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Canadian rig workers face wage rollback
Gary Park For Petroleum News
Staring into the abyss seems to have jolted the Canadian service sector into action.
With thousands of jobs evaporating and drilling forecasts for Western Canada in a nosedive, the industry is set to roll back wages for rig crews on May 1.
In what is believed to be an unprecedented step, the Canadian Association of Oilwell Drilling Contractors is recommending its 124 member companies pay crews about 10 percent less than it suggested last October.
The objective is to promote a higher level of activity and end an upward cost spiral CAODC admits has outstripped the cost of living over the past five to seven years.
Association President Don Herring said all kinds of pricing pressures have spread across the industry in response to low commodity prices.
At the top end of the job categories, drillers would see their rates trimmed by C$1.50 an hour to C$38.50, while floor hands would drop to C$25.25 from C$28.
The rig hands, or entry-level workers, have experienced some of the sharpest pay increases over the past two years as companies went head-to-head with the construction industry in the race for workers.
CAODC said the number of active rigs in Western Canada declined in late March to 132 of 862 available units, translating into 15 percent utilization compared with 26 percent a year ago and 78 percent in the peak year of 2006.
A month ago, CAODC forecast 11,176 wells this year, more than 3,000 off its October target, while investment dealer Peters & Co. has lowered its sights to 10,000 wells.
Well completion target drops Release of the changed wage schedule coincided with another scaling back of drilling forecasts for the Western Canada Sedimentary basin this year.
Investment dealer Tristone Capital dropped its well-completion target to 10,530, down from its original 13,756 wells.
Tristone analyst John Tasdemir said results in the traditional peak first quarter were “very disappointing,” with the rig count down 35 percent from 2008 and 45 percent from the trailing five-year average.
He estimated the January-March period saw 907 oil completions, down from 1,303 a year earlier, and 2,177 gas wells, down from 3,295 last year.
Tasdemir, echoing the drilling contractors, said the revised forecast translates into 30 percent utilization of drilling equipment, meaning the industry is “gearing down with layoffs and wage reductions.”
Tristone predicts Canadian spending will total C$33 billion this year, off 36 percent from last year’s C$52 billion.
As part of its global capital spending survey of 205 companies, the firm forecasts a 30 percent spending drop in the United States to $73 billion.
Cash flow hits juniors The survey said the heaviest blow in Canada stems from junior companies “who have had to reduce spending significantly to live within reduced cash flows as credit lines are tight, and face reductions this spring, and equity markets are generally unreceptive to new issues from small cap producers in this environment.”
In addition, Tristone noted that the bulk of drilling in Western Canada is directed at natural gas, where low commodity prices will compromise that activity, while spending in the oil sands has been dramatically curtailed.
But Chris Theal, Tristone’s managing director of research, offered some hope, noting that the downturn will see cuts in operating costs, lowering breakeven costs for marginal production, including the oil sands.
Once the global economy resumes growth, the upstream industry will have difficulty replacing annual production decline rates of 7 to 9 percent because of spending cutbacks, he said.
Theal said the world is under investing in oil and demand recovery will rapidly eat into OPEC’s spare capacity, adding there is already evidence of production declines in such non-OPEC countries as Russia and Mexico.
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