The Alberta government announced tax relief and other measures for struggling oil and gas producers in what Premier Jason Kenney described as a first step to help an industry that has been hammered by historic low prices and the COVID-19 pandemic.
Mr. Kenney, who has warned that his province is facing a period of adversity not seen since the Great Depression of the 1930s, said his government is focusing on ensuring there is an energy sector left to recover when the pandemic crisis is over.
“This will be, I believe, the most challenging time in our economy for several decades,” Mr. Kenney said on Friday.
The province is temporarily waiving fees collected by the Alberta Energy Regulator from the industry, which will amount to $113-million. As well, it will extend oil and gas tenures that were set to expire in 2020 by one year to give resource companies more time to raise capital and plan.
Mr. Kenney also announced the formation of an economic advisory panel, led by economist Jack Mintz with members that include former prime minister Stephen Harper, to look at the medium- and long-term economic recovery.
The province and federal government have both faced pressure to help Alberta’s struggling oil and gas sector, which was still digging out of a downturn that began in 2014 before that situation dramatically deteriorated over the past two weeks.
A price war between Russia and Saudi Arabia sent prices spiralling downward two weeks ago, and the increasingly severe restrictions imposed to curb the COVID-19 pandemic have caused a demand shock, as airline travel and other economic activity grinds to a halt.
Mr. Kenney said that, even when the worst of the pandemic has passed, the province could still be coping with the collapse of energy prices. He welcomed federal support announced so far and said he is confident Ottawa sees the scope of the crisis in Alberta.
“I think the government of Canada understands that we cannot afford to lose the single largest subsector of the Canadian economy, the largest export industry,” he said.
The Canadian Association of Petroleum Producers welcomed the news, saying it will provide much-needed relief at key pressure points for the oil and gas industry.
“This unprecedented crisis has created an extremely uncertain and difficult time for our workers, our families and our industry. These initiatives will help us to deal with this crisis, and put the industry in a position to assist in the economic recovery going forward,” said Tim McMillan, CAPP’s president and chief executive.
Major oil producers have seen their stock price drop by 80 per cent or more in the past month, and the industry has slashed capital spending as prices languish at a level far below what those companies need to be profitable.
The federal government has not yet said what it will do for the industry, focusing its efforts this week instead on direct support for individuals, such as through Employment Insurance, and deferring taxes and other bills for households and businesses.
Ottawa has hinted that its response would include money to clean up abandoned oil wells, which is seen as a way to address a major environmental problem while putting people in the sector back to work. The Alberta government has also increased loans to the province’s Orphan Well Association for the same reason.
The federal government is also expected to make changes to the fiscal stabilization program, which is designed to help provinces that face a sudden drop in revenue, which could include a substantial payment that Alberta had been seeking dating back to 2015.
Oil prices have been incredibly volatile, sinking to new depths earlier this week only to rebound and then fall again.
West Texas Intermediate was briefly trading for US$20 per barrel on Wednesday, its lowest in more than two decades. On Friday, the price reached nearly US$28 before settling back to US$22.43 at the end of the day.
Western Canadian Select, the benchmark price for Alberta crude, dipped below US$8 per barrel earlier this week before bouncing around and ending Friday at just over US$10.
Those prices have also left the recently passed provincial budget with little value, both in terms of predicting resource revenues, which have essentially evaporated, or projecting the costs needed to respond to COVID-19 or breathe life into the economy with stimulus measures.
Alberta had recorded 195 cases of COVID-19, including one death, as of Friday afternoon. There were 10 people in hospital, five of then in intensive care.
The economic package from the Kenney government came a day after one of the major rating agencies, DBRS Morningstar, downgraded Alberta’s credit rating.
The credit rating agency last confirmed Alberta’s ratings on Dec. 18, 2019, when the province was projecting a steady decline in operating deficits and slowing debt growth. But on Thursday night, it downgraded Alberta’s rating to negative AA, saying “the United Conservative Party government had not demonstrated its ability to meet its fiscal policy objectives.”
That, combined with current economic conditions and actions by the Saudi Arabian and Russian governments, will likely keep oil prices under pressure for the foreseeable future, it said, and “will have a significant and adverse impact on Alberta’s economic activity and government revenue.”
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