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Federal oil and natural gas liquidity aid explained

Federal aid consists of repayable loans and loan guarantees to keep businesses afloat, preserve oil and natural gas jobs.

The Government of Canada has announced several financial initiatives that will help support the oil and natural gas industry, which has been hit hard by the combined effects of the COVID-19 pandemic and record low prices triggered by oversupply and a global price war. These include measures to provide liquidity support to small- and mid-sized companies in the sector, plus the Large Employer Emergency Financing Facility (LEEFF) which is available to corporations across economic sectors, including airlines and manufacturing as well as oil and gas.

Liquidity is a major issue for companies: COVID-19 and the oil price crash have caused a rapid fall in revenues. While long-term recovery is expected, access to loans and other sources of funding is vital to allowing otherwise healthy companies to bridge through the current crisis. Federal financing programs provide liquidity to help Canada’s businesses and their suppliers remain active and position them for a rapid economic recovery.



LEEFF funding: Large employers

Recognizing that millions of Canadians are employed by midsized to large corporations, the Government of Canada announced financial support to help protect jobs and safeguard the economy. Based on a number of conditions, the federal government established the LEEFF program to provide bridge financing to Canada’s largest employers, whose needs to keep operations going are not being met through conventional financing at this time. The objective is to protect jobs, help otherwise viable businesses weather the current economic crisis, avoid bankruptcies where possible, and position businesses for rapid recovery. 

Companies seeking this financial relief must meet several criteria, including how the funding will be used. This program is not unique to the oil and natural gas industry, but is available to all eligible businesses across the country.

LEEFF will be delivered by the Canada Development Investment Corporation (CDEV), in co-operation with Innovation, Science and Economic Development Canada (ISED) and the Department of Finance. To qualify for LEEFF support, eligible businesses must be seeking financing of about $60 million, have significant operations or workforce in Canada, and not be involved in active insolvency proceedings.

Conditions include limits on dividends, share buybacks and executive pay. In addition, companies would be required to show through climate-related disclosure reports how their future operations will support environmental sustainability and national climate goals.

“Canadian oil and natural gas companies are leaders in environmental sustainability planning, innovation and reporting,” notes Jonathan Stringham, manager Fiscal and Economic Policy at the Canadian Association of Petroleum Producers. “We will be well positioned to meet fair reporting requirements.”



It’s expected that companies will first try to meet their lending needs through traditional capital markets. LEEFF will provide an important last-resort backstop if those markets can’t meet the needs of companies.

The government has also expanded the existing Business Credit Availability Program to assist mid-size companies with larger financing needs with loans of up to $60 million per company and guarantees up to $80 million per company. This program also applies to Canadian businesses in all sectors and regions.

“The energy sector has seen an unprecedented drop in demand as people shelter in place due to COVID-19. This has resulted in downward pressure on commodity prices as product storage becomes an issue. As a result, the energy industry has sought out short-term liquidity relief from the federal government.”

Jonathan Stringham, CAPP
Jonathan Stringham, manager, Fiscal and Economic Policy, CAPP, notes that 500,000 Canadian jobs depend on the oil and natural gas sector. Liquidity support from the federal government will help ensure those jobs remain after the current crisis passes.


BDC and EDC funding: Small and medium employers

Government liquidity support specifically for small- and mid-sized companies in the oil and natural gas sector was recently announced, and takes the form of loans and loan guarantees. Funding assistance will be managed through the Business Development Bank (BDC) and Export Development Canada (EDC), both Crown corporations. This assistance is aimed in particular at Canada’s exploration and production companies, mid-stream (pipeline and refinery operators) and oilfield service providers. 

Under the federal program, BDC can provide mezzanine financing – a form of debt that can be converted to equity if the company encounters financial distress – ranging from $15 to $60 million for up to four years. Other funding will be ‘interest-only’ loans: a company would pay just the applicable interest amount for a defined period, then begin full loan repayment – similar to a personal line of credit. 

Support from EDC will take the form of ‘reserve-based lending’ loan guarantees up to $100 million per borrower. Under normal conditions, oil producers and banks renegotiate credit lines based on the size of a company’s oil reserves, oil prices, and other factors. But since the value of those reserves has plummeted, EDC will guarantee a portion of loans that are no longer covered by the value of reserves. 

Repayable loans, not bailouts

“These financial support programs are not bailouts. The federal government is offering repayable loans aimed at bridging companies through this global economic crisis. The loans have strict criteria for both eligibility and use of proceeds, and are to provide short term liquidity,” says Stringham. 

“In the long term, the industry is resilient and long-term demand for Canadian-produced energy is robust. But in current difficult economic conditions, the industry appreciates the federal government’s initiatives to support cash flow among businesses that are financially constrained. Canadian upstream companies have been forced to cut capital expenditures by more than $7 billion in the past few weeks. This unparalleled drop in investment significantly weakens the Canadian economy and threatens the jobs of nearly 500,000 Canadians across the country.”

Tim McMillan, CAPP president and CEO, adds, “We are encouraged that the government is working to strengthen support for corporations at risk. Liquidity is a real and immediate challenge for oil and natural gas producers and CAPP has been working with the federal government to identify urgent action needed to address the dire situation. We are awaiting additional details on the expansion of support – a critically important matter as companies try to weather the current crisis.”

“In the long term, the industry is resilient. But in current difficult economic conditions, the industry appreciates the federal government’s initiatives to support cash flow among businesses that are liquidity constrained.”

Jonathan Stringham, CAPP


The oil and natural gas sector continues to provide an essential service to Canadians and is maintaining critical infrastructure during the COVID-19 crisis, safely and reliably providing the energy that Canadians and customers need. Our front-line workforce and products are critical to supporting health care, communities, personal isolation efforts and Canada’s supply chain. A strong industry creates jobs for Canadians and generates much-needed revenues for government.