Huge drop in active oil rigs will have ‘ripple effect’ on economy, says energy analyst

Just 70 oil rigs were active across Canada in the last two weeks of December, a drop of nearly 50 per cent from this time last year.

“It has a ripple effect throughout the economy,” said Calgary-based energy analyst Richard Masson.

“I think we absolutely should be concerned.”

Two weeks ago, 174 rigs were active. This time last year, 136 rigs were working across the country, according to the Baker Hughes Rig Count, which has been publishing the barometer for the drilling industry since 1944. 

That’s way down from the high point of January 2012, which saw more than 710 rigs working across the country.

Winter most active time to drill

Masson said winter is usually the most active time to drill because the ground conditions are preferable. While some of the December decline is likely due to a Christmas slowdown, it’s been much steeper than in other years.

He said the drop is likely related to the wide differential in oil prices.

“So companies just haven’t had the cash flow to keep rigs running,” Masson said. “I expect it’ll probably carry on like this, because as companies were doing their budgets for 2019 … they were looking at very poor prices and lack of pipeline access to get to market.”

As the downturn continues workers can expect to see more layoffs, Masson said.

“If we lose this winter drilling season that’s not very active, it’ll put a lot of people in tough positions over the course of the summer when there’s much less work,” he said.

‘Not just numbers’

At the start of December, Alberta Premier Rachel Notley announced a mandatory production cut to try and tackle the high differential between the price of Western Canadian Select and West Texas Intermediate, which has jumped as high as $50 US in recent months.

The lack of new pipelines to get oil to market has sparked protests across the province, with thousands rallying or driving in convoys to draw attention the issue.

“It’s a pretty direct link between what’s going on in the oil markets, what’s going on in the drilling market, and what’s going on in these towns with the protests,” Masson said.

“It affects real people. It’s not just numbers and statistics.”

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