The southeast oilpatch players are treading water as fast as they can.
Production of medium and light sweet crude oil continues unabated, but there are flash points of concern looming on the horizon if international prices for crude oil don’t swing into recovery mode within the year.
Warren Waldegger, chairman of Saskatchewan Headquartered Oil Producers and president and CEO of FireSky Energy Inc., said production from locally located oil companies will remain on stream, “unless they are debt-free and can shut down operations until the price turns around, and I don’t know if there are any of those around here,” he said. That means the industry is simply figuring out the new world order with most or all of the corporate fat and inefficiencies trimmed away.
“It’s about contracting operations and controlling costs,” said Waldegger. “Nobody can sit back, you deal with what’s in front of you.”
Right now, what is in front of local producers is limited, but not impossible. Thanks in large part to a declining Canadian dollar compared with the U.S. greenback, some producers are able to wring as much as C$50 a barrel for Midale crude, a good quality oil that will fetch a premium price on occasion as will local Bakken light crude. For the most part though, he said, Mississippian and Midale crude were selling at a discount with the wider exchange rate gap helping to ease the sting of price slides.
Most of the crude is travelling to land-locked refineries in North America via pipeline. Waldegger said he didn’t know of any oil being shipped by rail lately, other than a few barrels that were committed to the rail lines due to long-term contract agreements signed earlier.
With most storage tanks and pipelines filled with an over-abundance of North American produced crude oil, Waldegger suggested producers and refiners are witnessing declining expenditures running parallel to declining volumes and sales.
“Our industry recycles the money pretty effectively. Some larger operations are managing their scope and risk factors and focusing only on the best, most efficient targets, which means there isn’t much exploration going on. That will eventually show up as a contracted industry, if there isn’t new production coming on stream.”
But the vast majority of companies, either headquartered in Saskatchewan or doing a lot of business in Saskatchewan, will maintain operations and oil flow for the time being and into the near future.
“The banks have been pretty understanding. The debt that was incurred was at low interest rates, so if the companies are careful, they should be able to manage the balance sheets and some companies who are in a stronger financial position than others, will see this as an opportunity to expand,” he said. “Some of the weaker companies may not make it. After all, we didn’t expect the North American market to contract so quickly, but the moves have been made now, so this is our reality,” he said.
With the exception of new regulations concerning flaring and venting, the provincial government has not made any moves on the oil resources files to hinder the continued operations of local producers.