Canada energy industry deflation squeezing service providers

Mon Feb 16, 2015 7:08pm EST
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By Nia Williams

CALGARY, Alberta (Reuters) - After years of enduring spiralling operating costs Canada's oil and gas industry is being hit by price deflation, as producers push to share the pain of low crude prices with contractors, service providers and suppliers

Lower costs have eased some of the bite from slumping oil prices for producers who have seen profit dive over the last six months.

But there is no silver lining for the hundreds of oilfield service providers - ranging from drillers to well service firms to trucking companies - that are having to jostle for business by dropping prices and renegotiating contracts.

"The pressure on pricing was almost instantaneous and right across the board," Precision Drilling Corp Chief Executive Kevin Neveu told investors on Thursday after Canada's largest drilling contractor reported a steep loss.

Customers have been quick to press for reduced drilling costs and spot market rates are down between 10 and 20 percent, he said.

One employee at an environmental and drilling services company in Calgary, who declined to be named, also said most producers had targeted a 20 percent cut in operating costs.

Many suppliers and service providers have offered at least that discount or more, the employee said, on the assumption that if they do not, a competitor will.

Canadian Natural Resources Ltd sent letters to suppliers and contractors late last year asking them to consider what they could do to cut their rates, Chief Financial Officer Corey Bieber told a conference in January.   Continued...

An oil pump jack pumps oil in a field near Calgary, Alberta, July 21, 2014. REUTERS/Todd Korol