Oil companies with N.L. links foresee 'extremely challenging' times ahead
Spokesman for Technip Canada expects slowdown to continue until at least 2018
A gathering of business leaders in St. John's has offered a glimpse into how companies servicing the oil and gas industry are coping with a serious slump in prices.
Companies are sharing work throughout offices around the world in order to avoid large-scale layoffs, and offering incentives to those who suggest ideas that result in cost-savings.
What's more, oil companies are demanding lower prices from contractors and suppliers, and companies are being forced to "take out the gold plating" in order to cut costs and make projects viable.
It's a consequence of a plunge in oil prices that began last summer, and shows no signs of letting up for several more years, according to most analysts.
Officials from two massive global companies with operations in Newfoundland and Labrador described the situation during speeches at an event hosted by the Atlantic Provinces Economic Council, or APEC.
The companies include Technip Canada and Wood Group PSN, who have a combined workforce of roughly 435 in this province.
Revenues cuts in half in St. John's
Jason Muise, managing director of Technip Canada, said revenue at the company's St. John's office has dropped by about 50 per cent, "if not more," when compared to the past three years.
He said the next several years will be "extremely challenging" because the company relies so heavily on capital projects.
In an effort to avoid layoffs, Technip employees in St. John's are now working on international projects, and some employees have been dispatched to offices around the world in order to get more experience.
"This is what enables us to effectively stay alive at our current heat count," Muise said.
"Historically, that work has been there, but it's increasingly difficult and more competitive to bring that work into St. John's."
It's increasingly difficult and more competitive to bring that work into St. John's.- Jason Muise, Technip Canada
From a global perspective, Muise said Technip has a "record backlog" of about $20-billion worth of projects, but the situation gets uncertain as the calendar moves to late 2016 and beyond.
"What's worrying is that the amount of tenders we're starting to see now is really starting to decrease on a worldwide basis," Muise said.
Between them, Technip and Wood Group employ nearly 80,000 people worldwide, and have been around long enough to understand the cyclical and volatile nature of the oil industry.
So far this year, capital spending on oil projects around the world is down by 17 per cent. The situation in Western Canada is even more troubling, with spending down by 33 per cent, said Paul Broaders of Wood Group PSN.
Major projects are being put on hold or cancelled, both globally and locally, and companies are focusing more on profitable operations, Broaders explained.
"Low profitability and end-of-life assets are coming under scrutiny," he said.
Work sharing helping prevent layoffs in Newfoundland
Broaders said his company is looking for efficiencies in areas such as operations, people and performance.
The company believes it will help it weather the current storm, and be better situated when the industry rebounds.
One of the strategies is called "work share," with work being transferred to support offices like St. John's, where the lower Canadian dollar is making the Newfoundland office more attractive.
"It's been a real help to bridge the gap until the market recovers and allows us to retain our complement of 300 people in the office," Broaders said.
In the long-term, industry players are pinning their hopes on deepwater projects off Canada's east coast, in places such as the Flemish Pass and off Nova Scotia, said Muise.
"We see great potential," he added.