Of all the numbers capturing the slide in Canada’s oil industry one of the most telling involves a pullback from the conventional sector.
Data provided by Baker Hughes shows the number of rigs chasing conventional deposits fell to 18 - a count unheard of even in the worst downturns over the past three decades - in March from more than 400 at the same time in 2014.
The result, according to the Canadian Energy Research Institute, is that the brakes will come on Canada’s conventional output, president emeritus Peter Howard told a Calgary conference, although it will take time for the slowdown to show up in statistics.
Because of well tie-ins and completions that were under way before crude prices took their nosedive, volumes should continue to rise by 126,000 barrels per day in 2017 and 167,000 bpd in 2018.
What they represent is a carryover from upstream activity in recent years and not what could be in store if the drilling slump worsens and extends.
The industry is currently counting on about 1,200 conventional well completions this year, when it’s estimated that a total of 2,500 is needed to sustain production over the longer term.
Howard said Canada will not be in trouble until 2018 and the outlook could become even more serious unless one of the proposed major pipelines out of Alberta is built before the end of the decade.
He said the industry is desperate to see at least one of four pipeline projects - TransCanada’s Keystone XL or Energy East, Kinder Morgan’s Trans Mountain expansion and Enbridge’s Northern Gateway - clear the regulatory and permitting hurdles and go ahead.
However, the chances that any will even get regulatory approval are increasingly bleak as they become bogged down in public hearings and face threats of legal action or civil unrest at construction sites.
Impact beginning to be felt
The full impact of unease about the prospects of a strong recovery in crude prices has only started to be felt in the oil sands sector, where projects are being shelved and the layoffs are widespread.
The Canadian Association of Petroleum Producers forecast nine months ago that production from the bitumen deposits would double to 4.8 million bpd by 2030, but that projection is due for a revision.
CERI also remained bullish about the oil sands five months ago, despite trimming its oil price assumption to US$85 a barrel from US$100, estimating production would reach 3.7 million bpd in 2020 and 5.2 million bpd in 2030.
Howard said at that time that US$85 oil would still generate “significant benefits across the board,” but cautioned that if prices dropped below US$80 “you would actually start affecting developments. They would get pushed off and maybe cancelled.”
That CERI report predicted investment in new oil sands projects and reinvestment investment in existing operations would exceed C$514 billion, peaking in 2017 and resulting in revenue from all projects of about C$2.5 trillion by 2038.
For all of Canada, the gross domestic product impact from investment and operating revenues would yield C$3.9 trillion, with about 88 percent of GDP impacts and 80 percent of employment impacts occurring in Alberta.
CERI said that if its objectives were accurate, oil sands employment would surge from 514,000 to 802,000 in 2028, assuming that all four of the big pipeline projects got green lights.
First wave of layoffs
Those numbers must now seem like a cruel trick for those whose livelihoods are tied to the industry.
The first wave of layoffs has surfaced in claims for employment insurance, with the Canadian government reporting increases in those collecting benefits in February of 12.3 percent in Edmonton and 11.8 percent in Calgary, compared with a national increase of 2 percent. The number of applications filed in Alberta soared by 30 percent in the same month.
Anyone trying to get a fix on industry intentions in the next year and beyond has only to check the barometer of industry confidence - government land sales.
British Columbia and Saskatchewan, which have collected C$1 billion and more in recent years, would settle for C$100 million in a heartbeat.
British Columbia’s first sale of 2015 brought in C$2.3 million compared with C$38 million in December 2014, while Saskatchewan opened the year by raising C$17.5 million, 65 percent lower than the first auction of 2014.
Alberta, the bellwether province, raised C$31.9 million in its first two sales, 18 percent lower than the same period of 2014 and is braced for much worse to come.
