Good news mixed with the bad, David Staples writes

Oil price rebound and high natural gas prices could signal better times ahead

Empty hotels. Empty restaurants. Empty roads. Parking lots empty where they had once been full of trucks.

It was surreal for Edmonton’s Trevor Barker, a longtime worker and salesman in the Alberta conventional oil and gas sector when, in early June, he went on his first sales trip since the start of the coronavirus pandemic in mid-march. Barker drove up Highway 43 from Edmonton to Grande Prairie, passing through Fox Creek and its Trucker’s Lane, a spacious lot along the highway where oilfield trucks have room to park in front of hotels. For the first time ever, he saw not one oilfield truck in that lot.

“It’s a really different atmosphere. It’s just crazy to drive by these hotels and you see them empty or closed ... There was nobody travelling, nobody working.”

The cup isn’t half full in Alberta’s conventional oil and gas industry, it’s almost completely empty. That doesn’t mean it won’t fill up again — and may do so fairly rapidly. But it’s been many decades since Alberta’s conventional oil and gas sector was hit this hard.

“This is the worst ever,” says Barker, rental manager for High Arctic Energy Services, a major supplier for drilling rigs with offices around Alberta. “I’ve never seen anything like it, just for how deep it went, and how slow the rig count has got.”

Some folks have lost their jobs and also their homes, Barker says. “We’ve seen a lot of people leave the industry. I know friends who were 20 years in the industry and got laid off, and I know two of them who work for Home Depot now.”

Layoffs are common, with those still working taking pay cuts of 10 to 20 per cent, say

Barker and others.

“The market is the worst

I’ve ever seen it,” says Kyle Mcnamara, a manager at Encore Metals’s Edmonton office, which sells metal, with 80 per cent of its business usually with drilling companies.

Mcnamara says he’s had to work harder than ever the last few months. He’s scrambled to find new buyers for metal at elevator, weightlifting and wheelchair companies. But he counts himself lucky to have work.

“A lot of my friends are getting laid off and others are going to lower hours per day.”

“It is absolutely horrible. It is something that nobody has ever seen,” says Paul Klotz, 43, of Hilong Petropipe in Nisku. “Right now we should be at 200 drilling rigs when we’re at 20. That says it all right there.”

Indeed, the 10 lowest weekly rig counts in Alberta since 1990 all have come in the past three months.

Alberta had 10 or 11 oil and gas rigs operating in late May and through June, most in the Montney field northwest of Grande Prairie. The previous low in that 30-year period was 26 rigs during the 2016 oil price slump. The high was 534 operating rigs from both February of 2006 and 2012. The median since 2003 is 190 rigs.

This past January, Alberta’s oilpatch — still in rebound mode from the 2016 slump — got up to 171 operating rigs, but with the arrival of the coronavirus, the Saudi-russia price war, and the slump in worldwide demand, those days are long gone.

The industry is able to function safely in the face of the COVID-19 pandemic, Barker says. His own company puts safety first at all times, including now, he says. Workers are screened for symptoms before entering job sites. Anyone sick must stay away. If folks travel together in a vehicle, they wear a mask. “I think they’ve done a really good job of handling all the uncertainties with COVID.”

Klotz notes that rig workers are essentially isolated at their rigs and they also work outside, not in close proximity to one another, so it’s possible to operate safely.

The bigger issue is how quickly demand for oil and gas will increase around the world as countries emerge from lockdown conditions. Klotz hopes things will get going soon, especially by next winter during the traditional high season for rig counts and drilling activity. “People are hoping the January drilling season gets back to normal. I’m hoping for a couple rigs in July.”

The International Energy Agency’s latest market report is somewhat chipper due to stronger-than-expected demand rebounds in China and India. The IEA is now predicting that world oil demand will fall by 8.1 million barrels per day to 91.7 mb/d this year, but rebound by 5.7 mb/d by 2021: “Crude prices rose in May to the highest in three months as demand began to recover and global supply fell sharply.”

While it’s not been this bad in the Alberta oilpatch for the past few decades, longtime oil and gas analyst and executive David Yager says there’s good news out there no one is talking about much, namely the rapid rebound in the price of oil and the price of natural gas, which is more than double what it was last June.

“People that own wells and produce wells are going to look around and think, ‘My God, I’m not dead! I fell out of the airplane without a parachute but landed on a straw pile and didn’t die.’ We are through the bottom here,” Yager says.

Yager says drilling companies are looking to see if the financial support programs promised by the Trudeau government to help during the pandemic will pay out. In the end, so long as demand returns, the oil companies will have to start drilling again.

They can go into cash conservation mode and stop drilling for a period of time but they will need new supply to sell.

“An oil company is like a grocery store. A grocery store if fabulously profitable if you don’t restock the shelves, but for a short period of time. An oilfield company that quits drilling is OK. Take 90 days off, which is what they’ve done and sort of look around. But in the end they’re going out of business if there’s no producing. They’re going to have to spend some money.”