Page 4 - NorthAmOil Week 46

NorthAmOil COMMENTARY NorthAmOil
Bailout of Canada’s energy industry playing out with little transparency
A package of funds set aside by Ottawa last year to help Canada’s struggling energy industry is being paid out, but with limited transparency over its recipients
CANADA
WHAT:
The Canadian government is in the process of paying out funds set aside to help the energy industry.
WHY:
Canada’s oil and gas industry has been struggling with low prices and takeaway capacity bottlenecks.
WHAT NEXT:
There are concerns that more foreign investors could pull back from investing in Canada’s energy industry.
ALMOST a year since Ottawa announced that it would set aside CAD1.6bn ($1.2bn) to help Can- ada’s beleaguered energy industry, the bailout is well underway, with almost CAD1bn ($757mn) already distributed. However, there has been little transparency during the process, and few details are available on what the money is being spent on.
The aid package was unveiled by Canada’s ruling Liberal Party – which was re-elected with a minority last month – in December 2018. It came as Western Canadian Select (WCS) heavy oil was trading at a record discount to West Texas Intermediate (WTI). Indeed, crude prices were falling globally at the time, but price trends weighed particularly heavily on Canada’s producers, who were also battling to send their crude to overseas markets amid increasing take- away capacity bottlenecks.
While the differential between WCS and WTI has narrowed since, Western Canadian pipeline capacity constraints remain unre- solved. This was echoed by the Canadian Asso- ciation of Petroleum Producers’ (CAPP) vice president of oil sands, fiscal and economic pol- icy, Ben Brunnen, quoted by the Canadian Press last week. Brunnen said that while the funding was appreciated, it had not “had a meaningful impact” on attempts to resolve issues related to the complexity of regulatory review processes for new pipelines and political interference in planning.
“It’s worth noting that the industry did not ask for funding as a way to solve challenges,” he
added. “We asked for collaboration and support in an approach that positions the industry as the preferred fuel choice, one that can supply the world with cleaner and more regulated energy, as well as to prioritise the competitiveness of the industry to support the Canadian economy.”
Piecemeal payments
Though little information has been disclosed about the allocation of funds, some details have emerged to date.
The largest portion of the funding comprises a CAD1bn ($753mn) package being paid out by Export Development Canada (EDC) to oil and gas companies for capital investments and for purchasing new technology. To date, the export credit agency has lent or guaranteed CAD629mn ($473mn) of this to 37 companies, though its website does not specify which loans went through this programme. However, some of the recipients have disclosed transactions they were involved in, including producer Painted Pony Energy, which reported receiving a CAD25mn ($19mn) credit facility in May.
Another significant portion of the funds is being managed by the Business Development Bank of Canada (BDC) and is being used to aid smaller oil and gas firms in the current operat- ing environment. A bank spokesperson told the Canadian Press that 892 loans totalling CAD207.5mn ($156mn) had been approved out of its CAD500mn ($376mn) commercial loan allotment in the aid package. No further details were provided, however.
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w w w . N E W S B A S E . c o m Week 46 20•November•2019