Calgary – It may be a rough, long road ahead for the oil industry, according to Mark Sakeld, president and CEO of the Petroleum Services Association of Canada (PSAC).
He spoke to Pipeline News via phone from Calgary on Jan. 24.
“We’re bracing for a difficult road ahead, is a broad perspective. We’ve had some really interesting discussions around our boardroom table, interesting meetings with our members. We’ll be meeting up with the producers early next month,” he said.
“At this point in time, it’s not looking good. To add to that, right now we’re in our winter activity mode, and it’s going good. Contracts are in place and wells are being drilled. The interesting comment I’ve heard with regards to this quarter is the breakup may come sooner than normal based on economics versus environment. We shut down for breakup with the thaw, but with budgets being slashed, we might be shutting down sooner.Oil was priced at under $50 a barrel WTI when Sakeld spoke about prospects for PSAC’s members the rest of the year.
“Into Q2, it will be very, very interesting. Q3, I’m hearing all sorts of comments about it being quiet. As early as yesterday I heard flat into Q4,” he said.
“The main story I’m getting is it’s going to be a rough year overall. There might be a bit of a pickup toward the end. Nobody really knows.
“The one thing I am impressed with in the conversations with our members is there is a lot of effort in retaining people. Before, years ago, I was laid off because of the NEP (National Energy Program). I’ve never forgotten it. The highest cost was labour, so you just got rid of it.
“There’s so much invested today in skills and training and safety and technology and competency, you do anything you can to keep people.”
Sakeld noted PSAC has contacted the federal government about job sharing programs to help the industry keep jobs until oil and gas prices recover
“We’re bracing for the worst,” he said.
With regards to strategies in dealing with the slowdown, he said No. 1 is the job sharing program, which saw use during the last slowdown. It saved some companies.
“The industry won’t shut down 100 per cent. We will drill wells and we will hydraulically fracture and complete them. It’s not like every piece of iron is being pulled out of the field,” he said.
“It’s not going to stop dead. There will be work. But how can you keep your people we asked? When I was on the rigs we would work two week shifts instead of three weeks to give another crew two weeks. It’s not as big a paycheque, but you get a paycheque.
“We’re talking wage rollbacks, and obviously no bonuses – just tightening things up.”
Letters from oil and gas producers demanding price cuts sent “bad ripple effects through our members,” Sakeld said.
“I worked for a drilling company once upon a time. In ’08-’09 we took wage cuts. I was in management. In the downtown core week – took wage rollbacks and a week off without pay.”
PSAC’s members are trying to avoid layoffs, but there comes to a point where they have to, he noted.
If employees working together to lower costs, there won’t be a company, he noted in some cases. “If these companies are forced to take 30 per cent cuts on their invoices and they have to close their doors, you’re going to go from 100 service companies to three. You know what’s going to happen to the producers when things fire up again – they’re going to be paying triple time back for that little exercise. That’s part of the message we need to take (to the producers). We need to work together – companies, employees, to manage the sector.
“I’ve been there, five times. We come out the other end better; stronger, more efficient, faster, safer, effective. It’s a correction. It’s an ugly correction. It’s not pretty in a lot of areas. But we do improve on the other end.”
Sakeld offered his take on how this downturn compares to those five previous times.
“It has the potential to be a bad one. The reason I say that is some of the reports and the sessions I’ve been to (say) it’s essentially a price war, with Saudi Arabia on one side and a bunch of other producers on the other,” he said.
He noted they’re trying to re-assert OPEC’s position in the industry. But he acknowledges North America’s technology has unlocked millions of more barrels of production.
“It’s interesting. Yes, North America, because of our technology – and I’m proud of what we’ve done with multi-stage hydraulic fracturing and horizontal drilling. That’s what’s opened it up, and our sector has played a significant factor in developing that technology and creating what we have here today. But having said all that, we ramped up, we’ve pushed back demand, but we’re not their only customer. They’ve got Asia and India. At the end of the day, they’re the guys with the foot on the gas pedal. They increase it or decrease it. They always have been the swing. They can adjust and make their money,” Sakeld said.
Next we asked Sakeld if we are the victim of our own success, having developed technology to unlock all these reserves.
“That’s an interesting point. There’s two ways to look at it. You’re right, we’re part of the problem in that we’ve increased production. But we’ve improved our position with regards to energy independence. We’ve got it in our backyard. We don’t need to import as much. We’re building pipelines east and west to make Canada energy-secure,” said Sakeld.
“There’s people out there thinking of North American energy independence, Canada, the U.S. and Mexico. Yes, on one hand, we’ve added to the problem and we are a factor to some degree, adding production, but we’re also becoming energy independent. From my perspective, that’s not a bad thing. We’re going to use it to move us forward. We’re going to get better at it, but we’re not going to have to worry about supply anymore.”
Sakeld also offered his take on how long is it reasonable to keep someone onboard if there is no work for six months.
Sakeld believes the training will take place during breakup as usual. But some companies might want to send some of their workers overseas to places where they run year-round, and national oil companies aren’t as affected by the slowdown as they are here.
Asked what does the WTI price need to be for a maintenance level of operations, and what does it need to be to pick up steam, he responded, “The last time I was asked this, my response was $85 a barrel. It seemed to be the right number to help the big companies with their conventional and unconventional oilsands, to percolate along.
“We have gained efficiencies. We have increased costs. We’ll come to this more effective and efficient. I’ve heard out there we could have a new norm of $60 to $70. Yesterday I came out of a session and oil was $52 and everyone was happy.
“I’m comfortable with $85, but with the changing environment, it could be $75.”
Hunkering down, he said there will be companies that can survive at that.
