Calgary

Alberta premier says layoffs loom as oilpatch warns of 'catastrophic' impact from low prices

Jason Kenney warns job cuts are expected to hit the province's oil and gas sector in the comings weeks as a struggling industry grapples with a sharp plunge in crude prices.

Jason Kenney's comments come as more companies announce spending cuts

Pumpjacks are shown pumping crude oil near Halkirk, Alta. Alberta Premier Jason Kenney will be asking the federal government for help in face of plummeting oil prices. (Larry MacDougal/The Canadian Press)

Alberta Premier Jason Kenney warned Wednesday that job cuts are expected to hit the province's oil and gas sector in the comings weeks as a struggling industry grapples with a sharp plunge in crude prices.

"Energy companies, as a result of the price collapse, are massively cutting their capital budgets for 2020. This is going to have a very negative effect on working women and men in the energy services sector," Kenney said.

"Unfortunately, [we] do expect to see a number of layoff announcements coming from the energy sector in the next two or three weeks."

Kenney made the comments in Calgary as he prepared to fly to Ottawa to attend the first ministers' meeting.

The meeting in Ottawa comes as officials in Canada and around the world develop plans to cope with the health-care challenges and economic impact of the spread of COVID-19.

The premier met with executives from Alberta's oil and gas sector on Tuesday to discuss the impact of the plummeting oil prices, which have seen some of their biggest losses in years this week.

On Wednesday, West Texas Intermediate, the North American benchmark price for oil, closed at $32.98 US per barrel,  down $1.38 US per barrel from Tuesday. Less than a month ago, oil was trading near $54 US per barrel.

Alberta premier's wants Justin Trudeau to stop "hammering the industry" and focus on economic recovery. He plans to take that message with him to Ottawa. 2:27

Meanwhile, the list of oil and gas companies slashing their spending plans continues to grow.

Oilsands producer MEG Energy announced it is cutting its 2020 capital spending plan to $200 million from the $250 million it announced in November 2019.

MEG also trimmed its full year 2020 production guidance range to 93,000-95,000 barrels per day compared with its earlier guidance for 94,000-97,000 barrels per day.

Calgary-based Seven Generations Energy is lowering its 2020 capital investment budget by $200 million — or 18 per cent — to $900 million.

A day earlier, oilsands giant Cenovus Energy announced it was cutting its capital spending by 32 per cent to between $900 million and $1 billion, down from between $1.3 billion and $1.5 billion.

With oil production also expected to fall in the province, Kenney said he anticipates the amount of crude shipped by rail to also fall from an expected 500,000 barrels per day in March to 100,000 barrels a day next month.

"That may backup inventories to tank tops and then that stands the risk of blowing out inventories," he said.

"We will not allow that to happen. We will use the curtailment tool responsibly to ensure at least a survival price for our producers to get through this period."

The Alberta government implemented a production curtailment program, limiting oil output, last year.

Now, Alberta needs similar support to what the federal government gave the auto sector during the global financial crisis in 2008 and 2009, Kenney said.

Alberta's premier is looking for financial support for the energy industry as he heads to Ottawa, saying the province is facing a "triple whammy." 1:51

"We've contributed $600 billion net to the rest of Canada over the past five decades. It's time for Canada to have Alberta's back."

Kenney said energy companies have become more lean and efficient over the last five years, but some aren't likely to survive.

"There are a range of companies that are not well prepared for this downturn. That's part of the problem. This is after five years of fragility, when a number of companies have been leveraging themselves in debt," he said.

"A lot of them cannot cut operating costs any further and they cannot raise equity."

Tristan Goodman, president of the Explorers and Producers Association of Canada, said earlier on Tuesday that if oil prices stayed low for a prolonged period, the results could be "catastrophic."

"It's an incredibly serious situation," he told the Calgary Eyeopener.

"It's going to take some time here, a few weeks at least, to figure out exactly what's happening here as we're caught in the middle between two countries."

Crude prices dropped dramatically this week as Saudi Arabia and Russia began an oil price war and concerns grew about the impact of COVID-19 on the world economy.

Global oil prices have plunged 45 per cent since start of the year and there's no certainty around how long the situation will last.

"It's going to be a challenging year for the Canadian industry," said April Read, a senior analyst with Wood Mackenzie in Calgary.

Wood Mackenzie believes 2.7 million barrels per day of demand has fallen away in the first quarter of the year due to the impact of the novel coronavirus alone.

"Having this price war on top of that is definitely going to create some challenges going forward," Read said.

Saudi Arabia, which has already announced it would hike supplies to a record 12.3 million barrels per day in April, said Wednesday it would boost production capacity for the first time in more than a decade.

Read said production from Alberta's oilsands will probably flatten out and companies will defer making final investment decisions on growth projects until prices improve.

"If we see sustained prices at this low level, it will go back into kind of a survival response again in the industry," she said. "And that's where everything discretionary is cut to the bone."

About the Author

Tony Seskus

Senior Producer Western Digital Business Unit

Tony Seskus is senior producer with CBC's Western Business unit in Calgary. He's written for newspapers and wire services for more than 25 years on three continents. In Calgary, Tony has reported on the energy sector and federal politics.

With files from The Canadian Press and Reuters

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