Slipping crude oil prices are not the only issue concerning oil and gas operators in Western Canada, the chief operating officer of Ensign Energy Services said on Monday.
While price reductions in the last week have led some industry observers to conclude that OPEC might be losing its influence on global oil markets, Bob Geddes rejected that conclusion, arguing that OPEC is still firmly in the driver’s seat.
A bigger concern is Alberta’s position in terms of producer costs. “[We’re] arguably the highest-cost basin in the world and it’s not because of inefficient operators or equipment. It’s the high royalty structure, the high tax rates and the uncertainty,” Geddes said following Ensign’s annual meeting in Calgary.
Ensign operates in seven countries, including Venezuela, but Geddes said Alberta—and Canada—rank as among the “most geopolitically unstable” places in the world. As a result, he said investors are posing such questions as, “Are you going to raise royalties on me? Taxes?”
Geddes estimated there is now $10 billion less investment in Canada per year than there was only seven or eight years ago, a difference which he said equates to about 100,000 jobs. “That’s the big macro-issue,” he said, arguing that Canadians have to find a balance.
Oilfield services pricing
Like other oilfield service contractors, Ensign is looking forward to opportunities to raise prices. In the current environment, “no one is making earnings [or] covering depreciation, which means we’re slowly dying, unless we get to positive earnings,” he said.
“Prices have to rise, because everyone has kind of consumed their equipment. If you go buy something, you need money to do so, which means [there] must be positive earnings,” he said, adding that prices have started to move up, and providing this comes along with efficiency gains, there will be no net cost to the operator.