Rout deepens in Canada

So far in Alberta 35,000 have lost oil & gas industry jobs

GARY PARK

For Petroleum News

It might have been the final transmission from the bridge of the Titanic.

“Good luck to all of us,” an analyst said Sept. 1 in wrapping up a conference call in which Penn West Petroleum explained why 400 of 1,200 employees had just lost their jobs.

The same day ConocoPhillips put another 400 employees and 100 contractors in its Canadian division out on the street - on top of 200 layoffs announced in March - pushing the industry-wide tally to about 35,000 in Alberta this year.

Making matters worse, the two companies offered no hope that any of those people would be rehired if oil and natural gas prices made a strong and sustained recovery.

Penn West also joined Pengrowth Energy in suspending dividend payments, while Penn West reduced board compensation, trimmed this year’s capital budget by C$75 million to C$500 million and next year’s by C$150 million-C$250 million.

“We think this cycle is going to be a bit prolonged and, as we have seen many times in the past, when you come off the bottom you get extreme volatility,” said Chief Executive Officer Dave Roberts.

He said Penn West had basically set itself to make the business work with oil prices at C$50 (US$42) a barrel.

Unable to make headway in the current pricing environment, Penn West is now faced with the loss of its prized listing on the New York Stock Exchange.

If a company’s average closing share price over a 30-day period is less than US$1, it could be suspended from trading on Wall Street and delisted after six months.

Just as grim is the prospect of losing its trading rights on the Toronto Stock Exchange, whose website says delisting can take place if a company’s share value has been “so reduced as to make further dealings in the securities on TSX unwarranted.”

Its only hope may ultimately be to take steps that require shareholder approval to bring the trading price back above $1.

Pengrowth Chief Executive Officer Derek Evans said his company has continued to “make difficult decisions and take the necessary actions” to strengthen its balance sheet in “challenging times.”

Adding to the gloom, the Calgary Real Estate Board reported that home sales in the city, the administrative center of the industry, tumbled by 27 percent in August from a year earlier, although resale prices slipped only 2 percent to an average C$466,570.

The realities of a new era were driven home by FirstEnergy Capital analyst Martin King, who noted that “wider Canadian light-heavy crude oil (price) spreads are expected” as a result of the fall in West Texas Intermediate prices and more competition for heavy oil refining capacity on the United States Gulf Coast.

In May and June, the gap between WTI and Western Canada Select widened at one point to US$20 per barrel before settling back around US$14.

But that narrowing may be short-lived as thousands of incremental barrels of oil sands production enter the North American market.

The second phase of the Surmont project, a joint venture by ConocoPhillips and France’s Total, has come on stream and started ramping up to 118,000 barrels per day before focusing on 150,000 bpd.

In addition, Husky Energy said it is on the verge of adding 30,000 bpd to double output at its Sunrise oil sands project, a joint venture with BP, and is proceeding with other thermal-recovery projects it expects to bring online over the next year.

However, TD Bank economist Leslie Preston said these new volumes will be partly offset by the substantial decline in rig counts that will help work off the oversupply from the oil sands.

Before the Penn West and ConocoPhillips job cuts were announced, the Canadian Association of Petroleum Producers said losses this year included 25,000 in the oil services sector and 10,000 in exploration and production.

A spokeswoman for CAPP said companies are now evaluating their competitive position as they prepare budgets for 2016. Until that process is completed CAPP will not speculate on further payroll reductions.

ATB Financial chief economist Todd Hirsch was less hesitant, suggesting that companies will face some “really uncomfortable decisions” over the next three months as they come to grips with a “longer term period of low oil prices.”

He said many companies have been able to survive because of oil price hedging programs, but those contracts expire this fall at which stage “tough choices” will be made.

Jeanette Sutherland, manager of workforce and productivity with the Calgary Economic Development Authority, agreed that more pain is likely this fall.

She said many companies have indicated another wave of layoffs will come, although some have “adopted creative austerity measures” to retain their most talented staff, including one to two weeks off without pay, or every second Friday off, or flexible work options.