Trudeau said Ottawa would spend $1.7B to clean up abandoned oil and gas wells as part of an effort cushion firms against the economic fallout from COVID-19

OTTAWA — Energy executives panned a new well reclamation program unveiled by the Liberal government on Friday, saying it comes weeks too late and fails to provide much-needed liquidity to companies pummelled by a monumental shock to oil demand.
Prime Minister Justin Trudeau said Ottawa would spend $1.7 billion to clean up abandoned oil and gas wells in oil-producing provinces as part of an effort cushion firms against the economic fallout from COVID-19. Environmental advocacy groups applauded the move, while official industry sources and provincial leaders also supported the new spending.
But several oil executives said the program falls woefully short of needs and expectations.
“This is not going to do anything,” said Grant Fagerheim, chief executive of Calgary-based Whitecap Resources. “If this is as good as it gets, it will do very little or nothing to assist with operations for companies.”
The industry had for weeks been calling on Ottawa to introduce new lines of credit specific to oil and gas companies, which are fending off an historic drop in oil prices as governments shut down their economies in a bid to stem the spread of the virus. Prices for Canadian crude recently plunged as low as US$4, placing intense strain on an oil industry that was only beginning to climb back from the market collapse of 2014.
“I don’t think there’s a full appreciation and understanding of the severity of what we’re dealing with,” Fagerheim said of the Liberal measures.
Trudeau also announced a $750-million fund aimed at reducing methane emissions. He said the funds would allow Canada to “continue to fight climate change and reduce emissions while keeping people at work.”
“This is an opportunity for us to make sure that Albertans are getting to work cleaning up their province,” he said.
One oil executive, who asked not to be named due to the sensitivity of the issue, said the announcement appeared to adhere closely to Ottawa’s tendencies around environmental messaging, rather than addressing immediate concerns on private sector balance sheets.
“I think they made the calculation that it would be politically unpalatable in Ontario and Quebec to provide direct supports to oil and gas,” the person said.
I dont think theres a full appreciation and understanding of the severity of what were dealing with
An official in the office of Natural Resources Minister Seamus O’Regan said no firm decision had been made about whether oil-specific repayable loans would be made available.
Media reports in March suggested a bailout package for the oil and gas sector could be as high as $20 billion, including immediate liquidity options and the potential for Ottawa to purchase shares in beleaguered energy companies.
Ottawa has already rolled out a host of programs aimed at aiding private companies, including a cross-economy wage subsidy program expected to cost around $73 billion.
Firms can also apply for lines of credit through the Business Development Bank of Canada and Export Development Canada. The EDC and BDC on Friday said they would expand their current lending program for oil and gas companies, which currently allows for small loans between $15 million and $60 million to cover operating costs.
Trudeau said on Friday the well abandonment program would “maintain” 5,200 jobs. The Canadian oil and gas sector shed tens of thousands of jobs in 2019 alone, according to PetroLMI, and is expected to lose more in 2020 as prices remain depressed.
Meanwhile, official voices representing the energy sector, including Alberta Premier Jason Kenney, applauded the announcement. Industry insiders now hope that additional lines of credit could be rolled out in coming weeks or months, when an eventual plan to turn the Canadian economy back on enters its later stages.
“This is critical to getting thousands of people in the energy sector back to work immediately,” Kenney said in a tweet. The Petroleum Services Association of Canada said the announcement was “very welcome as it will create jobs for (oilfield service) workers and provides environmental benefits.”
Greenpeace Canada and other environmental organizations also supported the funding, saying the move “puts people over polluters.”
Shortly after media reports emerged that Ottawa was readying $15 billion in oil and gas supports, a coalition of 84 environmental advocacy groups sent an open letter to Trudeau calling on him to reconsider.
“Giving billions of dollars to failing oil and gas companies will not help workers and only prolongs our reliance on fossil fuels,” the coalition wrote in the March 23 letter. “Oil and gas companies are already heavily subsidized in Canada and the public cannot keep propping them up with tax breaks and direct support forever.”
Observers have long raised concerns over the thousands of inactive and abandoned oil wells that pepper Alberta, Saskatchewan and B.C., warning it is an environmental liability that will cost billions to reverse. Alberta alone has an estimated 91,000 inactive wells and 7,300 abandoned wells.
The $1.7 billion in funding is “a lot of money” for remediation, but whether it does help drive down the number of orphan and inactive wells in Western Canada is entirely dependent on how carefully the money is spent, said Marla Orenstein, director of the Natural Resources Centre at the Canada West Foundation.
The funding could help improve balance sheets by removing some of those troubled companies’ environmental liabilities or, on the other hand, the lack of additional liquidity to the sector could cause some companies to go bankrupt, leaving behind additional orphan wells.
During the last oil-price induced recession in Alberta, a slew of companies including Lexin Resources, Redwater Energy, Houston Oil and Gas and Trident Exploration went bankrupt, foisting millions of dollars of environmental liabilities on Alberta’s Orphan Well Association.
“Whether this turns out to be a backhanded bailout for certain companies or it induces other types of change, really depends on how they put that money to use,” Orenstein said.
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