Posthaste: This fracking powerhouse is now laying off 70% of its workforce as Canadian oilpatch spending shrinks | Financial Post

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Calfrac Well Services Ltd., one of Canada’s largest oilfield services companies, this morning announced that it’s cutting 70 per cent of its North American workforce, cutting salaries of executives, board members and remaining staff. The company is also delaying filing its financial statement for the quarter and reducing its capital program by roughly half to $55 million.

Calfrac operates in western Canada, the United States, Russia and Argentina and is considered one of the largest hydraulic fracturing companies in the world, but is now facing a slowdown in each of the markets to varying degrees.

“Since December 31, 2019, there has been a rapid and unforeseen deterioration in business conditions resulting from the COVID-19 global pandemic and the oil price war among OPEC+ members,” the company said in a statement this morning. “These historic events caused an unprecedented decline in oil prices globally, resulting in reductions in the planned spending of essentially all of Calfrac’s clients.”

The impact of low oil prices are reverberating across the oil sector, hurting the global energy supply chain as producers shut-in output and mothball growth projects, leaving oilfield companies with little business. U.S. West Texas Intermediate (WTI) crude was down 12 per cent this morning at US$11.28 a barrel, after plunging 25 per cent on Monday.

The last oil-industry downturn in 2015 and 2016 triggered major programs to trim unit costs and improve efficiency, resulting in total cost compression of around 37%,” according to Rystad Energy, an Oslo-based energy research company.

“The ongoing slump will also spur major cuts in activity, however this time the E&Ps cannot expect significant cost savings within the supply chain. The gains from canceling contracts and re-contracting at a later stage will be small compared to the last downturn and will get further weakened due to contract termination fees that the operators will have to pay at the time of early cancellation of their service contracts.”

In light of recent guidance revisions and the wider collapse in drilling and completion activity in Western Canada, Rystad Energy now expects total 2020 Canadian upstream spending to fall below $21 billion. This represents a 41 per cent year-over-year decline, with reductions in shale and oil sands accounting for more than 80 per cent of the decrease.

Federal and provincial governments have stepped up efforts to help small businesses and employees, but they may be missing a trick or two when it comes to opening some avenues for companies to generate revenue.

Dan Kelly, president of the Canadian Federation of Independent Businesses, tweeted Monday that he was disappointed to learn Ontario won’t yet allow more retailers to use curbside pick-up as a safe way of making a few sales. This has been allowed in most provinces, including British Columbia, during the health crisis.

The CFIB, which represents 110,000 small businesses, was responding to Ontario government’s plan to ease restrictions to happen in three stages, though the steps unveiled Monday contain few specifics or timelines.

“This is a roadmap, it’s not a calendar,” Ontario Pemier Doug Ford said.

Monday also saw the federal government roll out the $73-billion wage subsidy program, with nearly 10,000 businesses having already applied for the program.

The new program is important as it will help bring back laid off workers. But Ontario, Canada’s economic powerhouse, also needs to be mindful of finding ways to gradually open up the economy, wherever possible, the business group said.

“No one in the business community is lobbying to open things wide. But if Costco and Walmart can sell t-shirts and garden hoses to lines of people just because they also sell groceries, why can’t a 1000 sq ft retail shop offer its 10 daily customers curbside pick-up?,” Kelly said in a series of tweets. “The blanket prohibition on almost all retail/service was designed to quickly facilitate flattening the curve. We’ve learned a lot since then, including measures taken by grocery stores to limit customer numbers, protect workers/customers w plastic barriers & disinfecting spaces.”

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Today’s Posthaste was written by  Yadullah Hussain (@Yad_Fpenergy), with files from The Canadian Press, Thomson Reuters and Bloomberg.

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