Published: JWN Energy
The collapse of oil and gas prices has forced oilfield service (OFS) managers to dramatically slash costs. It’s survival. The short-term impact on workers and companies is already well known. The long-term damage will be determined.
The three main OFS trade associations—Petroleum Services Association of Canada (PSAC), Canadian Association of Oilwell Drilling Contractors (CAODC) and Canadian Association of Geophysical Contractors (CAGC)—have not been spared. Revenue from membership renewals and other sources of income have fallen sharply, forcing operating budgets of about half of what they were in better times. While this is appropriate given the current economic environment for member companies, at some point these organizations must consider their own futures.
And so should the OFS as a whole. The incredibly important work OFS trade associations perform on behalf of the entire sector versus the number of OFS companies providing financial support has been a mismatch for decades. Losing these important voices would be terrible.
Although no hard numbers exist it is estimated there are as many as 10,000 OFS operations of various sizes and disciplines across the Western Canadian Sedimentary Basin. Including incorporated consultants, that number could easily double and possibly triple. They range from the well-known, publicly traded global giants to a myriad of owner-operators with a single water truck or backhoe. They are in every oil town from southwestern Manitoba to northeastern B.C., from the 49th parallel to Norman Wells, N.W.T.
They all do essentially the same thing, which is trade oil companies goods, services or expertise for money. Big or small, all OFS operators work within the same macroeconomic drivers of commodity prices, royalty rates, taxation levels, interest rates, property taxes, fuel taxes and oil company spending. They must all comply with the same federal, provincial and municipal regulations on everything from employment standards to health and safety and transportation of dangerous goods. There is only one Canadian oilpatch and only one set of government operating regulations, regardless of the size of the operator or whether management regards supporting trade associations as a worthwhile investment.
The largest single contribution these associations have made is forcing politicians and regulators to understand that Canada’s oilpatch is much larger and more complex than just the big, bad, wealthy oil companies making too much money at the expense of consumers and taxpayers. Governments have proven time and again they used to write energy policy affecting producers in a vacuum and only later discover massive collateral damage to the extensive OFS supply chain.
Today, no government makes major policy decisions regarding the oil and gas industry without consulting PSAC, CAODC and CAGC. Alberta’s recent royalty review is proof. Government today has no time to engage with hundreds of individual companies. Politicians, regulators and bureaucrats prefer working with consensus views from industry trade associations. Most of this work is done behind the scenes, fine-tuning the myriad regulations affecting the day-to-day operations of everybody in the business.
As awful as today’s mountain of rules and regulations can be, rest assured it would be much worse had these associations and their supporting member companies not been working tirelessly and quietly to educate politicians and regulators about the industry to prevent them from making business even more challenging through well-intentioned, but ultimately harmful, rules and policies.
But what is grossly unfair is the numerically small number of OFS operators that support these associations versus the number that benefit. At their peak, the total membership for all three (direct OFS operators) was only about 600 companies plus another 300 associate members, primarily sub-suppliers. Now this already-low number is down by about one-third and shrinking fast as managers conclude the short-term benefit of saving a few bucks on trade association dues is more important than the long-term implications of not having this important lobbying voice.
Which is fine for now, but just plain wrong for the future. The relatively small percentage of OFS companies that have been paying freight for decades can be proud of their contribution. But the vast majority of operators that have benefited mightily from the investment by their competitors should look in the mirror and recognize their success was not entirely the result of their own managerial genius.
In April MNP estimated even in 2016 that the OFS piece of the pie will be $67 billion. The $6 million/year required to fully fund these three associations is 9/1,000 of one per cent of revenue. An associate membership is only $1,000/year. Supporting PSAC, CAODC and CAGC is a proven value proposition nobody in his business can afford to ignore.
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