CALGARY — One of Canada's biggest drilling companies will cut its dividend and further reduce spending as a deep downturn in North American oil and gas exploration continues to weigh on the oilfield services sector.
Calgary-based Ensign Energy Services Inc. said Monday it will stop its quarterly payment of six cents per share and trim another $10 million from 2020 capital spending due to the COVID-19 pandemic and the plunge in oil prices that has dried up demand for its services.
In March, the company cut its capital spending plan for 2020 to $60 million compared with an original plan for $100 million, while also shrinking the pay of its top executives in a move to reduce costs.
"I've always said that drilling companies were built for cycles, but I had not in my wildest dreams imagined this stacking of macro events would occur all at once," said Bob Geddes on a call to discuss first-quarter results.
"Nonetheless, it is reality, we adjust and we figure it out."
Ensign reported a loss of $29.3 million in the three months ended March 31, compared with a loss of $22.2 million in the year-earlier period.
Revenue fell to $384 million, compared with $445 million, thanks mainly to a 23 per cent drop in operating days in the United States, which typically accounts for about 60 per cent of the company's earnings.
Operating days in Canada were up one per cent from the first quarter of 2019 and Ensign's international branch, which includes operations in Australia, South America and the Middle East, was up eight per cent.
Geddes said the company hopes to put about 10 of its service rigs to work this summer by winning contracts under the federal government's recently announced $1.7-billion fund to clean up inactive and orphaned oil and gas wells in Alberta, Saskatchewan and British Columbia.
Service rigs are much smaller and more mobile than drilling rigs.
Ensign said it will continue to reduce general and administrative expenses, largely by compensation reductions across the organization effective April 1, while also implementing more cost controls.
Drilling activity is expected to drop by 40 per cent in North America in the second quarter compared with the first, said AltaCorp Capital in a report based on earnings reports to date from U.S. drillers Patterson-UTI Energy Inc., Helmerich & Payne Inc. and Nabors Drilling Ltd., as well as Canadian drillers Precision Drilling Corp. and Akita Drilling Ltd.
Upstream spending by exploration and production companies in the United States this year is expected to be down about 50 per cent compared with last year, adds the report.
Meanwhile, more than 7,700 oil and gas sector jobs were lost in April compared with March, reports the PetroLMI Division of Energy Safety Canada, in an analysis of Statistics Canada's labour survey released Friday.
The report says the industry employed 169,620 workers in April, down just over 4.3 per cent from March — oilfield services were the most impacted with an employment loss of 6,500 jobs or 8.6 per cent.
Canada's oil and gas employment is down 12.8 per cent from 194,500 jobs in April 2019, the report added.
Two weeks ago, Precision Drilling CEO Kevin Neveu reported the Calgary-based company has nearly 3,000 fewer employees now than at the same time last year, with 1,800 fewer employees in the United States and 1,000 in Canada.
Drilling is an industry where workers are frequently laid off for seasonal and cyclical reasons, but Neveu said this downturn is worse than most.
The Petroleum Services Association of Canada recently revised its 2020 Canadian drilling forecast to 3,100 oil and gas wells, a level not seen since 2,900 wells were drilled in 1972.
This report by The Canadian Press was first published May 11, 2020.
Companies in this story: (TSX:ESI, TSX:PD)
Dan Healing, The Canadian Press