Hard Times in Canadian Oil Could Be Useful Experience

Abstract

Combine a pandemic, plunging oil demand and prices, and a deep recession, and then consider how it may change things. It is not a question Steve MacDonald can answer, but the chief executive officer for Emissions Reduction Alberta (ERA) said it can be a useful way to get people to consider how things can change in un expected ways. “If you said to someone 4 months ago that oil could go to negative prices, they would say, it’s not going to happen. The range of what could happen is much wider now,” he said. A recent decision by the $1-trillion Norwegian Wealth Fund to exclude four major oil sands companies saying they have “unacceptably high greenhouse emissions” shows the need for change. The headlines in Canada have been harsh - the rising death toll from COVID-19, oil prices flirting with zero, job cuts, and the slow and unpredictable timeline to normal life. “Everything you’re hearing is true. It’s bad,” said Darcy Spady, but the 2018 SPE president is quick to add, “I see a ray of sunshine.” There is a connection between the bright and the dark sides, and it is forcing leaders from both inside and outside the industry to take a hard look at what works and what does not. “The pandemic has merely accelerated the disruption that was already occurring in Canada’s oil and gas sector,” wrote Kevin Krausert, the president and chief executive officer of Beaver Drilling, in an essay in a national newspaper, The Globe and Mail. The essay addressed a long-term future in which the industry undergoes fundamental changes, ranging from research into ways to make hydrogen fuel from gas to drillers digging geothermal wells to provide renewable energy. But at the moment, it is difficult to get the attention of decision makers about the future. “It is hard to focus on anything but the here and now. Where the next dollar is coming from rather than from 3-10 years from now,” said Mark Scholz, president of the Canadian Association of Drilling Contractors. Staying Alive The dramatic drop in oil demand and prices can kill jobs, companies, and ideas. MacDonald sees that threat firsthand. “Liquidity is an issue for everybody, cash flow has been a challenge, the ability to secure investors,” are all issues now affecting those trying to scale up promising ideas. Soon after the economic impact of the sweeping limits that were imposed to slow the spread of COVID-19 became apparent, Emissions Reduction Alberta (ERA) changed its policy to allow increases in progress payments to companies during this period when cash is hard to come by and when some lenders are delaying the release of loan funds, MacDonald said. By reducing the amount of money held back from progress payments, ERA expects to provide 74 companies with $10 million more in cash in the near term. The payments may help client companies pay some bills at a time when they are struggling to line up funding and customers for the large-scale tests needed to prove ideas that worked on a smaller scale.