The Canadian Association of Oilwell Drilling Contractors (CAODC) is supportive of a federal funding announcement, but indicates more is needed to address industry challenges, says association president Mark A. Scholz.
Natural Resources Minister Amarjeet Sohi and International Trade Diversification Minister Jim Carr recently announced a funding initiative designed to support the Canadian oil and gas sector.
The details of the announcement include $1 billion in commercial financial support from Export Development Canada to be made available to exporters of all sizes to assist companies looking to invest in innovative technologies, address working capital needs or explore new markets; and a new $500-million Energy Diversification commercial financing envelope over three years from the Business Development Bank of Canada to help higher risk but viable oil and gas small business enterprises weather the current market uncertainty.
The impact of such a long-standing downturn has been devastating to women, men and families in the Canadian oil and gas industry. Additional support from government in this time of need is greatly appreciated, and will help many businesses in the sector stabilize, and restructure debt and finances.
Access to unsecured loans however, does not address the underlying issues at the heart of the industry’s problem.
“While we are grateful for help in any capacity at this point, all we have ever asked for is the opportunity to compete in global markets with our world-class products,” said Scholz.
In light of today's announcement, CAODC looks forward to working with the federal government to maximize the benefits of this program for its members.
While a step in the right direction, the challenges facing Canadian oil and gas remain substantial, he said.
“As Canadians saw recently in Whistler mayor Jack Crompton’s letter to Canadian Natural Resources Ltd., a fundamental component of the predicament Canadian oil and gas currently finds itself in, is the misinformed idea that we are poorly regulated, responsible for catastrophic global climate change, and bad for Canada,” he said.
“Until Canadian governments at all levels stop indulging in this rhetoric, we will continue to experience difficulties, require loans, endure inter-provincial conflict, and the men, women and families in our industry will continue to suffer.”
Meanwhile, the association says despite a recovery in the price of oil, and LNG Canada’s positive announcement early in Q4 that it would be building its LNG export facility, drilling activity in 2018 remained flat year-over-year.
Once again the politicization of oil and gas infrastructure in Canada, along with increased taxation and regulatory requirements, resulted in significant delays and additional costs for Canadian producers, and sustained price differentials for Canadian crude blends.
“The lack of activity is not hard to understand,” he said. “The Canadian oil and gas industry is simply too dysfunctional to anticipate any kind of quick recovery.”
As a result, Canadian service companies are exploring any and all options to generate positive cash flows.
“Our members are on life support,” he said. “With the exception of perhaps Venezuela, Canada is the only oil and gas producing jurisdiction in the world that cannot at the very least see a recovery on the horizon.
“We have among the highest standards for responsible development in the world, yet our products are sold at bargain basement prices.”
CAODC sees no improvement in sight for activity levels through Q3 2019, although the completion of Enbridge’s Line 3 replacement could produce a modest boost in drilling activity in Q4.
Further, the Canadian rig fleet is expected to continue to decrease at a steady pace, with newer, high-spec rigs and associated senior rig technicians being deployed to the United States where costs are lower and day rates are higher.
In 2018 CAODC members delisted 26 drilling rigs with 11 of those (42 per cent) relocated to the U.S.
Scholz continues to emphasize the important role provincial and federal governments play in these difficult times.
“Tone at the top matters, and investors are uncertain as to whether Canada wants to be in the oil and gas business in any meaningful way,” he said.
– The Canadian Association of Oilwell Drilling Contractors (CAODC), which represents Canada’s drilling and service rig industry.
