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Pumpjacks at work pumping crude oil near Stettler, Alta., June 20, 2007.Larry MacDougal/The Canadian Press

After almost two years of sinking oil prices and at least 40,000 job cuts, Canada's petroleum industry still isn't finished tackling its bloated operations.

The next round of layoffs has already begun with Cenovus Energy Inc. and Murphy Oil Corp. announcing work force reductions last week. Ongoing cuts by Suncor Energy Inc., Encana Corp. and others will likely result in thousands more jobs lost by the end of the year as the Canadian industry shaves billions worth of spending in order to continue operating in one of the world's most expensive oil-producing regions.

"It will probably take another six months before some of the bloated staffing levels are tackled," said Todd Hirsch, chief economist at ATB Financial in Calgary. "Many of these companies are getting employment levels down to the bare bones and over the spring and summer there will be more layoffs."

Crude that averaged about $90 (U.S.) a barrel over five years before starting to collapse in June 2014 supercharged oil sands investment in northern Alberta, where the break-even costs from existing operations are the highest in the world, according to consultancy Rystad Energy. Some companies, including Encana, will have reduced their work forces to about half their peak levels when they're done.

The largest 27 Canadian producers are set to spend 32 per cent less on average this year, including reductions by Imperial Oil Ltd. and Cenovus, according to company forecasts and analysts' estimates compiled by Bloomberg. It follows a similar reduction in spending in 2015.

Collapsing cash flow is the best barometer of the challenges companies face, said Jackie Forrest, vice president at ARC Financial Corp. This year, cash flow will likely fall to about $17.5-billion (Canadian), or roughly half last year's level, and less than a fourth of the $72-billion generated in 2014.

"We're going to see all kinds of innovation on cost cutting," she said. "Unfortunately head count is one of the first approaches they take."

Canada's petroleum industry probably employs about 200,000 people, according to industry estimates. Oil and natural gas account for more than a quarter of the Alberta economy and until 2014 crude was Canada's most valuable export.

Unemployment in Alberta, at 7.9 per cent in February, is now more than the national average for the first time since 1988, the year Calgary hosted the XV Winter Olympics. Back then, Canadian oil production was about 1.5 million barrels a day, compared with about 4.5 million now. Canada's unemployment rate for March will be disclosed April 8.

While job losses mount in the oil industry, the picture is less dramatic for the overall Canadian economy. Manufacturing helped Canada's gross domestic product rise 0.6 per cent in January from December, the strongest monthly gain in three years.

Still, it will take another two years for Canada to adjust to the oil shock, according to Lynn Patterson, deputy governor of the Bank of Canada. That will likely mean slower consumer spending and household spending.

"We're not at the bottom yet," said Michal Moore, a professor at the University of Calgary. "The people getting really slammed are the ancillary workers because the contracts are drying up. And soon we're going to have to confront a serious unemployment insurance situation."

The larger companies probably have more room to cut, while the smaller producers and service providers have already slimmed down their work forces, said Jennifer Stevenson, energy portfolio manager at 1832 Asset Management LP in Calgary.

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