‘We’re not at the bottom yet’: Canada’s ever-shrinking oil industry braces for more layoffs

After almost 2 yrs of sinking oil prices and a minimum of 40,000 job cuts, Canada’s petroleum industry still isn’t finished tackling its bloated operations.

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The next round of layoffs has begun with Cenovus Energy Inc. and Murphy Oil Corp. announcing workforce reductions last week. Ongoing cuts by Suncor Energy Inc., Encana Corp. yet others will probably result in thousands more jobs lost after the entire year because the Canadian industry shaves billions price of spending in order to continue operating in one of the world’s priciest oil-producing regions.

“It’ll probably take another six months before a few of the bloated staffing levels are tackled,” said Todd Hirsch, chief economist at ATB Financial in Calgary. “Most of these websites are becoming employment levels down to the bare bones and over the summer and spring there will be more layoffs.”

Crude that averaged about US$90 a barrel over 5 years before starting to collapse in June 2014 supercharged oil sands investment in northern Alberta, where the break-even costs from existing operations are the highest on the planet, based on consultancy Rystad Energy. Some companies including Encana will have reduced their workforces to about half their peak levels when they’re done.

Spending Cuts

The largest 27 Canadian producers are going to spend 32 per cent less typically this season, including reductions by Imperial Oil Ltd. and Cenovus, based on company forecasts and analysts’ estimates published by Bloomberg. The result is an identical decrease in spending in 2015.

Collapsing cash flow is the greatest barometer from the challenges companies face, said Jackie Forrest, v . p . at ARC Financial Corp. This year, income will likely fall to around $17.5 billion, or roughly half last year’s level, and less than a fourth from the $72 billion generated in 2014.

“We’re likely to see all kinds of innovation on cost cutting,” she said. “Unfortunately headcount is one of the first approaches they take.”

Canada’s petroleum industry probably employs about 200,000 people, based on industry estimates. Oil and gas take into account greater than a quarter from the Alberta economy and until 2014 crude was Canada’s best export.

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Alberta Woes

Unemployment in Alberta at 7.9 per cent in February is now more than the national average the very first time since 1988, the year Calgary hosted the XV Winter Olympics. In those days, Canadian oil production involved 1.5 million barrels each day, compared with about 4.5 million now. Canada’s unemployment rate for March will be disclosed April 8.

While job losses mount within the oil industry, the image is less dramatic for that overall Canadian economy. Manufacturing helped Canada’s gross domestic product rise 0.6 percent in January from December, the best monthly grow in 3 years.

Still, it will take another two years for Canada to adjust to the oil shock, based on Lynn Patterson, deputy governor of the Bank of Canada. That will likely mean slower consumer spending and household spending.

“We’re away from the underside yet,” said Michal Moore, a professor at the University of Calgary. “The folks getting really slammed would be the ancillary workers because the contracts are drying up. And shortly we’re going to have to confront a serious unemployment insurance situation.”

Big Employers

The larger companies probably have more room to chop, while the smaller producers and service providers have previously slimmed down their workforces, said Jennifer Stevenson, energy portfolio manager at 1832 Asset Management LP in Calgary.

Suncor, which in February reduced its spending target with this year to some selection of US$6 billion to US$6.5 billion, from US$6.7 billion to US$7.3 billion in November, is continuing to lower costs, said Sneh Seetal, a business spokeswoman.

“Once we keep looking at how we can operate more proficiently, you will see changes which means that individuals will leave the organization,” she said. “This can be a stressful time for people and we’re dedicated to being as open and transparent with employees as we can.”

Encana will cut 20 percent of their workforce this year, bringing the entire workforce reduction forever of 2015 to 50 per cent, Ceo Doug Suttles said on a Feb. 24 conference call. The organization aims in order to save around US$250 million this year.

Cenovus will cut 440 jobs this year, Brett Harris, a spokesman, said by e-mail. The cuts leaves the organization about 3,600 employees.

“These have been difficult, but necessary decisions given the current economy,” Harris said.

Bloomberg News