After almost two years of sinking oil prices and at least 40,000 job cuts, Canada’s petroleum industry still isn’t finished tackling its bloated operations.
The next round of layoffs has already begun with Cenovus Energy Inc. and Murphy Oil Corp. announcing workforce reductions last week.
Ongoing cuts by Suncor Energy Inc., Encana Corp. and others will likely result in thousands more jobs lost by the end of the year as the Canadian industry shaves billions worth of spending in order to continue operating in one of the world’s most expensive oil-producing regions.
“It will probably take another six months before some of the bloated staffing levels are tackled,” said Todd Hirsch, chief economist at ATB Financial in Calgary.
“Many of these companies are getting employment levels down to the bare bones and over the spring and summer there will be more layoffs.”
Crude that averaged about $90 a barrel over five years before starting to collapse in June 2014 supercharged oil sands investment in northern Alberta, where the break-even costs from existing operations are the highest in the world, according to consultancy Rystad Energy.
Some companies including Encana will have reduced their workforces to about half their peak levels when they’re done.
The largest 27 Canadian producers are set to spend 32 percent less on average this year, including reductions by Imperial Oil Ltd. and Cenovus, according to company forecasts and analysts’ estimates compiled by Bloomberg.
It follows a similar reduction in spending in 2015.
Collapsing cash flow is the best barometer of the challenges companies face, said Jackie Forrest, vice president at ARC Financial Corp.
This year, cash flow will likely fall to about C$17.5 billion ($13.5 billion), or roughly half last year’s level, and less than a fourth of the C$72 billion generated in 2014.
Canada’s petroleum industry probably employs about 200,000 people, according to industry estimates. Oil and natural gas account for more than a quarter of the Alberta economy and until 2014 crude was Canada’s most valuable export.
Unemployment in Alberta at 7.9 percent in February is now more than the national average for the first time since 1988, the year Calgary hosted the XV Winter Olympics. Back then, Canadian oil production was about 1.5 million barrels a day, compared with about 4.5 million now. Canada’s unemployment rate for March will be disclosed April 8.