Courtesy of Stikeman Elliott. View original article here.
The latest edition of Oil and Gas Activity in Canada, Stikeman Elliott’s legal guide to the oil and gas industry in Canada, is now available. Written by our Alberta-based experts, the updated 2020 guide provides information on the Canadian laws and regulations affecting the industry.
The topics that are covered include:
- Ownership of oil and gas in Canada;
- Exploration and development agreements;
- Oil and gas infrastructure;
- Federal and provincial regulation;
- Climate change and carbon capture;
- M&A in the oil and gas industry;
- Taxation of oil and gas assets;
- Indigenous consultation; and
- Recent developments including the impact of the pandemic.
Strengths and Challenges in Uncertain Times
For the past five years the Canadian oil and gas industry has faced numerous challenges, some of which have been felt worldwide like:
- The oil price collapse in 2014, followed by a weak and unsteady recovery; and
- Increased scrutiny on environmental, social and governance issues including pressure to reduce greenhouse gas emissions from fossil fuels and switch to renewable sources of energy.
Other challenges have been more specific to Canada:
- Ongoing oil price differentials;
- Continuing delays in attaining market access;
- Carbon taxes and their proposed alternatives (including Alberta’s TIER system for large industrial emitters); and
- The introduction of new regulatory regimes, such as the Impact Assessment Act, that affect the review and approval of major Canadian resource projects such as interprovincial and international pipeline projects.
The impact of the foregoing challenges and other issues resulted in many foreign investors exiting significant parts of their Canadian oil and gas holdings over the past few years. Then in Early in 2020, Saudi Arabia got into an oil production war with Russia that led to a market glut. No sooner had this happened than the COVID-19 pandemic struck, curtailing economic activity and dramatically reducing demand for energy. These events drove oil prices to historic lows for several months, making it uneconomical for producers to sell new production. Demand for natural gas also weakened considerably as business activity slowed.
Virtually all participants in the oil and gas industry have been affected by these developments. Faced with rapidly declining cash flows, Canada’s producers slashed planned capital spending by billions of dollars, cut oil production by more than one million barrels a day in Q2 of 2020 and were forced to lay off office and field workers while reducing or eliminating shareholder dividends. The federal government and the governments of the Western provinces responded to the crisis caused by the pandemic with a variety of financial assistance programs, some of which specifically targeted the oil and gas sector.
But the pandemic is expected to result in a wave of M&A transactions (some of them through insolvency proceedings) as the industry consolidates to achieve greater efficiencies and stronger balance sheets.
Long-Term Prospects: Reasons for Optimism
While challenges persist for the Canadian oil and gas industry there is reason for optimism regarding its future as prospects for it continue to improve following the initial negative impacts of the pandemic. Canada is one of the few jurisdictions in the world that opens its oil and gas resources to domestic and foreign investment. It has the third-largest crude oil reserves in the world – a total of 171 billion barrels, 166.3 billion of which are in Alberta’s oil sands – and remains the world’s fourth-largest oil producer and is fifth largest natural gas producer. The long-term strength of the industry is not in doubt. We hope you will find Oil & Gas in Canada useful for understanding the laws affecting the industry as it manages through the pandemic.