Low global oil prices slows business for local companies

Susan Thompson
Smoky River Express

Low oil prices of around $50 a barrel have led to a slowdown in the northern Alberta oil patch.

The Canadian Association of Oilwell Drilling Contractors is predicting there will be 33 per cent fewer wells drilled in 2009 than in 2008, while the Canadian Association of Petroleum Producers is predicting a 50 per cent drop in investment in non-conventional oil in 2009.

Mike Laflamme, Branch Manager for Top Gun Oilfield Services says although business has slowed, there is still quite a bit of work for the company.

“Oil companies are slowing everything down, or not doing the work, or not expanding the work. Projects have not really been cancelled, it’s just projects have never gotten started and are being postponed,” he explains.

Laflamme adds that, about 60 per cent of Top Gun’s work is in heavy oil, which is a lower priced oil.

The slowdown in work has meant Top Gun has had to take action to cut costs.

“We’re cutting any corner we can,” Laflamme says, explaining Top Gun has laid some workers off, but has instituted a hiring freeze since Christmas to prevent the need for any further layoffs.

Laflamme also expects it to get worse before it gets better, with spring break-up just around the corner.

“In spring here as soon as the water starts flowing, it’s going to get slower yet. Probably worse than past years.”

However, he believes business may pick up again in summer, with some projects slated to go ahead then.

Mike Sauvageau’s company Over-D Trucking Ltd. is in the business of oilfield hauling and oilfield rentals, and he says his company has felt the effects of the slowdown, too.

“There’s just a little bit less of everything. It’s the same kind of work but not as much of it, less rigs, plants, pipelines,” he says. “Everything is still going on but it’s about half of what is usually is.”

According to Sauvageau, Over-D has had to lay off workers, although that has more to do with spring break-up than the general economic situation.

“I just laid off a couple of guys today, but it’s more because it’s spring, and it’s always slow in spring. I didn’t have to lay any guys off over the winter,” he says.

For his part, he doesn’t expect business to pick up much this summer. “It’ll be about the same, still running but at a slower pace.”

N.J. Contracting’s Neal Jorgenson says he’s noticed a slowdown too, but that so far, it hasn’t really affected his business.

“I’m a little different field than a lot of guys, since I’m fixing a lot of the [oil companies’] stuff, so we notice it, but we won’t stop.”

Jorgenson hasn’t had to take any action yet to cut costs, and points optimistically to the Alberta government’s March announcement of a royalty holiday for companies embarking on new drilling projects this year, at a cost of an estimated $1.51 billion.

“I don’t think it’s gonna be as bad as everybody thinks,” he says. “The government is giving some royalty cuts to the oil companies, so a lot of them will take advantage of it.”

However, critics of the royalty cuts say they won’t help small to mid-sized companies, whose main problem is securing the financing for new projects.

Jorgenson adds, “We’re going to have a long break-up.”

Despite low oil prices and the general recession, there has been some recent good news in the patch. Suncor has launched an C$18.4 billion ($15 billion) takeover of Petro-Canada, a deal that would create the country’s largest oil company and make the new company a major player in the northern Alberta oil sands. Suncor CEO Rick George was quoted in Reuters on April 1 saying oil sands development is profitable at $50 a barrel thanks to lower costs. He also said he expects oil prices might only dip down to $40 a barrel once more before beginning a slow but steady recovery, with global demand still increasing and less investment in new production due to the recent slowdown.

Until then, as Laflamme says, ““Everybody’s in the same boat.”

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