Thursday, 18 August 2016

Trip from Calgary to Fort Nelson shows the extent of the industry slowdown

By David Yager
Published: JWN

Kick ’em when they’re down. There’s no other way to describe the devastating economic impact of the actions of our fellow Canadians on the oil towns of western Canada. 
Politicians and activists are either opposed to new oil pipelines or LNG projects or in no hurry to approve them. The Alberta government is espousing on TV the economic genius of pending massive carbon levies after raising corporate taxes, large-emitter carbon taxes and minimum wages. The media provides endless coverage to anybody claiming hydrocarbon fuels will be the end of civilization and how oil is a sunset industry. This is all on top of collapsed oil and gas prices and slashed spending by exploration and production (E&P) companies, another inevitable downturn in a notoriously cyclical industry.
For oilfield services (OFS), it is lost jobs, slashed wages, folding companies, collapsing share values. It is clear too many don’t care. But a picture is worth a thousand words. A mid-July road trip from Calgary to Fort Nelson, B.C., provided vivid evidence of the terrible impact of the current slump. The route went through once-thriving oil towns in Alberta and B.C. like Sylvan Lake, Rimbey, Drayton Valley, Whitecourt, Fox Creek, Valleyview, Grande Prairie, Beaverlodge, Dawson Creek, Fort St. John and Fort Nelson plus numerous smaller centres in between.

These are proud communities and companies. After Whitecourt, several outfits and towns had drilling rig derricks standing proudly as highly visible signage declaring their appreciation of the industry that butters their bread.
But the view out the window was utterly disheartening. Every class of OFS asset imaginable was parked or racked. Drilling and service rigs. Hundreds of wellsite trailers. Camps. Trucks to haul everything. Yards full of construction equipment. Scores of vac truck and hydrovac units. A zillion rental tanks, light towers and other pieces of equipment. Enough stacked matting to cover an entire town.
Almost all these communities had new hotels with few, if any, vehicles in the parking lots. Many buildings and yards were empty with for sale or for lease signs on the fence. Restaurants were mostly empty. Some had closed. Open camps of various sizes had little or no signs of life.
One of the hardest statistics to quantify is the total size of Canada’s OFS industry in terms of how much equipment and manpower was required in 2014 to support E&P capital expenditures (CAPEX) of $81 billion, OFS CAPEX of at least $25 billion and production operating costs of about $45 billion. Appreciating the amount of gear required is complicated because so many OFS players are smaller, private regional operators in small town western Canada.
But there is no question that, in two days of driving, I saw billions of dollars of idle equipment of all types. It is all owned by somebody: entrepreneurs, investors or lenders. When it will all work again is anybody’s guess with crude oil stubbornly stuck on the wrong side of US$50/bbl in mid-July 2016.
Unless you own it, understanding how much equipment exists is difficult when business is good because it is never in one place. When the patch is busy, the yards are empty because the assets are deployed in the field supporting thousands of simultaneous operations in exploration, drilling, completion, production, construction and infrastructure. It is only when the industry undergoes a massive slump like now—and the assets are in the yard not the field—that the gravity of the impact of the current downturn is having on the oil towns of the Western Canadian Sedimentary Basin becomes so glaringly apparent.
Then there are the tens of thousands of people formerly required to operate these assets. Unlike the equipment, the unemployed aren’t neatly lined up in rows inside fenced compounds where they are visible to everyone so you can count them up. Their faces are hidden from view and only appear as macro statistics in government unemployment reports. Their friends, relatives, former co-workers and employers know who they are. The politicians and their other fellow Canadians probably do not.
In this country we like to think of ourselves as a generous lot, willing to help our fellow citizens when required. Witness the national outpouring of support following the spring fires in Fort McMurray or other major disasters.
But somehow the oilpatch doesn’t rate the same treatment. This downturn—exacerbated by federal and provincial governments with agendas besides keeping Canadians working—is an economic disaster of massive proportions particularly in the smaller communities where the work takes. Hop in the car. Take a look. Bring a camera. Maybe a notepad and calculator. You’ll be shocked.


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