Will ‘Corner Office Syndrome’ Be The Downfall Of Canada’s Oilfield Services?
No sector of the economy should be considering the urge to merge more than Canada’s beleaguered oilfield services (OFS) business. The signals are powerful: overcapacity in virtually every product and service line; prices down to slimmest of margins; bankers are unhappy and getting twitchy; shareholders are morose and OFS operators have to do something because doing nothing is no longer an option.
The short- and medium-term outlook is not promising. Oil prices are going down, not up. The recent nuclear deal with Iran will continue to overhang well-supplied world crude markets into next year. Even if oil rose sharply tomorrow, Alberta would still suffer from heightened uncertainty until the royalty issue is clarified.
New oil sands projects are dead. LNG is paralyzed by price, cost and global market turmoil. E&P companies looking to drill are demanding the lowest prices possible. Bankers who have been patient for months cannot kick the forbearance letter can down the road forever.
Because of a collapse in business, along with oil prices, oilfield service managers have been cutting costs since late last year. Workers have been laid off by thetens of thousands. Capital spending and maintenance programs have been slashed or postponed. Discretionary expenditures like travel and entertainment have been cancelled. Pay cuts have been instituted. Dividends reduced or eliminated. Principal payments postponed where possible.
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The last major expense not yet addressed in any meaningful way is a measurable reduction in administrative (non-revenue generating) costs per dollar of revenue. This is the CEO, COO, CFO, VP marketing, HR manager, safety officer and corporate head office. Reduced expenses for field service locations and product and service delivery. Increased purchasing power in other words.
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