Canadian energy contractors have reason for optimism after years of decline, but only if they can attract workers

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Energy drilling activity in Canada is forecast to increase in 2022, in what the sector hopes is evidence of an industry sputtering back to life after years of decline.

The 2022 Canadian Association of Energy Contractors (CAOEC) state-of-the-industry report, released Tuesday, paints a cautiously optimistic picture in which activity ticks up by about 27 per cent compared with 2021. The vast majority of it will be in the oil and gas sector, but diversification toward cleaner energy, such as like geothermal, and drilling for helium and lithium, are also tipped to help sector growth.

“This is the good news story that we’ve been waiting for for seven years,” CAOEC president Mark Scholz told reporters in Calgary Tuesday.

The dramatic downturn of the oil sector after prices crashed in 2014 saw drilling activity and employment in the patch plummet. Swaths of small drilling and service-sector businesses closed as producers reined in spending to protect their balance sheets.

This is the first time “in a very, very long time” that there’s a “message of hope,” Mr. Scholz said.

Western Canada to boost oil and gas drilling to pre-pandemic levels in 2022, association says

The association estimates a 26.8-per-cent growth in the number of wells drilled and operating days in 2022, compared with 2021. Mr. Scholz said that’s because of elevated prices for oil and gas, which signal that more capital will go back to drilling contractors and service contractors to increase production.

However, unlike the booms of yesteryear, he said, the sector will continue to be disciplined and targeted in how it allocates capital.

In terms of employment, total contractor jobs in 2021 were up 54 per cent from a year earlier. In 2022, CAOEC expects another increase of about 7,280 total jobs – a 26-per-cent increase year-over-year.

But access to skilled workers will also be the single greatest risk to higher levels of activity, Mr. Scholz said, because years of economic contraction and instability in the industry has led to people turning their back on the oil and gas sector.

“We are now in a situation where finally, after seven years, we’re seeing elevated prospects and growth, but it’s going to take some time to send the right signals of stability within this sector in order to bring back that complement of workers,” he said.

Average wages on the drilling and well-servicing side have already increased about 10 per cent in an effort to plug a gap in the labour market, Mr. Scholz said, but the industry needs to do more to attract younger workers who have come to demand better work-life balance than typically afforded to rig crews.

Mr. Scholz said many companies are starting to once again reach out to jurisdictions such as the Maritimes, Quebec and Ontario, where it traditionally looked for workers to come out to Western Canada.

According to CAOEC, the number of operating days (which serves as the main barometer of the health of Canada’s drilling sector) are already back to prepandemic levels. That’s partly because economic woes over the past seven years forced the sector to focus on reducing costs and increasing efficiency.

“It has been a gruelling, difficult period for both contractors and producers,” Mr. Scholz said of the downturn.

“I think our ability to demonstrate to the market that we have not only reduced our costs, but we can provide great returns from an investment perspective, has attracted greater relative levels of capital to Canada versus the United States.”

The forecast landed as the United States announced Tuesday it would release tens of millions of barrels of oil from reserves, in concert with other such moves by China, India, South Korea, Japan and Britain.

U.S. President Joe Biden’s administration said in a statement it would release 50 million barrels from the U.S. Strategic Petroleum Reserves, which will start hitting the market in mid- to late December. The White House said the move would help lower gas prices and home heating bills for Americans, and address the imbalance between demand and supply.

The OPEC+ alliance between the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia has so far rebuffed repeated requests from Washington to pump more oil.

With a report from Reuters

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