Canada’s Energy Sector
Canada’s energy sector is facing significant challenges as it is dealing simultaneously with a surge in global crude oil supply and a decline in demand as a result of the broad economic slowdown brought on by the COVID-19 pandemic.
This is why we announced today our support for Canadians working in the energy sector. We will take new targeted actions totaling more than $2 billion to create and protect jobs and important environmental benefits, as well as make available new tailored credit solutions for small and medium-sized companies in the sector. These targeted actions are expected to retain and create approximately 10,000 well-paying jobs in the sector.
Orphan and Inactive Oil and Gas Wells
Canada’s energy sector is a significant contributor to our national economy. In light of this, and the challenging economic circumstances facing the sector and the regional economies dependent on it, the Government of Canada will provide funding to sustain jobs in the energy sector while cleaning up the environment. This includes:
- Up to $1 billion to the Government of Alberta to support the province’s work to clean up inactive oil and gas wells across the province;
- Up to $400 million to the Government of Saskatchewan to support work to clean up orphan and inactive oil and gas wells across the province;
- Up to $120 million to the Government of British Columbia to support work to clean up orphan and inactive oil and gas wells across the province; and
- $200 million to the Alberta Orphan Wells Association (OWA) to support its work to clean up orphan oil and gas wells and well sites across Alberta. The OWA will fully repay this amount.
Orphan oil and gas wells arise when the developers cannot be located or do not have the financial means to pay for proper decommissioning and site remediation. There are currently about 4,700 orphan wells in Alberta, 600 in Saskatchewan, and 350 in B.C. In Alberta, these wells fall under the custodianship of the Alberta Energy Regulator, which delegates its responsibility to clean up those wells to the OWA, a non-profit organization. In Saskatchewan, orphan wells are managed by the Orphan Fund Procurement Program, which is administered by Saskatchewan’s Ministry of Energy and Resources. In B.C., orphan wells are managed by the Liability Management Branch of the B.C. Oil and Gas Commission.
Inactive oil and gas wells are formerly producing wells. At present, there are approximately 91,000 inactive wells in Alberta, 36,000 in Saskatchewan, and 12,000 in B.C.
Proper well clean-up involves two steps:
- Well abandonment requires sealing and capping wells to prevent any subsurface gas or liquids from leaking below or above ground.
- Site reclamation involves removing all associated site facilities, remediating any contaminated soil or groundwater and returning the site to its original condition.
Clean-up costs can range between $100,000 to several million dollars per well depending on the complexity and size of the well or facility and the amount of contamination that is present.
Clean up work is typically carried out by small and medium-sized oil and gas service firms. Those firms employ nearly 60,000 people across the three provinces. Clean-up work would be considered an essential service under the government’s Guidance on Essential Services and Functions in Canada During the COVID-19 Pandemic.
As part of this funding, local landowners will have the ability to nominate and prioritize wells for remediation, and funding will be prioritized to companies that are in good standing with respect to municipal taxes.
As part of these agreements, the Government of Alberta has committed to implement strengthened regulation to significantly reduce the future prospect of new orphan wells. This will create a sustainably funded system that ensures companies are bearing the costs of their environmental responsibilities.
The funding program will have oversight from a federal-provincial committee, and the federal government will ensure municipal and Indigenous engagement.
Reducing Greenhouse Gas Emissions in the Oil and Gas Sector
$750 million is allocated to Natural Resources Canada over two years, starting in 2020-21, to create a new repayable loan program to work with conventional and offshore oil and gas companies to reduce their greenhouse gas emissions. Of this amount, $75 million will be allocated to investments in the offshore sector. A portion of these loans will be convertible to grants.
Canada’s oil and gas sector is the source of 43% of our methane emissions, which is one of the most potent greenhouse gases. This program will support eligible energy sector firms in making capital investments necessary to reduce greenhouse gas emissions, with a focus on methane. For example, the program could support investments in pumps, valves and other capital equipment that will reduce methane emissions. The support will help keep workers employed, and will assist firms that are preparing to make changes in order to comply with provincial requirements or federal methane regulations (Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector)).
Business Credit Support for the Energy Sector
On March 13, 2020, the government announced the establishment of a Business Credit Availability Program (BCAP) to help Canadian businesses obtain financing during the current period of significant uncertainty. With today’s announcement, the government is proceeding to expand BCAP credit support to medium-sized businesses with larger financing needs, beginning with companies in Canada’s energy sector.
This support, provided by the Business Development Bank of Canada (BDC) and Export Development Canada (EDC), will provide viable energy sector companies with rapid access to the financing they need to maintain operations and keep their employees working.
The support will flow to Canadian energy sector companies to sustain access to reserve-based credit, help firms to maintain access to the transportation and storage system, and provide additional working capital.
These offerings aim to provide a range of energy companies that were financially viable before the COVID-19 crisis with several options to meet individual credit needs. Borrowing companies could choose between the offerings to tailor credit to individual needs.
In the near term, additional broad-based credit solutions will be made available for small and medium-sized firms in other sectors, such as forestry, retail and others, whose financing needs are similarly larger than the current solutions available under the BCAP.
For the full release of new supports announced today to support Canadians and businesses facing hardship as a result of the global COVID-19 outbreak, see the News Release from the Department of Finance.
The government is working in close consultation with all impacted sectors across the economy to take action where it is required, and is prepared to take further targeted action as needed to ensure that Canada is well-positioned for a strong recovery from the impacts of COVID-19 across all sectors of the economy.