Low prices are hurting the oil sector, but Canada has a few advantages

Persistently low oil prices are putting a spotlight on spending cuts and layoffs in the Canadian oilpatch, as companies release details of their latest financial performance.

The North American benchmark price for a barrel of crude has fallen from around $70 US per barrel at the outset of the year to less than $60 US this week. 

Persistently low prices have largely been driven by a move from the Organization of Petroleum Exporting Countries (OPEC) and its allies to start releasing more oil, driving up the global supply and reversing production cuts that had helped lift prices.

Crude oil is Canada’s largest export and any hit to the price means less revenue for the economy, especially for Alberta.

But Canadian companies are buoyed by certain advantages, especially compared to their U.S. counterparts, analysts say. 

In the last decade, many companies here have gone out of business or been scooped up by larger players — leaving a handful of bigger companies that are both less vulnerable to market fluctuations and are narrowly focused on keeping costs low while returning money to shareholders.

“The companies that have survived here are the companies that have been able to adapt,” said Patrick O’Rourke, the Calgary-based managing director of institutional equity research at ATB Capital Markets.

“It’s effectively Darwinism, in a sense.”

Still, companies on both sides of the border have made cuts. 

Earlier this fall, Calgary-based Imperial Oil announced it planned to eliminate about 20 per cent of its workforce, or around 900 jobs, in the coming years. Likewise, U.S.-based ConocoPhillips said it would cut some of its Canadian employees beginning in November.

The layoffs come as companies attempt to shore up their balance sheets in the event of a greater price "collapse,” said oil market analyst Rory Johnston. 

“They want to make sure that they are as prepared as possible,” said Johnston, author of the Commodity Context newsletter. 

Companies like Calgary-based Whitecap Resources are tightening their budgets or keeping them flat. While those that have taken the unusual step of raising their spending plans amid the lower price environment, like the U.S.-based Matador Resources, have seen their stock prices fall, says O’Rourke.

He expects that means more penny-pinching to come.