Having interviewed many old-timers over the years, I’ve heard many stories about the periodic slowdowns. These are the tough times when many almost lost their businesses.
They were the survivors. Those who didn’t make it, I probably wouldn’t have ended up interviewing, because they would have gone onto something else.
I’ve been following the daily active drilling rig count like a hawk throughout the winter drilling season, and posting the results to our Pipeline News Facebook page (https://www.facebook.com/PipelineNews). I do this because the rig count, provided by our sister publication Rig Locator (www.riglocator.ca), is the most telling leading indicator of business in the patch.
Here’s a post I made on Feb. 25:
“Here’s something remarkable: Saskatchewan’s active drilling rig count climbed to 48 then dropped to 46 again. But while other companies have shed rigs, Crescent Point has actually increased their rig count. They are now at 26, the highest in the country, with 25 in Saskatchewan. This graphic, courtesy our sister publication Rig Locator, shows all their active rigs in the southeast as of Feb. 25. What you can’t see is that there is actually a cluster of 3 rigs working side-by-side right on the U.S. border. The drillers working for CPEC include (number of rigs) Alliance (3), CanElson (6), Crusader (1) Ensign (1) Horizon (2), Precision (7), Red Dog (1) Savanna (3), Stampede (1) Vortex (1). Five rigs are working in the Shaunavon area, one near Kindersley, and on in Manitoba near Elkhorn. That leaves 18 rigs in the southeast. There are 27 rigs working in the southeast, but two are potash rigs, so Crescent Point now accounts for 18/25 oil rigs, or 72 per cent of drilling activity in the region. This week is typically also the peak of the drilling season for the year. Your thoughts?
I added, “Put another way, if Crescent Point WASN’T drilling, there would be only seven rigs drilling for oil in southeast Saskatchewan. There would be tumbleweeds blowing through the streets.”
Fittingly, I added a link to the theme song for The Good, the Bad and the Ugly, because that’s what this is. It’s good Crescent Point has kept working, it’s bad they’ve demanded price cuts, and it’s ugly that almost no one else was offering any work.
A few minutes later a realization hit me. Some of those old-timers talked about days when the local drilling rig count was in the single digits. Those were not good days. One guy who was roughnecking at the time on one of the very few rigs working said people would try to get him drunk at the bar so that he wouldn’t show up for work the next day and they could take his place.
There’s a lot of resentment out there from the demands Crescent Point made with regards to cutting rates, demands other companies soon followed. Some of that resentment I am sure is well justified. But consider this: almost everything Crescent Point CEO Scott Saxberg said in his letter to vendors on Dec. 16, 2014 has proved true. He stated, “Our objective is to maintain a certain activity level keeping crews busy and supplies moving and effectively doing more with lower costs. We can only do that with our vendors cutting their cost structure dramatically at this stage in the price cycle. The alternative is no activity and idle crews. When commodity prices recover we will continue to work with those suppliers that valued our relationship during the low cycle and we will work with them to adjust cost structure upwards when appropriate. We look forward to working with in for the long term.”
Let me repeat one line here: “The alternative is no activity and idle crews.”
This is certainly what has happened. Of all the 384 licenced producers that the Ministry of the Economy has on record in this province, here is the list of other companies drilling in the southeast on Feb. 25: Spartan Energy Corp. (2 rigs), Midale Petroleums, Wyatt Oil+Gas,Federated Co-op (2 rigs), and Canada Golden Fortune Potash Corp. (drilling for potash, I’ve since found out) That’s it. All the rest have shut down, retreating at the height of the drilling season.
One comment on the Facebook post noted, “Maybe it’s because they (Crescent Point) asked the companies who service the rigs to drop their prices to below profit margins...”
Have they? Maybe. I don’t know one way or the other. But what have the other companies done? In the vast majority of cases, they are offering nothing. So instead of offering a bailing bucket to someone in a leaking boat, they’ve offered nothing. One company – Crescent Point, accounted for 54 per cent of all drilling in Saskatchewan that day, and that includes potash rigs.
Southeast Saskatchewan may have become something of a company town, but at least that company kept working throughout the winter drilling season. If they hadn’t, things would be much, much worse than they already are. I would have a whole new crop of stories talking about when the number of rigs working was down to single digits. Tumbleweeds would be blowing down the streets of Estevan.