Fuelling a recovery '2018 was a pretty good year' for Manitoba's slumping oil sector
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Hey there, time traveller!
This article was published 11/01/2019 (1488 days ago), so information in it may no longer be current.
Manitoba’s oil sector showed signs of recovery in 2018 by topping $1 billion in oil sales for the first time in four years.
But a swan dive in prices since November signals the industry isn’t likely to climb out of its prolonged slump yet in 2019.
In 2018, oil well licenses in Manitoba rose to 290, up from the dismal 126 of two years ago. The industry enjoyed similar increases in oil wells drilled with 276 versus 81 in 2016.
“The trends show 2018 has been a pretty good year,” said an engineer with the Manitoba Growth, Enterprise and Trade.
The biggest factor was an improved average price of $441.27 per cubic metre, versus $390 last year but still far off the $585 price in 2014, according to department figures.
The province sopped up $12 million in royalties, a big improvement from the $5 million of two years ago, while private property owners holding mineral rights raked in $8.9 million.
However, prices since November “have fallen off the face of the Earth,” the provincial engineer said. The average price fell from US $71 per barrel in July to $57 per barrel for November, and continued to slide in December. That’s seen pump prices in Winnipeg fall in the range of 85-90 cents per litre.
The price pressure comes from oversupply. Oil-producing countries increased output in anticipation of the U.S. imposing sanctions on Iranian oil but the sanctions turned out to be just a bluff. As well, the U.S. is producing record amounts of oil.
Production cutbacks started Jan. 1 by oil producers like OPEC and Alberta but will take time to have an impact.
“I wouldn’t say we’re in boom mode but there’s still some activity and it’s reasonably positive.” – Garth Mitchell, chief administrator for the RM of Wallace-Woodworth
Based on the current price outlook, the industry predicts oil activity won’t hold its gains from 2018. The Petroleum Service Alliance of Canada expects at least a five per cent drop in oil drilling activity in Western Canada this year.
While small compared to Alberta and Saskatchewan, Manitoba’s sector still accounts for 2-3 per cent of the province’s Gross Domestic Product. “It’s not insignificant,” the provincial engineer said.
That includes employing more than 700 people, royalties to the province and landowners, municipal taxes that work out to almost four times government royalties, and annual investment like the nearly $400 million the oil sector spent in Manitoba in 2017. Drilling a new well isn’t cheap at a cost of about $2 million apiece.
Municipalities in the oil patch are relatively upbeat.
“I wouldn’t say we’re in boom mode but there’s still some activity and it’s reasonably positive,” said Garth Mitchell, chief administrator for the RM of Wallace-Woodworth that surrounds Virden in Western Manitoba.
There are reports out of Alberta and Saskatchewan that oil companies have fallen behind in paying municipal taxes and some companies with tax arrears have gone bankrupt due to a longer-than-expected downturn in oil prices. Municipalities there complain they are being left with tax shortfalls.
That hasn’t been the case in Manitoba, local governments say.
“We are pretty fortunate with most of the oil field owned by Tundra or other companies that are extremely stable,” said Reeve Debbie McMechan. Two Borders is in the very southwest corner of the province.
Tundra Oil and Gas, owned by Winnipeg’s James Richardson and Sons Ltd., accounts for two-thirds of the oil wells in Manitoba. It employs more than half the 700 or so people in Manitoba’s oil sector. Tundra produces about 30,000 barrels of light crude oil per day.
McMechan said the municipality is not seeing much change in tax revenues despite the oil sector’s slump. Municipal taxes are not based on oil prices. “We’ve had a lot of well abandonment but we’ve also been lucky in getting new development,” she said.
Neither is its neighbour the RM of Pipestone seeing revenue shortfalls due to delinquent oil companies, said its chief administrator, Michele Hall. There are about 10 oil companies working in the municipality.
“We’re not seeing any more than normal,” Hall said. Bankruptcies are even rarer. “A lot of times what happens is the smaller player gets swallowed up by larger players,” she said.
Employment from the oil sector is down a bit, she said, but housing is more affordable.
“During the oil boom, you couldn’t buy a house and now there are some choices. Rent has probably stabilized, too,” Hall said.
While Manitoba’s oil revenues topped $1 billion, it’s still well off the peak value of $1.76 billion set in 2013.