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Oil industry continues struggles

Posted on July 23, 2015 by Vauxhall Advance

By Dave Mabell
Southern Alberta Newspapers

Drilling for water? It’s business as usual.

But drilling for oil or gas will no longer be a common sight in southern Alberta.

That’s the forecast from Gary Leach, president of the Explorers and Producers Association of Canada.

While oil company executives in Calgary say the slump in oil prices as an opportunity to become more efficient, Leach warns that means layoffs for many Albertans — and the province’s economy will suffer.

“This is probably the toughest challenge we have had in decades,” he says.

With its oil and gas prices both at a low point, “Alberta has had a couple of severe blows.”

As a result, Leach says, the number of drilling rigs operating in Alberta and nearby provinces has dropped about 50 per cent over the last year.

In addition to a world-wide surplus of crude oil, he says Alberta is also facing increased production and exports from its traditional customer, the United States.

New gas discoveries in the eastern states have led to increased sales to Ontario and Quebec, leaving Alberta producers out in the cold.

At the same time, eastern provinces have shown insufficient interest in building an oil pipeline from Alberta to serve their refineries.

“Our industry is in a scrap for market share,” and it’s not faring well.

At this point, Leach says, Alberta producers are being paid the lowest prices while paying some of the highest costs.

“That model is not sustainable,” and it’s triggered layoffs right across the industry.

“Tens of thousands” have lost their jobs, but Alberta hasn’t yet begun to feel the full impact. That will happen, Leach says, when the workers’ severance runs out.

The industry’s difficulties, he warns, are being exacerbated by the provincial government’s decision to raise corporate taxes and to review the royalty rates currently paid by producers.

But Alberta isn’t the only place caught in a cost squeeze, he adds.

“At today’s global prices, there is no oil production anywhere in North America that makes sense.”

Nevertheless, faced with declining production from their older wells, Alberta companies must continue some drilling if they want to meet their production goals.

Looking ahead, Leach says there are few signs of improvement over the balance of the year.

“Don’t look for a lot of drilling rigs on the horizon anytime soon.”

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