As energy prices climb, the oil patch is getting back to work.
The Canadian Association of Oilwell Drilling Contractors (CAODC) says rig activity is already higher than it previously anticipated for the first quarter of this year. The increase in activity is bringing with it another issue: concerns over finding sufficient skilled workers.
“I’ve talked to a handful of contractors in the past couple of days and they’ve said without question, they could have more rigs out in the field - both on the service rig side and drilling rig side - if they had access to adequate labour,” said Mark Scholz, president and CEO of the CAODC, in an interview.
In November, the organization forecast 136 rigs would be active in the first quarter of this year. It now says it sees that number at about 188 for the first two months of the year -- and staffing is becoming an issue.
“We’re starting to see some backlogs get created,” said Scholz. “Customers are actually on the third or fourth drilling-contractor call inquiring about rigs to get out in the field and a lot of companies are in the exact same situation. It’s just a, ‘You’re going to have to wait for that rig just because we don’t have the available crew’ [situation].”
Over at STEP Energy Services Ltd., president and CEO Regan Davis, said a labour crunch is something he is keeping an eye on.
“We went through a process in the fourth quarter where we had visibility to more work, specifically for the first quarter, and went through a hiring program there and it took longer to fill the positions than we thought it would,” said Davis in an interview. “We were still able to find a decent level of experience but we definitely had to start onboarding inexperienced people again.”
That means increased training and a longer lead-time in getting the rigs staffed and back to work, but it’s a nice problem to have for an industry that’s been repeatedly battered for more than five years. The length of the downturn has exacerbated the situation. Many skilled workers have left the sector, and in some cases departed Alberta entirely, is search of steadier employment.
Last year was the roughest on record for oilfield service providers as work dried up thanks to low oil prices and the COVID-19 pandemic, which decimated demand. Larger service companies have been better able to keep employees working, but smaller companies are now struggling to find the labour to ramp back up.
“I think it’s been so tough for people that have been hired, laid off, hired, laid off, that many have just made a decision that they need to find something more stable,” said Davis. “I would say if activity were to increase another 10-to-20 per cent, which is certainly reasonable to expect it should, it will show up in challenges in hiring people and probably some wage inflation too to try and accomplish that.”
“From our perspective, we’re fine on the labour front for now, but as an industry, to try get another 50 to 75 rigs going, labour is going to be a real challenge,“ said Dan Halyk, president and CEO with Total Energy Services Inc., in an interview. He added that the sector’s current activity is far below where it used to be and it has become more concentrated.
“There’s been a massive decimation of the industry,” said Halyk, noting the top five drillers now account for roughly three-quarters of the operating days. “I’ve never seen that concentration in my 20-something years in this industry.”
“We’re running at about 10 per cent,” said Halyk. “It wasn’t long ago we were running 650 [rigs] in the winter time. Certainly, my expectation is if we get anywhere close to 250 rigs going, we’re going to have issues as an industry.”
Halyk said the drilling sector is a good indicator of what’s going on across the industry. Up-to-date rig counts help quantify the amount of activity taking place overall. As they increase and workers are pulled to staff them, Halyk said it puts pressure on other areas.
“You’ll just have a limitation of what we can do in this country until we attract more skilled labour,” he said. “That’s not just drilling, that’s going to be across the board – truck drivers, welders – there is a lot, a lot of people who have left the industry.”
In addition, there is some concern that government benefits are providing a disincentive for some to return to the workforce. In a television interview, Precision Drilling Corp. President and CEO Kevin Neveu said finding workers is always harder when the economy is very strong or very weak, but this time the industry is also contending with additional competition.
“Getting the call-out labour for our service rigs has been tougher because a lot of those workers right now are getting the unemployment insurance subsidies due to the pandemic,” said Neveu. “They’re reluctant to come up and work for four or five days and then four or five days off. So recruiting has been a bit more challenged for those call-out businesses.”
That sentiment is echoed by STEP Energy Services CEO Regan Davis.
“I do hear rumblings that people who do have a low cost of living are perhaps benefitting from not having to work right now because of those subsidies,” he said. “As those subsidies tail off, that could bring a few more employees back to the market.”
As energy prices climb and work ramps up, the industry is hopeful it is a sign of better times ahead.
“We’re in a better place than we were six months ago, unquestionably,” according to Halyk.
“Already for Canada, we’re seeing demand for a second-quarter spring break up season that looks like it will be as much as two times what we saw last year during the second quarter,” said Neveu.
“We’re getting increasing optimism that activity levels will remain healthy for the balance of the year and I think we’re even starting to see a case where we could start to need to demand more equipment for the back half of the year,” adds Davis, who said this newfound feeling of optimism could entice skilled workers back to the industry.
But he is quick to clarify it’s simply cautious optimism for now.
“We’re all building a bit of confidence that we’ve got a run in front of us with some duration, but still prepared that it could end tomorrow,” Davis said.