Grim outlook for oilwell drilling

An industry group representing oilwell drilling contractors has dramatically slashed its activity forecasts while predicting as many as 23,000 jobs lost.

An industry group representing oilwell drilling contractors has dramatically slashed its activity forecasts while predicting as many as 23,000 jobs lost.

The Canadian Association of Oilwell Drilling Contractors (CAODC) issued an updated drilling forecast on Thursday that predicts activity levels about 40 per cent lower than anticipated when the last forecast was issued in late November.

Tumbling oil prices are to blame for the grim forecast, which could cost as many as 3,400 direct jobs and another 19,500 indirect jobs.

The number of operating days for rigs is forecast to drop by 42,882 to 76,696 days. By comparison, there were just over 131,000 operating days in 2014.

That means a lot of rigs sitting idle in yards.

When the CAODC issued its last forecast on Nov. 20, it was based on US$85 barrels of oil.

“Today it’s a $55 assumption and we’re sitting at $45 actual,” said Mark Scholz, CAODC president.

Continuing slumping oil prices and announcements from the oil and gas industry of deep cuts to capital spending led to the reassessment.

“The story here of why we’ve gone from a 10 per cent reduction in activity to a 41 per cent reduction in activity is just that things have gone progressively worse,” said Scholz.

“Until we see some sort of indication that commodity prices are going to recover and have some sort of stability … we’re going to be in this situation for some time if we don’t get that clarity.”

Utilization levels — meaning the percentage of rigs at work — is expected to plummet to 26 per cent from the previous forecast of 46 per cent.

Scholz said the 12 per cent utilization rate predicted for the second quarter is the lowest level since 2009, the height of the last global financial meltdown.

Spring break-up — when rig crews are typically the least busy — is expected to be pushed forward to mid-February.

Scholz said it’s going to be an “incredibly tough year,” with predictions of only 96 rigs out of just over 800 available working in the second quarter.

The repercussions of this sort of slowdown will spread beyond the oilpatch. Hotels, grocery stores and the retail sector will all feel the pain as workers sit at home.

“All of these segments of the industry that indirectly serve our business are going to be impacted,” he said.

In a quarter-by-quarter comparison, the CAODC has slashed its predictions between 37 per cent and 42 per cent.

The number of active rigs in the first quarter of this year will plummet to 284 from earlier predictions of 493 — a 42 per cent drop.

Besides the revenue loss, companies will also face the challenge of finding ways to hold on to senior and well-trained employees when the work has dried up. Previous slumps have often been followed by labour shortages when conditions improve.

Predictions on when the corner will be turned and what oil prices will be are all over the map.

Scholz said a number of factors will be necessary to reverse the slump, including confidence that the industry has hit bottom, followed by consistent price increases and reassurance that another tumble is not looming.

“Until we have some of clarity on commodity prices, we’re going to be like this for a while.”

pcowley@bprda.wpengine.com

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