Trump's tariffs threaten Canada's oil and natural gas drillers
Canada's oilfield services and drilling sector has already begun to show signs of slowing down due to the threatened tariffs by U.S. president Donald Trump. This has sparked fears that a rebound in this industry could be halted if these levies are implemented.
The Canadian drilling industry lost thousands of jobs between 2014 and 2020 as a result of low oil prices, and the COVID-19 pandemic. Industry representatives say that activity has increased since 2020. However, Trump's threat of imposing a 10% tariff for the 4 million barrels a day (bpd), or Canadian crude imported to the U.S., could change this.
Oilfield service companies often suffer the most when oil market volatility occurs, as oil producers delay or postpone spending.
Precision Drilling, Canada's largest drilling rig operator, saw a steeper-than-expected slowdown in its Canadian well servicing segment in the fourth quarter of 2024.
Kevin Neveu, CEO of the company, said in a recent conference call that tariff uncertainty had slowed customer decisions.
In a report published by TD Cowen in February, it was predicted that Canadian oil producers would "err to the conservative side" because of uncertainty surrounding tariffs. As a result of this, analysts at the bank have reduced their forecast for 2025 Canadian oil rig counts by around 5%. They now expect an average of 175 active rigs instead of 185.
TD Cowen has also reduced its recommendation on two Canadian drilling stocks, Precision Drilling (previously Ensign Energy Services) and Ensign Energy Services (previously Ensign Energy Services), from "buy" down to "hold".
Mark Scholz (President of the Canadian Association of Energy Contractors, CAOEC) said in an interview that he knew the anxiety levels were rising. "Any reduction in investment will have an immediate, and very rapid effect on our industry."
Scholz stressed that the slowdown so far was small and only involved "a handful" rigs. He said it was due to the uncertainty in the Canadian oil industry regarding the timing, duration, and market impact of tariffs.
Dane Gregoris of Enverus Intelligence warned that while a 10% tax on Canadian oil will not affect most oil producers plans immediately, it could have a negative impact in the near future, especially for smaller companies.
The budgets of many oil companies are already set and publicized. He said that they might be at the lower end of their forecast ranges but I cannot imagine major changes in capital budgets.
Gurpreet lail, president Enserva, stated that there are still other concerns among the producers. These include the possibility of retaliatory duties by Canada which would increase the prices of drilling rigs imported from the U.S. and inputs.
The Canadian government, for instance, has included sand in its list of counter-tariffs. The oil and gas industry uses a lot of sand in the hydraulic fracture, or fracking process.
Lail said that if tariffs are implemented, they will most likely result in job losses for a sector which has yet to recover from where it was 10 years ago. The total employment of the Canadian drilling industry was about half that in 2014.
The CAOEC's forecast for November 2024 had predicted that 2025 would be the year when employment levels in the sector would reach their highest in ten-years. But Lail says this is no longer certain.
She said, "We thought that we finally saw a light at the end here and people were returning to work." "But this is bad news." (Reporting and editing by Liz Hampton, Marguerita Choy, and Amanda Stephenson)
(source: Reuters)
