An oil field worker walks up a flight of stairs near wellheads that inject steam into the ground and pump oil out at the Cenovus Energy Christina Lake Steam-Assisted Gravity Drainage project 120 km south of Fort McMurray, Alberta, August 15, 2013.Todd Korol/Reuters
Canada's oil-drilling association cut its outlook for activity for the second time this year, citing weak commodity prices and potential policy changes under Alberta's NDP government.
Drilling rigs' operating days in Western Canada will fall by additional 10,320 this year, the Canadian Association of Oil Well Drilling Contractors said Monday – a 13-per-cent drop relative to expectations set in January, when the group said 64,645 days would be lost.
The change spells a loss of 380 direct jobs versus the January numbers, an abrupt skid in employment levels from the previous year and was based on a West Texas intermediate oil price of $55 (U.S.) a barrel. The association did not provide an updated oil price forecast. As many as 25,110 jobs will be cut under the new forecast when indirect positions tied to the drilling sector are counted, CAODC said.
The revised numbers underscore the lingering effects of oil's decline on the industry's front-line contractors, which have been hit hardest as their oil producer customers slashed budgets to cope with sinking commodity prices.
Last week, Calgary-based oil rig operator Trinidad Drilling Ltd. bought CanElson Drilling Inc. in a $469-million deal in a bid for scale and financial heft aimed at offsetting dwindling revenue. The arrangement will create the third-largest rig fleet operator in Canada and the eighth-largest in the U.S.
Adding to the uncertainty are possible changes to Alberta's energy royalties under the province's new NDP government.
Some industry executives have said the pledge to overhaul the complex structure has created uncertainty and is jeopardizing business investment, although the government has signalled it will take a collaborative approach with the sector.
"We're quite hopeful that industry concerns related to competitiveness are going to be heard very clearly," Mark Scholz, the drilling association's president, said on Monday.
"So at this stage, until we actually see or get some clarity on where the government intends to move when it comes to royalties … there is some uncertainty as to what this is going to mean for future investment in Alberta."
NDP Premier Rachel Notley has yet to outline her plans for the review, only that the government is committed to starting it within six months from taking office.
A report by TD Securities on Monday said the industry is grappling with high costs and would be hard-pressed to cope with a hike in payments given expected weakness in future commodity prices.
"Quite frankly, in our view, there is nothing left for the province to take under the current" outlook for future oil prices, analysts led by Aaron Bilkoski said.
Mr. Scholz said the drilling industry has been affected more by tumbling oil prices, which have recovered to just under $60 a barrel after plunging from more than $100 last summer.
The number of active drilling rigs in the first quarter, typically the industry's busy season, was 291 this year, or 37 per cent of the total fleet. That compares to 521 in the same period a year ago, or 64 per cent of a fleet of more than 800, according to CAODC figures.