Oilweek - March 2008

conventional Canadian basin, which includes the U.S., international, and the oilsands,” says Freel. “One might wonder what advantage Canadian companies would have in a global market if the Canadian dollar remains high, but I know a number of companies who are having success outside of the Canadian market, either because of the uniqueness of their products or because they can still remain competitive.”

He says the oilfield outside of Canada is booming and many U.S. manufacturers are operating at capacity, which he figures allows Canadian companies to pick up some of the slack.

“The global consolidation in certain areas of the oilfield manufacturing industry also create opportunities for independent Canadian companies.”

Most companies, analysts, and market watchers agree that isolating the effect of higher royalties on the downturn is a tough order. “It’s really difficult to say what part of the slowdown is due to the [royalty changes], what part is due to the dollar, what part is due to the economic slowdown,” says Brett Gartner, senior economist at the Canada West Foundation.

Although his organization hasn’t done a study specifically of the oilfield manufacturing sector, he says more time is needed to see what the long-term effect of the royalty changes will be.

Roger Soucy, president of the Petroleum Services Association of Canada, takes a similar view.

“I think it’s still in the process of working its way through, and to a large degree we’ll probably be saying that for much of 2008,” he says.

“The oilfield service sector
saw its fortunes decline long
before the royalty review of
September 2007.”

— Douglas Freel, vice-president, ARC Financial

That’s because some companies that may be expediting drilling this year to take advantage of the existing royalty regime will disappear when the new royalties come into play in 2009. “However, there are some circumstances where it will be better to wait to put production online subsequent to 2009 when it will be more advantageous under the new regime,” he says.

Another reason for the added time needed to work through the royalty impact, says Soucy, is that wording is still to be defined as to what’s in and what’s not, “so we’ve probably got another month or two of that happening before those things get settled to the point to know what’s going to happen.”

So he feels it’s still very much a work in progress. He doesn’t see any real trends towards work drifting out of province specifically due to the royalty regime.

“Something that’s interesting is there are a thousand wells that were supposedly drilled in the fourth quarter of 2007 in the southeast area of the province,” he says. “That represents a 50 per cent increase over what was drilled all year. I’m in the process now of finding out, are those numbers accurate and if so, why? And whether that has to do with the royalty review or some other reason, and if it is to continue into 2008.”