Skip to main content

An oil pump jack pumps oil in a field near Calgary, Alberta, July 21, 2014.© Todd Korol / Reuters

There will be no rebound next year for Canada's troubled drilling and service sector, according to a new forecast from an industry group.

A combination of factors including low oil and natural gas prices, limited pipeline capacity and the Alberta government's corporate tax hike have hit the industry hard, according to the Canadian Association of Oilwell Drilling Contractors. Despite some predictions earlier this fall for a soft recovery in the sector in the latter half of 2016, president Mark Scholz said there is no near-term relief in sight.

"Our industry, the Canadian oil and gas industry, is facing one of the most difficult economic times in a generation," Mr. Scholz said Wednesday, shortly after presenting his association's 2016 forecast in Calgary.

Already, the active rig count for the Western Canadian fleet is at the same level as the depths of the 1980s bust, he said. Next year, his association predicts the average rig utilization rate – which measures how much of the industry's fleet of equipment is busy with work – will hit 22 per cent, the lowest level since the organization started keeping records in 1977.

The association expects the number of wells drilled in 2016 will be 4,728, 58 per cent fewer than the 11,226 wells drilled two years ago – a comparison made, Mr. Scholz explained, because 2014 "was the last good year."

"The story here is the impact on families and workers," he said, noting that about 30,000 direct and indirect jobs have been lost so far. "These would be your blue-collar workers – the folks that are out in the field."

Kevin Krausert, president of Beaver Drilling – Canada's oldest and largest private drilling company – said the forecast erases any remaining perception, or hope, that the industry is headed for a recovery some time in 2016. His company, which works for producers such as ConocoPhillips and Tourmaline Oil Corp., has about 120 workers in the field today, down from 250 one year ago.

Retaining skilled talent is a major issue in the down cycle, Mr. Krausert said. The past several years have seen the industry undergo a fundamental technology change, and it's no longer focused on manual labour as it once was, he said.

Today's oil and gas rigs are basically multimillion-dollar "giant computers that happen to drill."

Members of the association, which includes public and private offshore drilling, land drilling and well-servicing firms, also say larger issues in the energy industry – including access to global oil markets – weigh heavily on the sector. Western Canada's fossil fuels are landlocked, with pipeline access largely limited to the U.S. market, where Canadian crude sells at a discount, to the benefit of U.S. consumers.

"With Keystone getting shut down, we need to go either east or west," said DC Drilling Inc. president Duane Carol. "We're relying on getting a saltwater port for our customers' product."

Closer to home, the industry is waiting anxiously for decisions out of Ottawa and Edmonton. The federal Liberal government has vowed to change the way major infrastructure projects, such as pipelines, are assessed by national regulatory bodies. And Alberta's NDP government is set to release the broad strokes of a new climate change plan by the end of the month, and will unveil its review of energy royalty rates by the end of the year.

New environmental taxes must be mitigated with a corresponding drop in energy royalty rates, Mr. Scholz argued.

"The world does not demand Alberta oil," he said. "If we get this wrong, we will see investment leave the province. It will benefit other oil-producing jurisdictions."

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 10:15am EDT.

SymbolName% changeLast
COP-N
Conocophillips
+0.32%127.24
TOU-T
Tourmaline Oil Corp
+0.39%62.52

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe