CALGARY — Budget cuts in the western Canadian oil and gas sector are hitting home for front-line workers who are facing smaller paycheques as well as an ever-increasing risk of being laid off.
On Thursday, oilsands producer Cenovus Energy Inc. responded to low global oil prices with its second capital spending cut in less than a month, along with the suspension of its quarterly dividend and a five per cent reduction in production guidance for 2020.
“We are taking proactive steps to address the current business environment while continuing to focus on the safety of our people and assets and maintaining reliable performance at our operations,” said CEO Alex Pourbaix in a news release.
The company announced executive salaries would fall by between 12 and 25 per cent, similar to what many other Canadian companies have implemented in recent weeks.
But it added that employees at lower levels will take smaller graduated salary reductions as part of a plan for Cenovus to save $50 million in general and administration costs this year.
The current oil price depths — blamed on a combination of lower demand because of the COVID-19 pandemic and a price war between Saudi Arabia and Russia — is reminiscent of 2015, when a crash in global oil prices led to an estimated 40,000 direct job losses from the Canadian upstream oil and gas industry.
Salary reductions do seem to be a more common method to control costs in the current environment than in the last downturn, said Carol Howes, vice-president of communications with energy labour data firm PetroLMI.
“This time we are seeing more effort to reduce salaries and maintain staffing because companies are already very lean,” she said.
Direct jobs in the oilfield exploration, production, service and pipeline professions peaked at about 225,900 in 2014 but fell to a low of 173,400 in July 2016, she said.
Only 5,000 net jobs have been added since then, taking the jobs number in January to 178,400, she said.
As is usually the case, the current downturn has hit the Calgary-based oilfield services sector hardest — the Canadian Association of Oilwell Drilling Contractors estimates its members have slashed their workforces by between 20 and 50 per cent this year.
On Thursday, STEP Energy Services Ltd. announced it would cut its 2020 capital program by 50 per cent to $23.5 million, while also trimming 50 per cent from administrative costs through a combination of unspecified job reductions and company-wide salary rollbacks of between five and 10 per cent.
Late last week, Calfrac Well Services Ltd. announced it would cut its 2020 capital budget to $100 million from $155 million.
The company, which provides hydraulic fracturing or “fracking” and other well completion services in Canada, the U.S., Argentina and Russia, said it would reduce the number of crews being deployed in its North American operations from 19 to nine, resulting in a 40 per cent downsizing of its workforce in the U.S. and Canada.
It also announced executive salaries would be reduced by 10 per cent and remaining employees’ pay cut by five to 10 per cent. It added it would also eliminate retirement savings matching contributions.
“In April and May of 2016, we saw active rig counts of 35 and 36 rigs respectively, so at 37 today, we are nearing the lows of the (previous) downturn,” said John Bayko, vice-president of communications for the CAODC.
“Back in 2016, however, commodity pricing was based on more normal variables and not the rare combination of a price war and demand shock that we see today. For that reason, it’s hard to predict what a recovery could look like, and whether the summer drilling season will be lost.”
The Canadian Association of Petroleum Producers estimates that the direct plus indirect job count in the upstream oil and gas sector fell from 744,000 in 2014 to 495,000 in 2016 before rising to 528,000 in 2017, the last year for which it has statistics.
CAPP’s forecast last year of slightly higher spending in conventional oil and gas and the oilsands in 2020 compared to 2019 is no longer valid, said Ben Brunnen, CAPP’s vice-president of oilsands, fiscal and economic policy, on Thursday.
Canadian producers announced more than $6 billion in capital expenditure cuts in March, he estimated, reducing their capital spending programs by an average of about 30 per cent.
“The Canadian oil and natural gas industry is accustomed to the rise and fall of global market conditions and in the past we were better positioned to deal with it,” he said.
Factors including delayed or cancelled export pipeline projects, stagnant commodity prices and recent railroad blockades have made the industry less able to attract investment and less resilient in the face of the current price crisis, he said.
CAPP CEO Tim McMillan said the organization is working with federal and provincial governments to find ways to support energy industry employees.
This report by The Canadian Press was first published April 2, 2020.
Companies in this story: (TSX:CVE, TSX:CFW, TSX:STEP)
Dan Healing, The Canadian Press
Note to readers: This is a corrected story. In a previous version, the 10th graf said February instead of January.
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