After about two years of sinking oil prices and at least 40,000 job cuts, Canada’s oil industry still is not finished tackling its bloated operations.
The next round of layoffs has already begun with Cenovus Energy Inc and Murphy Oil Corp announcing workforce reductions last week. Ongoing cuts by Suncor Energy Inc, Encana Corp and others are likely to result in thousands more jobs lost by the end of the year, as the Canadian industry shaves billions worth of spending in order to continue operating in one of the world’s most expensive oil-producing regions.
Crude oil that averaged about US$90 per barrel more than five 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 in the world, according to consultancy Rystad Energy.
Some companies, including Encana, will have reduced their workforces to about half their peak levels when they are done.
The largest 27 Canadian producers are set to spend 32 percent less on average this year, including reductions by Imperial Oil Ltd and Cenovus, according to company forecasts and analysts’ estimates compiled by Bloomberg.
Collapsing cash flow is the best barometer of the challenges companies face, ARC Financial Corp vice president Jackie Forrest said. This year, cash flow is likely fall to about C$17.5 billion (US$13.5 billion), or about half last year’s level, and less than a fourth of the C$72 billion generated in 2014.
“We’re going to see all kinds of innovation on cost cutting,” she said. “Unfortunately, head count is one of the first approaches they take.”
Canada’s oil industry probably employs about 200,000 people, according to industry estimates. Oil and natural gas account for more than a quarter of Alberta’s economy and until 2014 crude oil was Canada’s most valuable export.
Unemployment in Alberta stood at 7.9 percent in February is now more than the national average for the first time since 1988, the year Calgary hosted the Winter Olympics. Back then, Canadian oil production was about 1.5 million barrels per day, compared with about 4.5 million now.
While job losses mount in the oil industry, the picture is less dramatic for the overall Canadian economy. Manufacturing helped Canada’s GDP rise 0.6 percent in January from December last year, the strongest monthly gain in three years.
Still, it will take another two years for Canada to adjust to the oil shock, Bank of Canada Deputy Governor Lynn Patterson said.
That would mean slower consumer and household spending.
Suncor, which in February reduced its spending target for this year to a range of US$6 billion to US$6.5 billion, from US$6.7 billion to US$7.3 billion in November last year, is continuing to lower costs, said Sneh Seetal, a company spokeswoman.
Encana is to cut 20 percent of its workforce this year, bringing the total workforce reduction since the beginning of last year to 50 percent, chief executive officer Doug Suttles said on a Feb. 24 conference call.
The company aims to save as much as US$250 million this year.
Cenovus is to cut 440 jobs this year, spokesman Brett Harris said by e-mail.
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