The collapse in global crude prices is exacting a heavy toll on Canada's oil patch and governments, with industry layoffs now mounting into the thousands and public spending getting slashed.
A series of deep cuts in the energy sector on Thursday, from drillers to oil sands developers, shows the severity of economic strains caused by the halving of oil prices since June.
Precision Drilling Corp., the country's largest contract driller, and Cenovus Energy Inc., one of the top oil sands developers, said they were handing as many as 2,000 workers their notices, adding to numerous layoffs by other companies in recent weeks.
The tough moves follow industry reports this week projecting oil's downturn is likely to persist and could see crude sink below $40 (U.S.) per barrel. U.S. benchmark oil rose $2.37 to $51.21 a barrel on Thursday, down from more than $100 seven months ago.
Precision said it is operating 200 drilling rigs, down from 250 a year ago. Each one employs 20 to 25 people, spelling a job reduction of at least 1,000.
"Precision recruited, trained and developed many excellent crews to support the demands of our customers over the past several years, and unfortunately we now don't have work for many of these dedicated workers," CEO Kevin Neveu said.
The impacts are spreading across the economy, which the government of Prime Minister Stephen Harper has held up as being a huge beneficiary of energy-sector expansion. Alberta and other provinces reaped major financial rewards as the industry plowed tens of billions of dollars into operations and hired armies of workers as oil boomed.
Now, everything from employment to local real estate markets are starting to suffer. In a report Thursday, Toronto-Dominion Bank predicted real estate market corrections in Calgary, Edmonton and cities in Newfoundland, pointing out a severe slump in Alberta home sales in January.
The downturn is also complicating Ottawa's finances as the federal government prepares a pre-election budget to be released no earlier than April. Indeed, the price collapse prompted the government to delay its 2015 budget.
Finance Minister Joe Oliver's Nov. 12 economic update projected a $1.9-billion (Canadian) surplus for the coming year based on an assumption of $81 (U.S.) oil. Since then, the Bank of Canada has opted to use $55 oil for its forecasts, and earlier economic projections of a significant rebound in prices this year have evaporated in recent weeks. It cited the downdraft in energy as part of the reason it cut interest rates last month.
"I believe that we are in for much greater volatility in oil prices for the foreseeable future. That's why you've seen Cenovus preserve cash by moderating our growth and reducing our work force," chief executive Brian Ferguson told analysts and reporters.
Other oil-industry players are preparing for austerity. Husky Energy Inc. chopped $400-million (Canadian) from its 2015 budget. France's Total SA, which spent much of the past decade acquiring Alberta oil sands assets, wrote down the value of the holdings by $2.2-billion (U.S.) because of the weak prices.
The harsh medicine in the industry came a day after Premier Jim Prentice warned Albertans that dwindling energy-sector activity will cut his government's revenue by as much as $7-billion (Canadian), and force a 9-per-cent reduction in public spending.
Unlike Alberta, which collects energy royalties, the impact on federal finances is mainly through lower economic growth, which leads to lower personal and corporate income-tax revenue.
Many private-sector economists and the Parliamentary Budget Officer say Ottawa is on track for a deficit in 2015-16, but could turn that into a surplus by using contingency funds and making internal spending adjustments. Mr. Harper has insisted the government will return to surplus in spite of low oil prices.
Some economists question whether restraining spending to meet a political target of returning to surplus is the right response to the current economic problems.
"If anything, they perhaps should be running a deficit for longer because the economy's going to need that support," said David Madani, Canada economist for Capital Economics. "Now is not the time to be thinking about austerity."
With reports from Bill Curry in Ottawa and Carrie Tait in Calgary