Lack Of Qualified Hands A Problem For Service Companies This Winter

By James Mahony

A shortage of experienced workers -- not equipment -- is keeping some of Western Canada's oilfield service companies from hitting their full stride this winter, industry executives told the Bulletin recently.

Drilling activity is stronger than many expected with active rig counts more than 70% of the available fleet at work so far in February. This week, 570 units are at work, 186 more rigs than the same week last year.

"The biggest thing holding back our (service rig) utilization numbers today is people," said Brad Kingston, general manager and vice-president of Savanna Energy Services. "We would have much higher utilization if we had the people, but we're turning down anywhere from five to nine (jobs), and some weeks, up to 15 jobs."

With 58 service rigs and six coiled tubing rigs in Western Canada, Savanna is currently keeping about 60% of its fleet busy, up sharply from last year's fourth quarter.

Across the industry, many oilfield service workers were laid off in the past 12 months as producers dramatically cut capital spending following the oil price crash of late 2008 and early 2009 and as natural gas prices remained weak.

"We keep hearing about all the service sector employees that are available, but we don't know where they're at," said Kingston. "They're certainly not beating down our doors."

Other service companies, including drilling contractors, have also been challenged to find the right people in recent weeks, an informal survey by the Bulletin indicates.

"There are only so many people to go around," said Duane Mather, president and chief executive of drilling contractor Nabors Canada, which had 37 active rigs (45%) of a total 82 drilling rigs in Western Canada this week. "We could have been a few rigs stronger than we are right now. There was work for our tele-doubles, but we couldn't find people for them."

The problem is not in getting workers per se, but in recruiting those with drilling experience, said Mather, noting contractors have had little trouble finding workers new to the industry, but they need training. Usually, that means matching them with experienced hands, but in the current climate, that's been difficult.

The situation didn't happen overnight, but evolved over time as drilling and well-service contractors scaled back last year in response to the drilling slowdown, laying off workers, including experienced hands. The ramp-down, as industry went from drilling some 23,000 wells a year to a forecast 8,000-to-9,000 wells this year, has impacted both drilling and well-service contractors, according to Mather.

The problem affects, not just the industry's heavy hitters, but smaller contractors like Brazeau Well Servicing, which runs 12 service rigs in the Drayton Valley area.

"A lot of (experienced rig hands) have left the field," said Ron Martens, Brazeau's associate general manager. "They've moved on to other things. They just didn't trust it after last summer."

The sense that those leaving the sector are seeking regular hours -- and a steady paycheque -- is hard to miss. "We know that's the situation in lots of instances," said Brad Kingston of Savanna. "I'd say anywhere from 10% to 15% or 20% of those not willing to come back told us that exactly. They have full-time employment in others sectors that doesn't pay nearly as well, but it's a lot more steady."

Most telling, perhaps, one oilfield service executive recalled a chance-meeting with a former field employee at a store in town recently. After some small talk, the executive told the worker his former job was open, should he want to return. "Never again," the worker said, explaining that, despite its lower pay, the store job offered benefits, not least of which was the chance to spend time with his wife and kids daily.

Although no one is calling it an exodus, the departure of oilfield service workers from the sector concerns some industry executives, who think the trend might not easily be reversed. "People won't come to this industry to work 80 to 100 days in the first quarter," said Mather, who will retire from Nabors Canada this June. "They've gone on to something else and adjusted their lives accordingly."

Not everyone senses a change. The head of one of Alberta's largest drillers notes that every winter brings challenges of one kind or another for contractors needing staff, and this season is no different.

"It's always a challenge manning up for winter, because you're going from maybe 90 rigs to 150," said Kevin Neveu, president and chief executive officer of Precision Drilling Trust, which has some 203 drilling rigs in Western Canada, 135 of which are currently active. This week's 67% utilization rate is up from roughly 24% in the fourth quarter of 2009.

"You're ramping up like crazy, after ramping down the prior spring," said Neveu. "But that's the business we're in, so we don't spend much time complaining about it. I don't think this (year) is any better or worse than any other hard ramp-up for winter."

For its part, Trican Well Service Ltd. is actively hiring and has been since September, according to Dale Dusterhoft, chief executive officer, who was candid when asked if his recruiters have had trouble getting crews.

"We have to work really hard at it, and you don't get them right away, but if you keep at it, you do," he said. Notwithstanding that challenge, he said business has been good.

"Activity in (the first) quarter is very high for us, across Western Canada. Saskatchewan is very busy, driven by the Bakken oil play. There's also significant increased activity through the Cardium, Viking, and Shaunavon oil plays in central Alberta and central Saskatchewan. Looked at year-over-year, there's a significant increase in that part of the business."

In particular, the pace of fracturing -- the company's busiest service line -- has been brisk. "If you looked at the basin overall, we're in a situation where we're going to drill less wells, but fracture them a lot more. Cementing is also related to the number of wells drilled, so that service line is busy, but not as busy as fracturing."

At Ensign Energy Services Inc., the labour market was also noticed. "We're finding that crews are tapped out," said Bob Geddes, Ensign president and chief operating officer. "The industry is quite at its max currently, and hanging on until spring break-up." According to DOB records, 68% of Ensign's 69 drilling rigs were active yesterday.

Geddes said the drilling market has been quite strong through the winter. "A little stronger than expected, frankly. It looks like we'll be quite busy until the thaw comes."

As for this summer, he expects a busy market, with signs of activity in most depth ranges. Yet, he anticipates shallow drilling will have a tough market this summer.

Further afield, things other than competing job opportunities hindered some contractors from finding rig crews. Asked if he'd had trouble finding experienced workers, the manager of Essential Energy Services Trust's Slave Lake service rig operations was blunt. "Yes," said Greg Kubel, noting some older job applicants never made it through the company's drug screening.

"We went with the (new) guys, because we had enough experienced people. There were young guys that could pass the (drug) test. The biggest thing is getting them to pass that, and it's not for marijuana. It's the harder stuff," he said. Formerly Classic Well Servicing, the company runs 10 service rigs in the Slave Lake area.

Optimism in the drilling sector is hard to come by despite the unexpected amount of activity this winter. While drillers are always concerned about the period after break-up, this year's outlook appears especially dim. "It's going to be a bloodbath," said Nabors' Mather. "There's nothing that will happen in the second quarter (and) no price structure for the main commodity -- gas -- that we're drilling for right now."

Earlier this year, the Petroleum Services Association of Canada (PSAC) raised the number of wells it forecasts will be drilled in Western Canada this year to 9,000 from about 8,000. The extra holes will probably be drilled in the fourth quarter, said Mather, given the industry's typically slow pace entering the third quarter.

"We're late in the second before the road ban comes off. ... (and) I don't think there's much to look forward to until the late third or early fourth quarter, beyond 30-to-40% utilization, if that."

Among the industry's suppliers, there is somewhat more hope. Comparing the current winter season to last year's, Allan Cheng, president of Cantak Corporation, said sales of production tubing, well casing and line pipe were up roughly 20%, although he said an overhang of inventory still exists.

"We're seeing a lot more activity in B.C. and Alberta, and -- the Cardium play -- seems to be fairly hot. We're starting to see people doing more drilling in that play," he said. At the same time, there is concern about what will happen after break-up: that a weak spring may be followed by a weak summer.

"It may take until the late fall before it starts to improve again," he said.