Competitive Pricing Leads to ‘Dire’ Outlook for Oilfield Services Sector: PSAC CEO
Websites like AFEMax.com act as "reverse auctions" in which oilfield services companies can bid for jobs and undercutting is encouraged
When Sanjel announced it is selling off its North American assets, last week, president and CEO Darin MacDonald reportedly told staff the price environment for oilfield services was so bleak, it had become impossible for the Calgary-based company to maintain a healthy balance.
Sanjel’s experience highlights a troubling problem for the oilfield services sector: A recent report from the Canadian Association of Petroleum Producers said capital spending over the last two years is expected to drop by 62 per cent in 2016, the greatest drop since records began in 1947. And as capital spending dries up, so too does the work for Alberta’s oilfield services. That has set the oilfield services sector in a race to the bottom, as companies reportedly undercut each other for what little work there is left.
“It’s very dire,” says Mark Salkeld, president and CEO of the Petroleum Services Association of Canada. “There’s a growing consensus it’s the worst downturn oilfield services sector crisis in the history of Canada.”
Websites like AFEMax.com illustrate just how cost competitive the sector has become. The site acts as a “reverse auction” in which oilfield services companies can bid for jobs. Undercutting is tacitly encouraged on the site — bids are made public and repeat bids are welcome, so companies can ensure their’s is the lowest bid.
Some of the biggest producers in the industry are using reverse auctions to save money. Last year, Rich Kruger, CEO of Imperial Oil, told investors reverse auctions helped save the company 60 per cent on $160 million worth of contracts.
Salkeld says the backbone of the sector has always been strong competition, but “it’s not so much on pricing, it’s on innovation and research and efficiencies and productivity.”
Rather, some are speculating that competitive pricing could spell the end of the sector as we know it.
“The service pricing is at levels that I think defy logic,” says Regan Davis, president and CEO of Step Energy Services, which agreed to purchase Sanjel’s Canadian coiled-tubing, pressure pumping and cementing assets for an undisclosed amount. “If it continues long enough, there won’t be any of us left.”
More posts by Elizabeth Hames
- TransCanada to Cancel Power-Buying Agreements with Coal-Fired Plants Due to CO2 Emissions Costs
- UPDATE: Oil Sands Operators Reduce Personnel, Cut Production As Fort McMurray Fire Rages
- Canada’s Oil Patch Is Suffering The Consequences of China’s Economic Slowdown
- Capital Spending in Canada's Oil and Gas Sector Hits Record Lows
- Trudeau, Obama agree to cut methane emissions from oil and gas sector