Opinion: The Saskatchewan government is giving the oilpatch something it needs: time

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The Saskatchewan government announced on April 14 a number of measures to help out the oil industry in this province. It’s suffering under a colossal collapse in oil prices, driven first by a global oil price war, compounded multiple times over by the unfathomable decline in oil demand.

As a result, the sector is in bad shape, and despite promises from federal Finance Minister Bill Morneau to help out the oil sector several weeks before, nothing had yet come out until later in the week.

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When it did April 17, the federal government promised $1.7 billion for Alberta, Saskatchewan and British Columbia go clean up orphaned and inactive wells, and another $750 million for methane mitigation (which includes Newfoundland and Labrador).

Premier Scott Moe replied on Facebook, “Since 2016, the Government of Saskatchewan has been calling for federal funding to clean up inactive oil and gas wells in our province, and today’s announcement from the federal government is a positive step that will put workers back on the job in our oil and gas industry. Paired with an additional investment in methane reduction technologies, the federal government has taken a positive first step in providing much needed supports to a vital industry that has been heavily impacted by the COVID-19 pandemic and global pricing pressures.

“However, details shared with our government to this point have been limited, and we have not been made aware of whether this is an initial step of supporting our energy industry, or the only step. With liquidity being a daily risk to energy companies, federal funding must start flowing immediately.

“The Government of Saskatchewan will continue engaging with the federal government to garner more information on today’s measures, and to continue advocating for this vital industry that supports jobs and families not only in Saskatchewan, but across Canada.”The provincial government had been patiently waiting for the feds, but decided it was time to announce its own measures. I spoke to Energy and Resources Minister Bronwyn Eyre about this at length, a few hours after the province’s announcement, and again following the federal announcement.

On the $400 million the federal government is providing for abandoning wells, Eyre said: “Clearly, the service sector was calling for this as a lifeline, so this will be helpful, of course. I did think, however, that it was unfortunate impression that was left by the prime minister in his announcement—that dirty wells somehow spot the landscape. That isn’t the case in Saskatchewan. We have a very good record. Last year, Saskatchewan producers completed a record number of abandonments, up 240 per cent since 2016. They took advantage of new regulations and cleaned up wells, despite the downturn. Unfortunately, there was much more downturn to come.”

Eyre said more federal financial relief is needed. “The only problem with focusing on ‘end of life’ wells is that you don’t focus on wells that are currently in life, in production, and the jobs related to that. We are currently analyzing the federal package, and reviewing what else may be required.”

For example, according to the province, details are still vague following the federal announcement, about the amount in loans that will actually flow to small and medium sized oil companies. Morneau did suggest that more measures were also to come for both medium and larger companies.

Thus, we wait.

In terms of the provincial relief package, one thing was clear throughout the numerous measures the province is taking: there is a clear and consistent theme, the theme of time. Time to deal, time to cope, time to report, time to breathe.

Eyre agreed with that sentiment, in anticipation, at the time, of the federal announcement. “I think that’s right,” she said. “We don’t know how much time is going to be necessary. So absolutely, that’s a theme.”

Another thing is clear – Saskatchewan’s oilpatch needs help. It’s being hit really hard.

While her numbers were preliminary when we spoke, she said, “Going into May, we could easily be down 20 to 30 per cent: 100,000 to 150,000 barrels per day.”

If it were not for COVID-19 and its other economic impacts, that little bit of information alone should be leading headlines across this province for weeks.

That is huge. Consider that late last year, Saskatchewan was producing around 481,000 barrels per day. That much production being shut in is proportionally greater than the cuts OPEC+ announced a few days before. It’s also likely in tune with the drop in oil demand occurring right now.

So the government is basically giving the oilpatch time. There’s an extension on full compliance with Directive PNG017 to April 1, 2021. Directive PNG076, the Enhanced Production Audit Program, has similarly been pushed back to the same date.

On reporting, there is an expectation that industry will “make reasonable attempts to meet its reporting obligations,” but they will be suspending penalties for most reporting non-compliance. Once things get back to normal, there will be a two-month grace period, basically to get caught up.

This relief on reporting also applies to well data, incidents, volumetric and valuation, and enhanced production.

The province is deferring all low risk regulatory inspections that are not incident related. Similarly, field regulatory monitoring programs are also being deferred where there is no risk to the environment. Inspection deadlines are being extended, but where there’s immediate health and safety risks, these need to be addressed immediately, according to the backgrounder supplied by the ministry.

One of the key items is that the Oil and Gas Administrative Levy will be reduced by 50 per cent his fiscal year, with the remaining balance deferred until October 1, 2020.

As well, Crown leases that were due to expire are being extended by one year. This takes pressure off producers to drill or lose it. That makes sense in that the first few months of a well are its most productive, and drilling with prices as low as they are, they would essentially be throwing that production away. And I would note, the province, correspondingly, would be throwing away any royalties on that production as well.

“This will give them a little bit of breathing time to raise capital and to hang onto what they’ve got, so they can assess things on the other end of this in terms of properties and priority lands they want to then focus on,” Eyre said.

“We’re still looking at other things, but these are things we could do, now, which would help, we hope, in a specific, tangible way to address efficiencies and some immediate cash flow relief.”

The province had to do something for the oilpatch, and these measures were a start.

 

Brian Zinchuk can be reached at brian.zinchuk@sasktel.net.

 

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