Oil patch blues not as lowdown as feared

Charles Frank
National Post
Canwest News Service
Saturday, January 31, 2009

Q4 reports not expected to spark major layoffs

So far, so good. Sort of. Thursday's much-feared round of oil patch fourth-quarter reports was not nearly as grim as had been originally forecast.

In fact, one of the biggest dogs in the patch, Imperial Oil, weighed in with a $660-million profit, running its 2008 net earnings to a record $3.9-billion--bringing with it a welcome note of optimism to an industry that has been battered by slumping commodity prices and the rapid onset of the global financial crisis.

Things weren't as good over at Petro-Canada, where the country's fourth-largest integrated oil company checked in with a $691-million loss -- enough of a setback to cause chief executive Ron Brenneman to opine that 2009 would be a good time to hunker down and wait for economic circumstances to become less volatile.

Even so, Mr. Brenneman, following in the footsteps of oils sands miner Suncor Energy, which reported its first fourth-quarter loss last week, eschewed any talk of layoffs. Perhaps because, at the end of the day, Petro-Canada's net earnings for 2008 were up 15%, to $3.13-billion.

That's a heady number. By any yardstick.

In fact, among the gaggle of industry heavyweights reporting Thursday, only distant cousin and former Calgary icon Nova Chemicals (now head-officed in Pittsburgh but with massive operations in central Alberta) chose to slash staff, announcing it would shed 15% of its workforce in the wake of a stinging $215-million fourth-quarter loss.

Nova, Canada's largest chemical producer, is also under intense pressure to raise $400-million to meet loan covenants -- a scenario that has in recent months already sent a number of blue-chip corporations to the bankruptcy courts.

Given what has been happening in the United States since the beginning of January, the relative lack of employee bloodletting in the oil patch -- so far --is worthy of note.

In the United States, heavy equipment manufacturer Caterpillar set the tone for the week when it jettisoned 20,000 workers after the company's order book started to spring a leak in 2009 and the company reported a 32% drop in profit.

No doubt part of the company's financial woes were the result of oil sands producers such as Petro-Canada and Suncor shelving expansion plans, an about-face that has seen planned expenditures in the oil sands fall from a projected $20-billion for 2009 to less than $10 -billion.

That number is likely to diminish even further before year-end, barring a miraculous global economic recovery.

Not to be outdone, aircraft manufacturer Boeing dropped 10,000 workers as shrinking airline profits caused cancellations and postponements of new aircraft purchases around the world.

Microsoft -- thought to be among the sectors "immune" to the raging global recession -- dropped 5,000 employees after a disappointing fourth quarter. And coffee giant Starbucks eliminated 6,700 jobs and said it would close some 300 stores while Home Depot said it would lose 7,000 workers.

Enough said.

All of which isn't to say there haven't been job losses in the oil patch.

One source suggests that some 2,000 engineers, mostly in contract positions, have lost their jobs in the past few months as projects have been mothballed and companies chop their spending plans by billions of dollars.

And the service sector has been selectively paring workers by the handful, as companies adjust their needs to meet the reductions in capital expenditures that explorers and producers are implementing to keep their heads above water in today's rapidly shifting economic environment.

Earlier this week, the Petroleum Services Association of Canada revised its 2009 forecast for drilling activity downward by 21% to 13,500 wells. The association is calling for only 8,455 wells to be drilled in Alberta compared with 11,844 last year.

That contraction is already translating itself into widespread workforce reductions as operators idle rigs until commodity prices -- and the economic climate-- rebound.

At this point, there is no consensus as to when that might be.