It’s an understatement to say the slowness of these programs has generated skepticism within the industry
Well, imagine that, a Canadian oil producer is set to receive help from the federal government’s much-touted financial assistance programs for the energy sector.
It took a while — 17 weeks, in fact — since the initial promise of federal aid was made.
And, unlike a non-existent federal lifeline for the Canadian Football League, it appears the oilpatch financial aid is coming, finally, beginning with a loan to a junior oil and gas producer in Alberta.
The looming question is, will enough support arrive in time from the Business Development Bank of Canada and Export Development Canada to help other companies endure liquidity problems and the fallout from oil prices collapsing this year?
“It’s positive to see that some of the BDC funds are starting to flow,” Ben Brunnen, vice-president of the Canadian Association of Petroleum Producers, said Monday.
“We are still concerned that the companies that need liquidity still might not get it, and if they do get it, will it be enough to support them? That’s yet to be determined.”
Junior producer InPlay Oil Corp. announced Friday it has an agreement for a $25-million, four-year term facility with BDC. Chief executive Doug Bartole has been pursuing assistance from both programs for months.
“It just provides the backstop that we require to get through this crisis,” Bartole said in an interview.
“I do think you will see more BDC loans coming up. Honestly, we were like a wolf pack on both EDC and BDC from the beginning and we were going to pursue it to the end. And we did.”
It’s a welcome development for a small company that temporarily shut-in about a third of its production during the second quarter and suspended its 2020 capital program after oil prices crumbled in March.
The assistance will provide the company with long-term liquidity at commercial rates and let it pursue development opportunities sooner than it could without the loans in place.
It has taken a lot of perseverance to get to this point.
Back on April 17, Ottawa initially announced a $1.7-billion program to help clean up inactive and orphan oil and gas wells, as well as provide liquidity assistance to the sector.
At the time, the feds said they would increase credit support offered through BDC and EDC to small and mid-sized energy firms.
Three days later, benchmark West Texas Intermediate crude prices plunged to a negative US$37.63 per barrel, underscoring the crisis rolling through the sector. (On Monday, WTI oil closed at $42.89 a barrel, up 88 cents.)
EDC’s program is designed to work with banks to guarantee a portion of the credit facilities that are based upon the value of a producer’s oil and gas reserves. Many companies saw those lines lowered this spring.
BDC’s program offers bridge loans of between $12.5 million and $60 million and involves working with a company’s existing lenders.
For bigger companies, the government announced in May the creation of the Large Employer Emergency Financing Facility, intended to provide bridge financing to Canada’s largest companies, including energy producers.
Only three oil and gas companies have been approved for EDC funding and no money has gone out yet, “as EDC and the banks have not agreed on contract terms,” according to CAPP.
No companies have accessed the LEEFF program. BDC officials said Monday that figures for its mid-market financing program are not available yet.
It’s an understatement to say the slowness of these programs has generated skepticism within the industry.
Last week, natural gas producer Painted Pony Energy announced it accepted a $461-million takeover offer from Canadian Natural Resources, with the bulk of that price-tag coming from the assumption of debt.
In an interview, Painted Pony CEO Patrick Ward said the company applied for assistance from EDC, without success.
“It’s in conjunction with the banks. And the problem is the banks and EDC and the government can’t agree amongst themselves as to how they exactly should work. So we’ve had an application in. We’ve been talking to them for months,” he said.
“Nothing has happened.”
Ward’s comments mirror criticism from other oilpatch CEOs about the speed and effectiveness of federal aid. In June, Athabasca Oil Corp. CEO Rob Broen called the program a “black box … nobody knows what you have to do to qualify for it.”
The provincial government has also been troubled by the delays and mused about creating its own liquidity programs if federal measures were insufficient. Industry analysts said the federal money is needed.
“We are hoping to see some other companies be able to access some of these funds. At the end of the day, it helps,” said analyst Patrick O’Rourke of ATB Capital Markets.
“It deals with a short-term liquidity issue. But generally, we want to see private markets flowing capital back to the sector.”
When it comes to the financial health of the sector after the collapse of oil prices and the impact of the COVID-19 pandemic on global energy demand, the market is bifurcated, O’Rourke added.
Some larger companies remain in solid financial shape, but companies carrying too much debt into the downturn and smaller firms with limited access to credit have been squeezed.
But the news by InPlay has sparked hope the delays are over.
Dan Tsubouchi, chief market strategist with Calgary-based investment management firm SAF Group, called the announcement a “potential game-changer” for Canadian small and mid-sized producers.
He noted the BDC loans will rank behind existing bank loans and the four-year term is helpful, giving companies time to prepare for an expected oil price recovery.
“I know there are a whole bunch of other companies knocking on the door when they saw this,” Tsubouchi said.
“This allows people to say these guys can get through (to) the other end of the COVID downturn — and that’s why it is a game-changer.”
About the author: Chris Varcoe is a Calgary Herald columnist.
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Source: Calgary Herald | This text was excerpted from the media outlet cited on August 18, 2020 and is provided to Noia members for information purposes only. Any opinion expressed therein is neither attributable to nor endorsed by Noia.
