Issue link: http://resourceworld.uberflip.com/i/638235
62 www.resourceworld.com f e b r u a r y / m a r c h 2 0 1 6 the oil patch report B r u c e L a n t z T hose in the oil and gas industry who've been holding their breath waiting for it to recover may soon need a breathing machine – or life support. With little good news on the horizon, most prognosticators have rolled up their magic carpets and are hard to find. And the ones willing to venture a guess about recovery are now predicting things may start to turn around in 2017, but they're quick to assert that's only the beginning of better times, not a full recovery. "We're gearing up for this year like last year," said Mark Salkeld, President and CEO of the Petroleum Services Association of Canada, who estimated that this year's drilling in Canada would only match 2015's 5,100 wells. "We can look into 2017 but there will only be a bit of an uptick, if at all. And even then it will take a couple of years to get back on track." The numbers don't lie. Natural gas has climbed to around US $2.30/mmBTU from the year's low of $1.80 but no one is expecting a return to the plus $3 range anytime soon. And oil has fallen from US $100/bbl in the summer of 2014 to as low as $19.81, for Western Canadian crude. The Royal Bank of Scotland has predicted that price could reach $16 a barrel. The freefall is aided by a warmer winter, which doesn't deplete the petroleum stockpile, and the refusal of the Organization of Petroleum Exporting Companies (OPEC), which produces 40% of the world's oil, to curtail its production. Global oil prices dropped after OPEC members failed in December to agree to a ceiling on their oil production, already at near-record levels, to try and drive higher- cost producers such as US shale drillers out of the market. Also, new supplies are likely to hit the market next year as Iran ramps up production after sanctions are lifted, creating fears of a growing supply glut. And new technologies such as fracking have unlocked huge reserves of oil. Since 2008, US oil output has jumped 74%. Last spring, US production reached its highest level since the 1970s. Figures show that more than 50,000 direct jobs (180,000 if you count induced and indirect jobs) have been lost in Canada, and a similar number in the US – 250,000 around the world. Industry observers have watched major oil and gas project cancel- lations worldwide go from one in 2012, to four in 2013 and eight in 2014, to a whop- ping 26 in 2015. They note that many more delays and cancellations have occurred around the world but are not necessarily reported. It's a different type of downturn that industry has seen before, said Chelsie Klassen, spokesperson for the Canadian Association of Petroleum Producers. It's lasting longer (for example the 2008 down- turn lasted only a year) and stakeholders aren't able to see what the future holds but they know it won't be the same. "It's being called 'the new normal' or 'lower for longer'," said Klassen. "Producers are changing how they oper- ate in this new environment. There's lots of speculation. Companies are preparing for prices to be down. It's not desirable but none of us have a crystal ball to suggest how long it will last and we have to main- tain our competitiveness." Particularly hard hit are the Alberta oil sands where, unlike conventional plays, they can't just turn off the valve when things get tough. Oil sands plays are capital intensive at the front end, representing an unhealthy loss to companies forced to shut them down within the first couple of years. Capital spending for the 25 largest produc- ers is poised to fall for a second straight year, dropping another 16% in 2016. And natural gas is suffering because the US, the biggest market for Western Canadian gas, is becoming self-sufficient, forcing Canadian producers to seek new markets, Klassen said, which backstops the attraction of developing LNG for shipment overseas. Against this dismal backdrop Salkeld sees his service company members suf- fering on two fronts. First, they've had to deal with producer clients seeking dis- counts of up to 40% for the work that is available. Plus they, like their producing cousins, worry that they won't be able to rehire laid-off workers when things get better because those workers will have found jobs outside the industry – a loss of training dollars invested in them and the need to spend on training new employees if they can find enough of them. "The impact has definitely been devastat- ing," he said of the downturn. "We've come to realize that exploration companies have been asking for massive (price) cuts from our members but now we see that they're finally looking internally to cut costs. But some of the small to mid-size producers don't have any money so we're asking our people to check out their finances before accepting work with them. Otherwise our people are left holding the bag." As for the loss of workers, Salkeld said his members are "doing what they can" to keep people. The drain of skilled labour, along with companies' investment in their training, is evident even during good times, such as layoffs in the slow seasons. "But with an extended session like this we're losing people and they may not come back," he said, adding that many firms are training existing workers for new highly- skilled jobs to keep them around. The industry more than ever needs a not much good news in the oil and gas sector