Richard Hatfield on the line

Trapped in an oil crisis

SUZANNE ZWARUN April 14 1986
Richard Hatfield on the line

Trapped in an oil crisis

SUZANNE ZWARUN April 14 1986

Trapped in an oil crisis

Only the week before, many Calgary oilmen would have headed for lunch at Damien’s to discuss the $400-million rescue package that the Alberta government unveiled for their industry on April 1. But Damien’s, a favorite Oil Patch watering hole, closed its doors at the end of March for lack of business. And while oilmen applauded the provincial government aid scheme as an encouraging “initial step,” the battered industry expects that before world oil prices recover from their current slump—the price per barrel dipped below $10 last week for the first time since the mid1970s—more industry-dependent firms like Damien’s will likely be forced out of business.

But last week the Alberta government acted on several fronts to blunt the spreading impact of economic decline. Promising that more help was under consideration, Energy Minister John Zaozirny announced two interim measures to help the oil industry. Three days later, in the speech from the throne, Premier Donald Getty’s Conservative government pledged to dip into the province’s $13.9-billion Heritage Fund to help finance another $2.5 billion in new programs. The centrepiece: a $2-billion plan to help financially strapped farmers.

For the hard-hit oil sector, the initial aid is more modest. Under the new Royalty Tax Credit Program, small producers will get a tax credit of up to 95 per cent of their payable royalties, to a maximum of $3 million per company for the rest of the year. The tax credit previously was 75 per cent of royalties. Under the Drilling Assistance Program, companies will be able to deduct half the cost of drilling an exploratory well from royalty payments payable after April 1, 1987. According to Zaozirny, the programs will rebate $300 million in royalties, while the $100-million drilling concessions will generate $600 million worth of work. But industry officials quickly noted that the package restores less than 10 per cent of the industry’s estimated oil price losses. Their forecast of a 50-per-cent slump in activity for the rest of 1986 remains unchanged. “If you have the money available, the program reduces the cost of exploratory drilling,” said Hans Maciej, technical director of the Canadian Petroleum Association, which represents 66 firms. “But if you don’t have any money, it doesn’t do anything for you.” Others noted that the next move will be up to Ottawa, which is being urged to remove immediately the Petroleum Gas Revenue Tax (PGRT). Under the

Western Accord energy agreement, the tax is scheduled to be phased out over the next two years. This week Zaozirny is expected to meet federal Energy Minister Pat Carney to discuss the issue. But even if Ottawa removes the PGRT, industry officials intend to ask for further provincial royalty reductions. Explains Maciej: “Imagine if your salary were cut in half, but you had to pay the same taxes as previously.”

With a mid-May election anticipated, industry officials are hoping the two new programs are forerunners of campaign promises to come. 5 Although world oil g prices have been tum§ bling since January, the S provincial government “ has resisted intervention, insisting that the precipitous decline was no more than a glitch in the system. But by the end of March, 3,000 oil people had been laid off and, according to industry experts, another 18,000 jobs will be lost by year’s end as drilling dwindles to 4,000 wells, down from the 12,000 record pace of last year. Calling the government’s programs a campaign ploy, New Democrat opposition leader Ray Martin said, “They’re not going to level with people until after the election, when they’ll present a really conservative agenda that attacks people services and taxes.”

Already, the Alberta government is losing $150 million in revenues for every U.S. dollar decline in the price of oil. Getty, however, remains optimistic. “While prices may be down right now,” he said last week, “they are going to strengthen.” Calgarians, faced with a one-per-cent jump in unemployment in February and a softening real estate market, are less sanguine. A group representing 30,000 workers has demanded that Ottawa set a floor price on Canadian oil, a move rejected outright by oil industry representatives who want to discourage government involvement in their affairs. Some in the Oil Patch are casting around for other work. The Calgary Fire Department’s announcements of 24 job openings drew some 3,000 applications by week’s end. Said one hopeful of the $24,900 a year job: “It would be like winning a lottery,”

SUZANNE ZWARUN