Layoffs loom in Alberta’s oil patch

CALGARY – It’s been years since David Yager has seen multiple “For Sale” and “For Rent” signs in Fort McMurray, the northern Alberta city that is usually crawling with workers from across Canada looking to make a buck in the oilsands boomtown.

In times when the province’s unemployment rate plunged below 4%, workers paid exorbitant rents to live in Fort McMurray garages. In late December of this year, amid predictions of a spike in the province’s unemployment rate, bachelor suites in “Fort Mac” were being advertised online for $1,000 per month — still pricey, but available nonetheless.

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Fresh off a trip to the city of 73,000, Mr. Yager said he is seeing more and more signs — like the ones advertising real estate — of a slowdown in the Albertan labour market following the swoon in oil prices. Some companies have already started ratcheting back. Houston-based Civeo Corp. announced this past week it had closed two of its 11 camps in northern Alberta and laid off 30% of its staff in Canada in anticipation of an expected slowdown in oilsands activity.

“There’s no question that we’re not going to need as many workers as we have,” said Mr. Yager, national oilfield services leader for Calgary-based consultants MNP LP. “That’s bad for the workers, but that might take the pressure off wages.”

There’s growing concern about job cuts and slowing economic growth in Alberta following the collapse in oil prices in the second half of 2014, and the resultant deep cuts to oil companies’ 2015 capital spending plans. The Canadian Federation of Independent Business, for example, showed a six-point-drop on a 100-point business confidence scale in Alberta over the month of December as a result of the oil price swoon.

Both the Brent and West Texas Intermediate oil benchmark prices dropped over 45% between June and December 2014, closing Friday at US$56.42 and US$52.69 per barrel, respectively. Over the course of December, major producers such as Cenovus Energy Inc., MEG Energy Corp. and Husky Energy Inc. announced reduced capital budgets in response to the price collapse and, in Cenovus’ case, that no new jobs would be created next year.

As ATB Financial’s chief economist Todd Hirsch said, employment statistics are showing the first signs of trouble. He noted that the labour force numbers for the month of November showed 11,000 jobs were shed in professional, scientific and technical occupations.

“Those would be the engineers, those would be the geophysicists, those would be anything that an oil and gas company might contract out to a third party,” Mr. Hirsch said. “That’s a very unusual drop in those occupations; that’s sort of the first statistical evidence of the shoe dropping.”

With the way large oil and gas producers have been slashing their 2015 capital budgets, Mr. Hirsch said he expected the December, January and February job numbers would show “more generally spread decreases in employment across the province.”

Similarly, Enform president Cameron MacGillivray, whose organization merged with the Petroleum Human Resources Council of Canada in 2013, said that land acquisitions, seismic work to explore for new oil discoveries, as well as exploratory drilling programs, were all expected to slow.

“Then it’ll work through the people who are more in line with the day-to-day work – so the drilling contractors and some of their work,” Mr. MacGillivray said. “If by the end of first and second quarters [of 2015], the downturn is still in place, you may see some of the fall activity be reduced.”

Data from the Petroleum Human Resources Council show that, in 2012, there were 94,058 people employed in the oilfield services sector in Canada with 30,018 of those working on drilling rigs, either as labourers, supervisors or related workers.

Economic forecasts from Canada’s biggest banks have predicted a slowdown in the growth of Alberta’s economy for 2015 and 2016, as well as an uptick in the province’s unemployment rate. TD Economics tied the roughly 45% drop in oil prices since June to an expected drop in Alberta’s GDP growth rate to 2.3% in 2015 from above 4% in 2014. At the same time, TD said the unemployment rate is expected to jump to 5.2% this year from 4.7% in 2014.

Larry MacDougal/The Canadian Press

“A low oil price environment will eat into corporate profits and that will spill over to capital spending as well,” said TD economist Jonathan Bendiner in a telephone interview. “That will restrict hiring practices of firms in the energy patch and that will weigh down on firms in Alberta.”

In a mid-December report, Scotiabank economist Patricia Mohr showed that drilling activity in the three most active shale plays in the United States — the Bakken, the Marcellus and the Eagle Ford — had already reacted to the fall in oil prices and dropped sharply by October.

While Ms. Mohr said in that report that oil prices had likely bottomed, at $US56 per barrel, a reduction in drilling activity in Canada is expected to echo what has happened in the U.S.

Mr. Yager called predictions in October from the two main oilfield services industry associations, the Petroleum Services Association of Canada and the Canadian Association of Oilwell Drilling Contractors, of a 10% decline in oilfield activity in 2015 “hopelessly optimistic.”

“They were both predicated on $85 oil — as of today, we’re 30-bucks-a-barrel short,” Mr. Yager said of the forecasts. A sharp reduction in oilfield service activity is expected, Mr. Yager said, unless drilling, fracking, tubing and other companies can reduce their costs.

Mike Faille/National Post

As proof, he points to one of the largest shale producers in Canada, Crescent Point Energy Corp. “When they announced their 2015 capital program, they anticipated that they may be able to drill a similar amount of wells, but they’re depending on their vendors to work for less,” Mr. Yager said.

Since the drilling and fracking seasons end in the spring, during “spring breakup,” Mr. MacGillivray said, the effect the slide in oil prices will have on drilling employment numbers is still unknown.

Careful to note that he’s not expecting unemployment levels to skyrocket, ATB’s Mr. Hirsch said layoffs were unavoidable. “There’s no way you can sugarcoat $55 oil. It’s going to affect the bottom line of a lot of oil companies.”

Financial Post

gmorgan@nationalpost.com
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