B.C. contractors feel the pinch from oil price crash

The owner of a shop in Fort St. John is upset after he was asked by cash-strapped oil companies to cut costs.

The proprietor did not want to be named, fearing reprisal from the producers, and asked to be called John Smith.

Smith showed Alaska Highway News letters he'd received from Calgary and Houston-based producers and service companies.

One requested that he reduce costs “in the magnitude of double digits from 2014 rates."

“With the price of oil dropping by over 40 per cent in the last six months, we expect a challenging environment for the foreseeable future,” wrote an American company from their office in Calgary.

After oil prices lost more than half their value over the past eight months, suppliers in the Peace Region have been asked to share the financial burden with the larger companies they do business with.

Suppliers are being squeezed, and that's trickling down into other sectors of the economy.

Smith doesn't like it, and called the tactic "bullying."

In another letter to Smith, a Houston-based integrated project management company noted "current market trends and the associated revenue reduction for our clients” before  requesting "an immediate and significant rollback of pricing with a continued commitment to adjustment should the market dictate.”

Another letter to Smith, a company said they'd “revisit this based on market conditions to determine if this temporary rate adjustment should continue and if so in what manner.”

Smith won't budge. He said his company has fixed costs that aren’t flexible. He’s trimming advertising costs, but with other added expenses, he's pretty much breaking even.

“We see both sides of the story, and we understand their pain,” he said, but added that isn’t how he treats his suppliers, and didn’t think it was fair to be treated that way himself. “We’re not passing that down, because we respect their good service,” he said.

Although collapsing oil prices haven't been reflected in macroeconomic data for Northeast B.C., they're starting to have an impact on businesses across the board.

Energetic Services President and CEO Brennan Ross said he's scaling back operations significantly.

He doesn’t blame producers.

“We’re at the mercy of both the demand of our clients and the competition that’s here,” he said. “There’s so much competition and so little work that it has a downward pressure on the rates, and the customers – the oil and gas companies – are aware of this supply and demand disparity and it’s a good time for them to reduce their costs.”

For Ross, it's simply a matter of economics.

“This is a very cyclical business, it goes up and down, and the advantage passes back and forth from the supplier to the producer depending on the economic reality of the day.”

Alberta has been hit hard by oil's downturn, but Northeastern B.C.'s labour force  has been insulated from trauma — in a relative manner. That's because while oil has tanked, natural gas prices have largely stayed the same over the same time period. And natural gas is the name of the game in B.C.

Northeastern B.C. is still at what economists term full employment, which means almost everyone who wants a job can get one.

But cracks are starting to show.

Ross has no plans for layoffs now, but going forward a lot that depends entirely on the severity and duration of the downturn.

Not so for Art Jarvis, owner of FloRite Environmental Services. In the past few months, he’s had to let four of his 10 employees go. That frustrated him as a business owner. After a decade of carefully building up a team, many of those workers will leave the oil and gas sector entirely.

“They can’t jump parallel or laterally and go work for my competition, because they don’t have work either,” Jarvis said. “They just get right out of the industry.”

Jarvis said that will make it harder to maintain a knowledgeable, experienced staff after oil rebounds and producers turn the tap back on.

Although Jarvis hasn’t reduced wages, he said some shops have tightened their belts with 10 per cent wage cuts.

Jarvis is also the executive director of Energy Services BC, a nonprofit group that lobbies on behalf of oil and gas contractors and service firms in the Northeast.

He said letters like the ones sent to Smith come across his desk with every bust in the boom-and-bust oil cycle, but this time is different.

“Usually service companies can get through the first quarter: January, February, March,” he said. “The ground is frozen, they can work anywhere, do anything, so they like to get as much work done as they possibly can because you can get to wells that you can’t get to in the spring, summer, or fall. This is the first time that I’ve seen the projects cut off and the letters go out this early.”

He's seen anecdotal evidence to suggest that this downturn will be worse than previous ones.

“I’ve talked to a lot of different businesses and it’s impacted everyone from the shoe store to the sandwich [shop].”

Jarvis said that he wished the province had moved faster on coming up with LNG tax rates to encourage faster growth in that sector. “We’re close, but every year that we take we’re getting further behind and lessening the opportunity to make bigger net dollars on this product.

"Every year there are other countries getting in the game as well.”

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