CAOEC Delivers A Long-Awaited ‘Good-News’ Forecast; Labour Shortage An Ongoing Issue

Mark Scholz speaking at the CAOEC's outlook on Tuesday. Photo credit: Carter Haydu.

For seven years, Canadian Association of Energy Contractors (CAOEC) member companies have been waiting for the sort of strength in energy-sector fundamentals demonstrated in Tuesday morning’s Q4 2021 and 2022 drilling forecast, says Mark Scholz, president and chief executive officer.

“Anything is possible with some of these forecasts, but I’d just say that this is finally a good-news story for many in the industry — to see this industry finally come back to life,” he told reporters following the association’s annual forecast event, which was held in person on Tuesday at the Calgary Petroleum Club.

He added: “We are drilling more wells, which means more Canadians are working. It means companies can pay off debt. It means increased revenues for great cities like Calgary, for provinces, and for the Government of Canada.”

According to the CAOEC’s Q4 2021 and 2022 drilling forecast, there will be 5,094 wells drilled in 2021, which is up by around 1,800 from 2020. There will be an estimated 6,457 wells drilled in 2022, which is up by about 27 per cent from this year. By comparison, the Petroleum Services Association of Canada (PSAC) recently increased its full-year 2021 estimate to 4,650 wells being drilled. As for 2022, PSAC expects a total of 5,400 wells (rig releases) in Canada.

Meanwhile, the CAOEC projects 58,111 operating days in 2022, which is up 27 per cent from 2021. However, the association also anticipates that the Canadian rig fleet will decrease by around two per cent to 481 drilling rigs for next year. Scholz told the Bulletin that a gradual attrition largely is to blame for the year-over-year fleet-size reduction.

“There are some rigs that just aren’t marketable anymore. They have antiquated technology. This is definitely an industry that is focusing a lot on using technology, automation, apps and algorithms to provide better services to their clients to drill more productive wells. And so, there are just going to be some rigs in our fleet where it doesn’t make sense to put in the capital to bring them up to a marketable standard.”

In terms of meeting the drilling forecast increases set out by the CAOEC, Scholz told Tuesday’s event, it will be a function of finding the skilled labour to crew all of the necessary rigs. “That is becoming more difficult.”

Labour issues

For 2022, the number of jobs the CAOEC expects to be created in the energy sector is 34,925, which is up by 7,280 jobs when compared to the same full-year 2021 period. While the oil and gas industry will keep driving the economy in Western Canada, Scholz said, skilled labour shortages can result from sustained recovery and increased sector activity.

In response, he noted to reporters, wages have increased on average by about 10 per cent both on the drilling and well-servicing side of the industry.

“The other piece that we’re starting to see is companies beginning to reach out to some of their other jurisdictions, like the Maritimes, Québec and Ontario, where we have traditionally advertised and marketed to skilled labour to come out Western Canada to work.”

Certainly, not only will there be a lag in the service sector’s ability to relocate workers from across the country, but many of those would-be workers are likely hesitant to move to Western Canada until they perceive more stability in oil and gas activity, he added. “It is going to take some time, I think, to give that confidence back to the workforce.”

Further, while the number of jobs created is up substantially from last year, Scholz said during the CAOEC event, it is still far below the levels seen in 2014. “There’s still a lot of runway for us to go, but the good news is I think we’re moving in the absolute direction.”

In general, the CAOEC president is optimistic about the energy sector and what it means for Canadian jobs now and into the future. He told reporters the opportunities for career advancements “are extraordinary,” and it will require more talented workers to ensure the industry can meet energy-transition demands. “This is an industry that is part of the solution. We say to workers: Come join us, and help create our new future.”

Canada versus the U.S.

The Canadian energy sector’s ability to demonstrate to the market that it can reduce costs and provide investment returns is attracting greater levels of capital to Canada versus the U.S., relatively speaking, said Scholz. While drilling operating days in Canada are back to pre-pandemic levels, he noted, the Americans are sitting around 75-80 per cent.

“Part of the function is that Canada is actually positioned very well when it comes to ESG performance. Secondly, we’ve had to in the last seven years retool this industry. It has been a grueling, difficult period for both contractors and producers, but we’ve had to do the hard work over the last seven years to reduce our costs, becoming more efficient.”

Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers (CAPP), told the CAOEC event that while the commodity prices and revenues Canadian energy companies had been reporting in Q3 results were positive, there is still a lot more activity required to get to levels seen seven years ago, when producers invested about $81 billion a year in Canada. For 2021, he noted, the investment looks to be around $32 billion.

“We’ve come through such a difficult time that we do need a little bit of good news, and we’re getting it,” he said, adding the industry still has work to do. “But let’s make sure we recognize that we’re moving in the right direction.”

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