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Almost no one has spent money on capital equipment: PSAC

Calgary – Very few oilfield service companies are spending money on new equipment, according to Mark Salkeld, president and CEO of the Petroleum Services Association of Canada (PSAC). He spoke to Pipeline News via phone on Sept. 14.
Mark Salkeld
Mark Salkeld

Calgary – Very few oilfield service companies are spending money on new equipment, according to Mark Salkeld, president and CEO of the Petroleum Services Association of Canada (PSAC). He spoke to Pipeline Newsvia phone on Sept. 14.

“It’s a different environment we’re in. We’re trying to make everything squeeze, as we’re squeezing everything we possibly can out of everything we’ve got, to try get through to a point where we can actually start spending some money again. It’s definitely tough times,” he said.

“We’re still losing equipment,” he said, noting a recent Ritchie Brothers auction at Fox Creek Alberta was full of equipment again. “Stuff is still leaving. I talked to our members, and they’re getting contracts, for work on fracs and completions and such. Customers are saying they want such and such a spread, and they’re saying, ‘No, if we do, that means bringing equipment off the fence and recertification and hiring people and that costs money.’

“Customers aren’t giving up the rates, so they’re saying, ‘Fine, then that’s not what we can do.’”

Others have bid jobs at cost or below cost, and the equipment broke down on the road, and the oil company ended up seeking the second bidder because the first couldn’t even make it to the job.

“It that case, they’re paying the rates.

“We’re working, but we’re not making any money.

Asked if PSAC member have been spending money on capital equipment over the last three years, Salkeld replied, “Pretty much, almost no one. The only one’s you’re seeing spending anything are your Precision Drilling. They’re investing in software and updating their rigs for other applications. The bigger, established players are spending money, but even at that, you see in interviews they’re saying, ‘It’s better than last year, we’re not losing as much money.’”

“Very few people are investing, from the PSAC perspective. That’s northern B.C., Alberta, Saskatchewan and Manitoba. You’re seeing a little bit of new iron come out here and there, for long-return, as-built-type equipment for large contracts, but those are few and far between,” he said.

Salkeld used to work in procurement in 2007-09. He recalled a big order to build new coil tubing rigs. Pumps and engines went through the roof in price. “What you’ll see is a replication of that. The prices pick up a little bit, we’ll see demand grow, we’ll see the customers willing to give up some rates, and then you’ll see our members start to invest in equipment. And then the prices will go up again, the cost of equipment and everything else. The whole supply-demand cycle.”

He added PSAC members may be hurting, but they’re not going to put out equipment on a job unless it’s good to go.

He doesn’t think the industry can go much longer without investing in equipment. Mergers are one of the results.

“We’re getting to the point, I would say, in a year, where if things don’t turn around … we’ll have fewer service companies, but bigger. They’ll have picked through the remnants of what’s left and rebuild.

“The oilpatch won’t shut down for lack of equipment. It’s going to be the bigger players, who can afford to spend, and get the rates they want,” Salkeld said.

“The way we’re working equipment now, it can’t go much longer without reinvesting, to a certain degree.”

With interest rates going up, lending from banks is in question. But he said there’s money out there, Canadian, U.S. and foreign money watching for places to invest. “That money’s going to go to a very select few, superior management teams,” he said.

“The banks have been burnt. The service companies have been burnt. The only ones making money over the last three years has been Ritchie Brothers.”