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.”
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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.”
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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.
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This content was originally published here.