Oil below $50 a barrel could spur another leg down for Canada’s oil industry
It may be high summer on the calendar, but Canada’s energy companies are already looking towards the coming winter.
What they see is looking worse now than it was even a month ago.
After a rough start to the year that saw companies lay off thousands of workers amid falling crude prices, lower cash flow and wounded share prices, a spring rally in oil was stirring hopes the dreaded other shoe might not drop.
A July-long slide took oil prices back below $50 a barrel, so a rally is looking less likely.
“It’s a very difficult time in our industry, one of the most difficult in decades,” said Tim McMillan, chief executive of the Canadian Association of Petroleum Producers, the lobby group for the energy industry. “The mantra that I’ve heard pretty consistently from companies is preparing for lower for longer.”
Whether the earlier rounds of staffing cuts and budget reductions are preparation enough to weather what’s expected to be a dismal winter drilling season is a question that is already starting to be answered.
In the next few weeks, Canada’s oil companies will get down to the serious work of crafting next year’s budgets. Those plans will come together in September on the way to getting approved in November.
Winter drilling season
For Canada’s oil sector, the winter drilling season, which begins when the ground freezes enough for heavy equipment to move through the northern parts of the country, is where the rubber will hit the road for the industry.
Western Canada’s oil business follows a predictable quarterly pattern; busy in the first three months of the year, which is where companies make a lot of their money. Quiet for the next three during spring breakup, when rigs are taken down and moved through the muskeg before the seasonal warmth thaws the ground. And then a ramp-up through the second half of the year, which launches companies back into the peak busyness of winter.
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