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Oil-industry slowdown in Manitoba

Falling prices lead to fewer Man. wells, more cancelled licences

Manitoba Mineral Resources is predicting 250 oil wells will be drilled in Manitoba this year, down 54 per cent from 2014.


Manitoba Mineral Resources is predicting 250 oil wells will be drilled in Manitoba this year, down 54 per cent from 2014.

Hey there, time traveller!
This article was published 25/7/2015 (1708 days ago), so information in it may no longer be current.

Oil-industry malaise has spilled into southwestern Manitoba, where drilling activity has plummeted, fewer players are on the ground and the number of cancelled licences has skyrocketed.

Manitoba's modest oilpatch, which grew rapidly in recent years, is retracting almost as dramatically, thanks to the significant plunge in oil prices severely impacting Alberta's oilsands and cooling off drilling activity in Saskatchewan and North Dakota.

Manitoba Mineral Resources predicts 250 wells, most of them horizontal, will be drilled in the province this year.

That's down 54 per cent from 2014, when 464 wells were drilled in oil plays near Waskada, Pierson, Cromer, Virden, Birtle and other southwestern Manitoba communities.

As recently as December, 350 new wells were expected by the province this year. The optimism was due to the relatively cheap cost of horizontal drilling and hydraulic fracturing in southwestern Manitoba, where Bakken-formation and Three Forks oil deposits lie closer to the surface than they do in North Dakota and Saskatchewan.

But as 2015 wore on, the province revised its forecasts down, first to 280 wells for the year and now to the current 250 prediction.

"There is a slowdown. The numbers definitely point to that," said Keith Lowdon, director of the petroleum branch within Manitoba Mineral Resources. "When you compare what you think was going to happen to what is happening, we're down."

Oil companies are not only drilling fewer wells in Manitoba. So far this year, they've cancelled 135 drilling licences, up from 26 cancellations in all of 2014.

Lowdon said some firms may be holding off due to cash-flow issues while others may be waiting for higher oil prices to return. The price of a barrel of crude is down by roughly one-third since last summer.

"That could change tomorrow or this afternoon," Lowdon said. "When prices were up, nobody knew how long it was going to last. Companies are waiting."

There are also fewer oil companies active in Manitoba. The largest player in the province remains Winnipeg's Tundra Oil & Gas, which grew early this year by snapping up Waskada-play assets that belonged to EOG Resources after the firm stopped drilling in the area late in 2014.

Tundra is said to be in the process of purchasing the Waskada assets of a second firm, Penn West. The paperwork has yet to be processed, but employees have been notified, Lowdon said.

Officials at Tundra, which is privately-held, could not be reached for comment.

As a result of Manitoba's oil-industry contraction and concentration of ownership, the sector's labour force is believed to be down from the most recent estimate of 5,500 workers. Lowdon said while he does not have a current oil-industry labour-force estimate, it's reasonable to assume numbers are down.

This presumed labour-force decline, however, pales dramatically in comparison to the projected job losses of up to 185,000 workers in Alberta, where more-expensive oilsands operations have been devastated by lower prices.

Manitoba's oil sector is just one piece of this province's economic pie.

"If you look at the Manitoba economy, although the (oil) industry is definitely impacted, it doesn't impact us as much overall, because we're more diverse," Lowdon said.

Direct revenues from oil production have not dropped dramatically. Provincial production taxes are down only slightly, to $1.7 million during the first quarter of the 2015-16 fiscal year from $2 million during the first quarter of the previous year.

Petroleum royalties and fees, meanwhile, actually rose to $2.8 million during the first quarter of the current fiscal year, up from $2.3 million during the first quarter of the 2014-15. But this figure is skewed by a $700,000 land sale that took place this May, according to the province.

The indirect result of Manitoba's oil slowdown is more dramatic. In 2013, the town of Waskada raked in roughly $600,000 from a mineral-rights bequest. This year, the newly merged Municipality of Brenda-Waskada expects to take in only $60,000 from mineral rights, head of council Gary Williams said.

More significantly, entrepreneurs who purchased the town's hotel during the recent oil boom have shuttered the business, depriving Waskada of a full-service restaurant and gathering place, Williams said.

"We understand what happens with oil. We've been through it before," he said, referring to a previous boom-and-bust cycle in the 1980s.

"You dump a lot of strange people in your area. It's interesting. It's an opportunity for some people to make a lot of money, go back to where they live and spend it there."

Williams said the strength of southwestern Manitoba's agricultural economy — which expects to reap the benefits of excellent crop yields this year — balances out the oil slowdown.

"It's amazing, because we've always been part of the (semi-arid) Palliser Triangle. But we've been catching showers," Williams said.


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Updated on Saturday, July 25, 2015 at 9:53 AM CDT: Tweaks subhead

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