December 10, 2008
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Canadian Oil Firms Maintain Staffing Levels

By Scott Haggett - Reuters

Global economic turmoil and skidding oil prices have yet to cause Canadian oil companies to resort to large-scale job cuts but harder measures will be coming if the industry's prospects don't improve.

They are struggling with low oil and natural gas prices and stubbornly high costs for big projects, but Canada's big oil producers and oil sands developers have so far shied away from cutting staff.

Some are expecting oil prices, which have fallen more than $100 a barrel from the record peak in July, to recover. Others are leery of pushing skilled, seasoned employees out the door.

The job picture is more fragile at the small producers that depend on capital markets and bank credit lines to raise money for drilling and expansion.

"Most of the big companies are trying to hold on to their people," said Greg Stringham, vice-president, markets and fiscal policy, at industry lobby group Canadian Association of Petroleum Producers. "It's the ones around the edges that are beginning to feel the heat."

Canada lost 70,600 jobs last month and the national unemployment rate rose to 6.3 percent from 6.2 percent in October. But most of the cuts were borne by manufacturing workers in Ontario, home to most of the country's auto industry, which has been devastated by the U.S. economic slowdown.

The November unemployment rate in Alberta, the heartland of the Canadian energy industry, fell just 0.3 percentage points to 3.4 percent, according to Statistics Canada.

To be sure, a Manpower Inc study on first quarter 2009, hiring intentions in Calgary, home to nearly all of Canada's oil and gas producers, found 73 percent of the city's employers planned to keep staffing at current levels, 18 percent planned to add staff, 2 percent were unsure of their hiring intentions, and only 7 percent said they planned to cut jobs.

"The story we are seeing is that most employers are expecting to maintain their current staffing levels," said Randy Upright, Manpower's chief executive for the Alberta region. "I think our clients are taking a wait and see attitude."

The economic downturn has so far resulted in only one big round of job reductions in Alberta. Last week 400 shop-floor employees of Atco Ltd's unit were given layoff notices when the company lost a contract to build a work camp for Petro-Canada's Fort Hills oil sands project.

Petro-Canada last month delayed going ahead with the mining portion of the Fort Hills project and deferred construction of an upgrader to process the mine's output as it looked to cut the project's estimated C$21 billion ($16.6 billion) price.

While big companies may be able to afford to wait out bad times, smaller oil exploration companies and the oil service industry may have a harder time.

Smaller producers are facing lean times as they hunt for capital to fund drilling programs. They may be able to survive on cash flows for some time, but need outside funds to replace depleting reserves and grow.

"The equity markets are pretty well eliminated as a source of funds right now," said Gary Leach, executive director of the Small Explorers and Producers Association of Canada. "Internal cash flow from gas and oil production is going to be severely diminished and the banks are likely to be rolling up the welcome mat."

Without adequate financing, Leach said producers will have to make cuts, but they are lean to start with and the effects will be more likely to felt in the services industry as the junior companies slash spending on services such as drilling and consulting work

Roger Soucy, president of the Petroleum Services Association of Canada, which represents 270 energy service companies, said he expects few job losses for member companies in the busy winter drilling season. But if oil and gas prices are still low come spring, oil companies will likely reassess their budgets and cuts will be made.

"That's the real critical time," he said. "If we are still in the grips of this worldwide recession and if commodity prices don't look like they're going to turn around then we will probably see (exploration and production) companies tighten up their budgets ... and we could see some reasonably significant layoffs."



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