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NATHAN VANDERKLIPPE AND DAWN WALTON
Globe and Mail Update
February 6, 2009 at 4:36 AM EST
CALGARY — The fortunes of the oil patch are turning so quickly that Alberta Premier Ed Stelmach is promising help for junior energy companies amid warnings of more trouble ahead.
As low oil prices and tight credit markets starve the industry of needed cash, Mr. Stelmach yesterday pledged an incentive program that would provide "short-term targeted assistance" for junior and mid-capitalization energy players.
Mr. Stelmach's move came as the Canadian Energy Research Institute (CERI) released a report estimating that nearly $100-billion in spending already planned for the oil sands, much of it among the industry's biggest players, will never materialize.
The impact of such a dramatic slowdown in what until recently was a booming province will ripple across the Canadian economy, affecting government coffers and household incomes for years to come, the independent non-profit institute said.
In Alberta, where thousands have been laid off and forecasters say 2009 provincial royalty revenues will drop by $5-billion, the pinch is being felt keenly.
"It's clear we are facing a serious global financial and economic downturn that will significantly impact our country and our province," Mr. Stelmach said in a luncheon speech to the Calgary Chamber of Commerce.
Consultation with the banks has already taken place to encourage them to provide access to capital for smaller energy players, he said.
Mr. Stelmach declined to outline precisely how lenders would be guaranteed a return for their investments.
Provincial Energy Minister Mel Knight has been tasked with looking at the cash flow situation facing junior energy firms. An inability to access debt and equity financing has left some struggling to survive.
Mr. Knight said he will consult with industry before releasing more details, but ruled out any changes to the province's new royalty regime, which was designed to give the public purse a bigger take of windfall profits but was scaled back somewhat.
"It'll be a tax incentive, a tax credit incentive of some sort to deal with the issues that are specific to the junior, mid-cap players in the province," he told reporters. "The incentive packages are non-cash incentives. ... We're not giving cash to anybody."
The incentive will, however, do little to help oil sands projects that have foundered, many for the same reasons that smaller players have struggled.
The rapid reversal in the world economy has sent so much money fleeing from the oil sands that it may now produce only half the output that had been expected by 2015, according to the CERI report.
Since last September, the institute has tallied a staggering $230-billion in oil sands capital spending plans that have been knocked off the books of companies delaying or axing a huge array of projects.
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Of that, CERI senior economist David McColl estimates that just over half will be brought back on stream in future years as oil prices rise and confidence in the economics of the oil sands strengthens.
That leaves fully $97-billion that CERI says is now unlikely to be spent in the oil sands over the next 20 years, though it still expects the total capital outlay in that time to reach $218-billion.
"There is going to be less royalty revenue coming in, less taxes, less household income. It has an impact on everybody," Mr. McColl said. "It does signify that there is a material impact that is happening from the financial crisis, the lack of liquidity and other projects being delayed. And there's more to come."
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