Alberta’s finance minister is pleased with a federal government loan assistance program for large corporations, saying it should help viable oil and gas companies ride out an economic slump.
Finance Minister Travis Toews said Monday he’s happy that the federal government’s Large Employer Emergency Financing Facility (LEEFF) program lacks a cap by industry or by company. Alberta Premier Jason Kenney has previously suggested the industry may need access to between $15 billion and $30 billion in cash to weather the reduced demand of the pandemic and a global oil price war.
“We know that the need could be great,” Toews said Monday. “Obviously, we’ve seen some recovery in energy prices — that’s very welcome. But these prices that we’re seeing today are by no means close to profitable for the industry.”
Although the Alberta government had been pushing for a federal aid package specifically to help the oil and gas, airline and tourism industries, the federal finance minister on Monday said the government would offer “bridge loans” to any large company with annual revenues of $300 million or higher that can’t borrow by conventional means.
The loans come with conditions: companies would have to disclose climate action plans and sustainability goals and protect workers’ pensions. Companies can’t pay out dividends, offer share buy-backs or give “excessive” salaries to executives.
Toews said limiting corporate rewards was sensible for a taxpayer-funded program.
He also said reporting environmental goals should be a cinch for Canadian oil and gas companies, which mostly do this already.
“We have a good story to tell from an environmental standpoint in the Alberta energy industry,” he said. “We’ll be working to ensure that these requirements do not prohibit good, responsible Alberta energy companies from accessing this program, and that, in fact, these requirements to not limit growth in the sector in the future.”
Toews said the access to borrowing should be timely and painless, as “some of these businesses don’t have a lot of runway.”
Toews said the United Conservative Party government would “consider a provincial response” if it finds there are gaps in the federal program.
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Richard Masson, executive fellow with the University of Calgary’s School of Public Policy, said the federal government trod a careful political line with the LEEFF program’s design.
“There’s been a lot of pressure on the federal government not to be seen to be helping the oil and gas industry,” Masson said. “And this, as a broader based program, meets that criteria to a degree.”
The program’s conditions will prompt interesting conversations in Calgary oil and gas company boardrooms, he said.
Some firms may decide the benefits of a short-term loan are too small to change long-standing corporate practices, he said.
“Some companies are very committed to paying dividends,” he said. “The funds that own them — the pension funds, the mutual funds — want to make sure those dividends continue.”
If it takes months for cash to flow through the program, companies could be forced to make further spending or job cuts while they wait, he said. Firms without comprehensive environmental reporting practices already in place will also be at a disadvantage to apply, he said.
Masson thinks the oil service sector, such as drillers and frackers, are the most likely to benefit from the bridge funding. They’re losing billions of dollars worth of work while oil companies back away from expansion plans.
Canadian Association of Petroleum Producers CEO Tim McMillan said he’s thankful the federal government has come through with a program that will aid oil and gas companies. Small, medium and large producers all now qualify for federal aid, he said.
Although some companies may not survive the unprecedented blow of the pandemic, McMillan expects the industry to rebound.
“The expectation is that [as] people get back to more normal lifestyles, that Canada will be a supplier of choice, and that we will want to be part of pulling Canada out of the recession that we’re most certainly in,” he said. “The energy sector has played that role in the last several recessions, and I think that we’re well-poised to again be one of the strongest engines of the Canadian economy when that recovery does come and is needed.”