That is the sound of clocks at oil and gas companies still waiting to hear back on the short-term assistance that was announced by the Federal Government in April.
Many now face looming restructurings, sell-offs or insolvency in a distressed market.
What went wrong?
An industry facing the double whammy of Saudi Russian manipulation and the economic collapse caused by COVID-19 was looking for a liquidity lifeline so they could weather a unique storm. The energy industry, already battered and bruised from the 2015 recession and anti-pipeline policies was now facing a liquidity crisis reminiscent of the 2008 financial crisis. Some needed short-term liquidity just to continue operations and many needed support to keep credit facilities from being withdrawn during the crisis.
On March 25th, Minister Bill Morneau announced that assistance for Canada’s energy sector was coming within “hours, possibly days”. What this help would look like, was anybody’s guess.
It didn’t arrive until 3 weeks later. On April 17th the government announced a stimulus package that included funding to clean up abandoned wells, reduce emissions, and liquidity to help maintain operations.
The most important piece were loans and loan guarantees to struggling energy companies to give them the needed liquidity to ride out 2020. The support was to be delivered through the Business Development Bank of Canada and Export Development Canada backstopping loans.
BDC was to provide 4-year repayable loans of between $12M to $60M to companies with excess of $100M in revenue to support operations for one year. BDC would also sponsor a program with banks where they will co-lend up to $6.25 million for small to medium-sized enterprises. Export Development Canada was supposed to guarantee 80% of loans for smaller sized companies.
It appeared just maybe Ottawa had arrived in time to let the industry scrape by until the world economy restarted.
Then nothing. Weeks went by and nothing.
In a June interview, Rob Broen, CEO of Athabasca Oil Corp lamented that the program was “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.”
After almost 3 months the Export Development Corporation and Business Development Bank of Canada have not finished putting the details together on the loan program. Companies are getting very worried. And they had every right to be. It has now been 146 days since Former Finance Minister Morneau announced that there would be an immediate help for the industry.
So far, there has been less than a handful of companies that have announced agreements with the BDC and EDC for assistance. The receipt of this assistance has not yet been confirmed.
Small and medium energy companies are facing difficult decisions. One such firm, Painted Pony Energy, is being bought out by CNRL. According to Painted Pony CEO, Patrick Ward, the reason for selling is the same reason Canadian firms asked for a stimulus in the first place: “There is just no liquidity out there, whether it’s debt or raising capital in the public market, for oil and gas right now, especially for small and mid-sized companies.”
Here is the kicker: Painted Pony Energy applied for assistance from the EDC, but it never showed up. Painted Pony had to sell itself at the bottom of a distressed market. The sad truth is that Painted Pony is only one of many companies facing these harsh new realities. Over 100 energy industry companies are in different stages of getting creditor protection.
An energy finance insider noted to an oil and gas executive that “the program wasn’t even designed to help oil and gas companies, it was designed to help the banking system. With all the other liquidity that’s been pumped into the system the banks have decided they don’t need the support, so they will take a hard line and not access the [BDC and EDC] program. I predict the junior oil and gas sector will be mostly gone in a short time.”
At this point in time, many in the industry are beginning to give up on any notion of government support. They know Ottawa has long hinted that they want to phase out the energy industry. They can also see that Edmonton is looking to big energy companies with big balance sheets to keep the industry going by acquiring the productive assets of companies like Painted Pony.
If something isn’t done soon the clock will run out on Alberta’s small and medium energy companies.
Cody Ciona is the Research and Issues Coordinator for the Canadian Energy Network