The dramatic drop in oil prices will have a major impact on the oil industry in Alberta, said an oilman living in the Okotoks area.
“What it does for Alberta is very bad, a lot of people won’t survive at that price,” said Nathan Coffey, with Lateral Completions. “It will be interesting to see what happens in the next three weeks. Hopefully, someone can talk some sense to those guys (Saudi Arabia and Russia.)”
The crash in oil prices was due to the pricing war between oil-rich Saudi Arabia and Russia as well as the decrease in the use of energy from the COVID-19 outbreak.
West Texas Intermediate crude closed at $31.13 on March 9. It was around $42 on Friday. It had been at $57 in January.
Coffey has diversified his business to the United States due to the slumping oil economy and the difficulty of doing business in Canada.
“I don’t have a lot of overhead so I will survive, but a lot of oil and gas companies won’t be able to make enough money off their current existing wells to be able to justify anything in the future,” Coffey said. “You will see rig counts fall definitely for Q4 (the fourth quarter) and going into 2021.”
He said the latest drop comes during a slow recovery for the oil industry in Canada
“This is just what I think, but you may see a lot of companies cut back… We (the Alberta oil industry) haven’t fully recovered from the 2012-’14 crash.
“The U.S. bounced back exponentially, and Canada hasn’t, basically because of our federal government and its policies are anti-development of natural resources (oil and gas).”
He said at this point he is not sure what Premier Jason Kenney and Prime Minister Trudeau can do – as oil prices are dictated by countries like Saudi Arabia and Russia being able to produce oil at such lower prices.
Coffey said the oil industry has taken a double-hit as prices had dropped significantly due to the COVID-19 outbreak.
Premier Jason Kenney said at a press conference on Monday that Alberta is “in uncharted territory” as it’s the first time since the 1930s there has been a significant increase in oil production but a decrease in demand.
Kenney is establishing an urgent economic committee to be chaired by Jack Mintz to provide “expert external advice on how to meet the challenge of this downturn.”
The UCP had planned to balance the budget by 2023, however that may be in jeopardy due to the latest economic challenges. That budget is based on $58 a barrel oil.
Every dollar drop in the price of WTI oil takes approximately $200 million out of provincial revenues.
“Our priority is protecting jobs, our priority is protecting the economy,” Kenney said. “If that means that in the mid-term we need to borrow money to help make that happen we will do so.”
“Our goal has always been to balance the budget in our first term of government, but I was always clear that if we were sideswiped by a major economic downturn that would be at risk… We will deal with that challenge… that may mean additional capital infrastructure to get people back to work in the private sector.”
He said it was too early to set the framework to solve the recent economic setback. Kenney will be discussing the situation during his trip to Ottawa this week.
Those talks will include support for businesses in terms of payroll taxes.
“We are working on a revised list of requests for the government that will be finalized over the next 48 hours and I will take that to Ottawa on Thursday,” he said.
He said the Province won’t rest while the economic crisis is ongoing.
“All options will be on the table to do everything we can within our capacity to help protect jobs and Albertans,” Kenney said.
