed this week a court-approved sale of substantially all its oil and gas assets.
Athabasca Oil Corporation still hopes to be able to access government support after announcing this week that its banking syndicate had renewed the reserve-based facility until November 30, but that the credit facility had been cut by 65 percent.
“The Company continues to pursue opportunities to access credit support offered by the Government of Canada during this uncertain economic environment created by the COVID-19 pandemic,” Athabasca Oil said.
Meanwhile, the Canadian oil patch will continue to struggle at current oil prices, even after prices rallied in May after the crash in April, analysts say.
The good news for Canada’s oil industry is that WTI Crude prices are back up to above $30 a barrel.
“Although $30 is clearly better than the $16.70 that was the average in April, it’s still well below where it needs to be to keep Alberta’s oil patch from struggling,” ATB Economics said in a recent note.