Oil and gas collapse leaves drilling companies on life-support

Dan Hoffarth has made a living in Alberta's oilpatch for 20 years, and things are as dark now as he can ever remember.

After starting out as a roughneck in the 1990s, Hoffarth worked his way through the drilling rig positions to become CEO of Citadel Drilling.

• Sinking oil prices: Winners and losers
• Seeking a political scapegoat for plunging oil: Don Pittis
• 4 oil forecasters point which way prices will go

"It's grave," he said. "We're at a point right now where pretty much every company out there is either at cost or a below-cost environment internally. It's detrimental to the survival of most businesses in the long term."

Citadel hasn't laid off any workers, yet. But Barbara Engelbart McKenzie, executive director of the Leduc-Nisku Economic Development Association, estimates that 7,000 to8,000 jobs have been lost in just this one small part of Alberta.

With oil now hovering around $30 US a barrel, it's tough for companies that drill for oil and gas to make any profit, Hoffarth said.

Citadel, which has a head office in Calgary and an operations centre in Nisku, just outside Edmonton, builds and operates drilling rigs. It has five in operation. The challenge now will be to find work for the sixth rig, almost completed, which took eight months to build and cost about $20 million.

"There's just not any opportunities to find work for the rigs right now," Hoffarth said.

Wage rollbacks

With a fleet of rigs he calls modern and technically advanced, until now he has been able to avoid layoffs, but can't rule that out as oil prices continue to plummet.

Citadel has made other adjustments to try to stay competitive.

"We've had to try to cut costs as great as possible," Hoffarth said. "We have suspended the build program, we've implemented wage rollbacks. Those adjustments hurt the company's futures, and they hurt the people."

That $30 US a barrel is the West Texas Intermediate crude price. The price most of the operators in Canada get is even lower, at around $15 to $20 a barrel.

Those meagre returns have had a huge impact throughout Nisku. Only 18 months ago, when oil was over $100 a barrel, there was a lot more drilling in Alberta.

Machine shops in the area that rely on making and repairing parts for the oilfieldare finding it tough as well.

"When the oil companies aren't working, they're not sending stuff here for us to work on," said Cory Priebe, machine co-ordinator at Hi Quality machine and oilfield repair in Nisku. "So, they're backed off and we're slowed right down."

With work from the oilpatch down 80 per cent, Hi Quality laid off half its workforce, dropping to six from 12. The company is now diversifying, custom-making parts for other industries to try to keep busy.

"Things like shaving motorcycle heads, building mounts for rifles," Priebe said. "I've built parts for quads and rims. Ski-Doo parts and power motor sports, stuff like that. People will always have entertainment."

Half of workforce in Niskulaid off

While Hi Quality is confident it can ride out the situation, many other businesses have already gone under in Nisku.

"It's very serious," said Barbara Engelbart McKenzie, executive director of the Leduc-Nisku Economic Development Association. "We've seen a significant amount of layoffs, we've probably seen about half of the workforce in the area being laid off in the last just over a year and a half."

Those 7,000 to 8,000 lost oilpatch jobs have created a ripple effect within other sectors of the economy, such as the hotel industry, which is also taking a beating in the region.

"That industry was based around the business travellers and business events, so there's definitely a serious impact there," said Engelbart McKenzie. "And there'll also be a direct impact on the retail and hospitality industry as well."

Over at Citadel Drilling, Hoffarth said even if the price of oil starts to rebound, it could still be too late for some companies.

"It's like having a last tank of gas," he said. "It all depends on how big it is and how fuel-efficient your engine is at this point, if you're going to make it or not. We're all on that last tank right now."

gareth.hampshire@cbc.ca

@cbcgareth