The Canadian government is taking on bigger lending risks to help an oil industry saddled with the lowest crude prices on record.

Prime Minister Justin Trudeau’s government is relying on two financing agencies for the measures. The Business Development Bank of Canada will provide mezzanine financing — a form of debt that can be converted to equity if the company hits financial distress — for as long as four years.

Loans would be interest-only until the end of the term, BDC Chief Executive Officer Michael Denham said. The product will be ready over the coming weeks, a BDC press officer confirmed.

“We recognize that the next period of time — months, potentially years — is going to be tough in the oil sector,” Denham said Tuesday in a video conference to a business audience. The product “is tailor-made for sectors like this that are going through a real trough right now and need time to come out.”

The energy sector represented nine per cent of Canada’s GDP last year and is a key revenue source for several provinces. As oil prices have tumbled, Canadian energy companies have cut at least $7.5 billion in capital spending and laid off thousands of workers.

The government of Alberta, the province with most of Canada’s oil and gas, has estimated the liquidity needs of its energy companies are between $20 billion and $30 billion.

Oil producers and banks renegotiate credit lines twice a year based on the size of their reserves, oil and gas prices, and other factors. But since the value of those reserves has plummeted, another federal agency, Export Development Canada, will step in. EDC will guarantee a portion of loans that are no longer covered by the reserve value, an EDC press officer said by email.

“We are very focused on how we can help our exploration and production companies,” EDC CEO Mairead Lavery said in the Tuesday video conference, which was organized by The Empire Club of Canada.

BDC and EDC are fully owned by the federal government, which guarantees their debt.

The two agencies are finalizing details at a time some energy companies are showing fresh signs of distress. Calfrac Well Services Ltd., whose 2026 bonds issued in 2018 trade at less than seven cents US on the dollar, said this week the drop in business will result in a 70-per-cent cut in its workforce in North America.