Ritchie Bros. Auctioneers will hold what it says is the largest-ever Canadian industrial auction this week – a selloff of more than 10,000 items, including many pieces of idled equipment from the country's battered energy sector.
The massive sale that begins south of Edmonton Tuesday is another grim marker in the recent history of Alberta's oil-linked economy, which just two years ago led the country in terms of growth and job creation. The crude price drop that began in the summer of 2014 has meant the companies that service the oil and gas industry have seen much of their work quickly dry up and are continuing to lay off workers and sell unneeded equipment. Some firms have already gone bust and the likelihood of more insolvencies in the months ahead looms large. Others – such as business owner Jeff Ludwig – say they decided to leave the industry before things get worse.
"I saw this as an opportunity to get out while I still could, before you start getting the mass exodus," says Mr. Ludwig, who is selling his small company's 48 remote work-site office and accommodation trailers, a complete liquidation of Canadian Wellsite Rentals Inc.'s assets.
The vast Ritchie Bros. site in Nisku, Alta., is packed with used equipment including trailers, trucks, cranes, excavators, drilling equipment and portable work camps in anticipation of the sale. What was originally scheduled to be a three-day event was extended to five days last month when Ritchie Bros. realized how much stock it would be proffering. This week's auction also follows record-breaking February and March sales in Nisku and Grande Prairie.
The industrial auctioneer says the size of the sale reflects the long-term growth in the market for its services and includes equipment from a number of sectors. However, the extensive stock of equipment at auction is due in large part to the desperate outlook for oilfield service companies such as Mr. Ludwig's. Even with the crude price drop and dramatic slowdown in activity, oil producers still make some money from already-producing oil and gas assets. Energy service companies, on the other hand, have no revenues if they're not working. And during the busy boom years, many ramped up their debt levels to purchase new equipment to meet the demands of their oil-producing clients.
"If you're stressed at the bank, if you're pressured on your balance sheet – what you need is cash," David Yager, a Calgary-based oilfield-service-industry consultant at MNP LLP, says.
Thousands of bidders from Alberta, other parts of Canada and the world will either physically attend the auction or vie for items online. A special pitch is going out to U.S. buyers, who are being wooed with emphasis on the favourable exchange rate.
Randy Wall, Canadian president of Ritchie Bros., says when Alberta's economy was strong, about 80 per cent of everything sold at Alberta auctions remained in the province. Today, about 50 per cent of the equipment stays in Alberta. That shows there is still work being done in the province, he says, and it's not "as bleak as perhaps the general public would think."
But who is buying used equipment if there is a worldwide slump in the price of oil? Mr. Wall says equipment employed exclusively for drilling and exploring for oil and natural gas – such as drilling rigs, or rig-moving or fluid-hauling trucks – has seen a "significant" price drop. There is more demand and higher prices for non-specialized machinery for "general construction – digging holes, pushing dirt, lifting things."
Despite oil price gains in recent weeks, there are few in the oil patch who believe any rebound will be significant enough to lift Western Canada's energy sector out of its gloom before the end of this year. Mr. Ludwig, 56, who has operated out of Red Deer, Alta., for almost 20 years, had to lay off his four remaining workers last fall. "The worst day I've had in business," he says.
He could have tried to hang on for longer, but didn't want to lose more money as his equipment aged and his business operated at a loss. Instead, he has opted to sell his trailers, pay off some remaining debt and begin an earlier-than-expected retirement.
While some business owners will find it too painful to attend the auction, Mr. Ludwig says he will be in Nisku this week. "I'll go – just as much for nostalgia's sake as for anything."