Yorkton – It’s hard to miss a drilling rig painted John Deere green.
If you opened up the National Post app on your smartphone in late September or early October, you might have seen a prominent story in the Financial Post section. It was a paid-for story, in other words, an advertisement, something the news business calls an “advertorial.” In this case, the advertorial was paid for by the Saskatchewan Ministry of Economy as part of a series of advertorials promoting Saskatchewan (another piece focused on pipe-maker Evraz).
Posted on Sept. 25, the photo was very distinctive. There was Crescent Point Energy Corp. CEO Scott Saxberg in his red coveralls and white hardhat, with a very distinctive green and yellow drilling rig behind him – Crusader Drilling Rig 2.
Crusader Drilling Rig 2 has been one of Crescent Point’s regular rigs for a few years now, usually drilling within a few miles of Stoughton. So when it came time to do the photo shoot and filming for the Ministry’s ad campaign, it was a good fit.
Don Rae, president of Yorkton-based Crusader, spoke to Pipeline News on Oct. 8 about that and how things are going in the drilling business. Rae has recently been appointed to the board of directors for the Canadian Association of Oilwell Drilling Contractors, or CAODC, as the sole Saskatchewan rep on the drilling rig side.
Crusader has three drilling rigs. Rig 1 had been drilling in Manitoba, but has been racked since it drilled a few wells in August-September. Prior to that, its last well was November 2014.
Rig 2 has been relatively steady with Crescent Point, but it was also shut down briefly this fall when Crescent Point cut its drilling program from 17 rigs to one before resuming again a few weeks later.
Rig 3, since it was built, has worked in Alberta. It was most recently working in the area around Rocky Mountain House last winter and into February. “It hasn’t turned a wheel since,” Rae said.
“Alberta’s grim, with the uncertainty in the political climate out there. It’s a scary scenario.”
Alberta’s change of government has impacted them directly, Rae noted. “I think it’s going to overall benefit Saskatchewan in the long run, but we’re not seeing that effect yet,” he said.
Rae expects the first NDP provincial budget in Alberta, is promised to increase taxes on corporations and higher-income earners, will have an impact.
“I’m happy to be from Saskatchewan, these days,” he said.
Crusader is currently looking to bring Rig 3 to Saskatchewan, where its larger capacities may make it favourable for more demanding holes. “I don’t like the climate out there, and the sooner I can get it out of there, the better,” Rae said of Alberta. “We’ll see.”
However, all told, all three rigs were idle in mid-October. “We’re waiting to move after the long weekend,” Rae said, of Rig 2. “It’s definitely been a slow year. We’ve been fortunate enough, for the most part, since road ban to have one rig running through till September. We’ve been down with everything for a bit, but we’re hoping to close out the year with a few wells for Rig 1, and one for sure, maybe more for Rig 2.”
Asked how a Crusader rig ended up in these government ads, Rae explained, “They did a big film clip on the oilpatch. They chose Crescent Point because of their big footprint in Saskatchewan, and various mining companies. They’re going to put this all together and use it for promoting investment in Saskatchewan worldwide.”
“(Crescent Point) picked one of their rigs, and it happened to be ours. So we were fortunate enough. They filmed for about six hours. Saxberg was there for an hour or more. It was win-win for us, because our rig is going to be shown all over the world. It’s free promo.
“It was quite interesting. They had drones out there, too. They had us tripping pipe in and out of the hole. We were waiting to tear down the rig. They had the drones up at monkeyboard level and all around the rig. I’m anxious to see the finished product.”
The shoot took place in early September. Rae had an opportunity to talk with the Crescent Point CEO for about half an hour.
Turned the corner?
“My overall feeling (regarding) the patch in general is we’ve turned the corner. There’s not going to be any skyrocketing price anytime soon; but I do believe we’re going to start edging up,” Rae said.
He expects U.S. product to drop off like a stone, uncertainty about Russia’s involvement in Syria and OPEC is realizing they can’t make money.
“I don’t think a lot of companies are drilling enough lately to keep production at what it was.”
Asked what he will be taking to the CAODC as a board member now and what the state of the industry is, Rae responded, “There’s a couple factors. Utilization is way down, and day rates are way down. I don’t care how you cut the mustard, you can’t run any leaner than we are. If these day rates stay where they are, if you have any debt at all, you’re maybe breaking even, but probably not. It’s a case of you’ve got to really tighten your belt and toughen it up and get through it.
“We’ll get through it. We’re okay, but depending on your debt ratio, anyone carrying much debt, they’re in trouble.”
Will all the smaller drillers in Saskatchewan be able to survive this downturn?
“Some will, I think, depending on what the rates are. If you’re running at a loss, you can only absorb that so long, too. There comes a time where you’re better off having your rig sitting than wearing it out. I believe it’s going to turn the corner gradually. I can see us up to $60 by spring, maybe. We get up to $55, $65 dollars, and look at the discount on all the services, there’s a case to be made for these companies to do some drilling.”
It’ll be interesting to see what the feeling is among the board of CAODC he said, with his first meeting coming up in mid-October.
“I’m hoping I can bring the voice of all our small producers to the table.”
With less than half of the usual number of drilling rigs working, where have all the employees gone? Rae responded, “Every well creates 100 to 150, probably more, direct and indirect jobs.”
“A lot of them have gone to various jobs, i.e. construction, mines, the upgrader, wherever they can find work. There will be a lot of them that a guy won’t get back. It’s not that uncommon in a cycle. We’ve tried to keep most of our senior guys around in one form or another, whether they’re working motors or whatever they’re doing.”
“It’s been working well for us. We’ve told our guys if you’re roughnecking, you’ve got to pull your share.”
It can happen where everyone thinks they’re still the driller, even if they’re working motors, but that hasn’t been an issue for Crusader.
“It’s tough. What’s really going to be the Achilles’ heel is that if this patch does turnaround fairly quickly, all of a sudden everyone starts ramping up, there’s not going to be any people for any of the various services, including rigs. There’s going to be a huge shortage.
“A lot of young ones have never been through a downturn, and now they’ve got a taste of it. A lot of them are going to have a sour taste in their mouth, and what do you do? It’s going to be hard to get back to where we were when everybody was steady. It’s going to be very, very difficult. It’s going to take a while. You’re going to be attracting new, green people. It’s going to be a re-training program.
“That’s probably going to be the toughest thing of all. Your iron will be there, but the rest is not going to be pretty,” Rae said.
If a drilling company does have a couple wells come up, workers may be reluctant to give up lower-paying, but steady, jobs to come drill a couple wells and then be laid off again, he noted.
Resumés are coming from everywhere, but Rae said, “We’re going to look after the guys who have been with us. We’re not hiring anybody new. We’re trying to keep our drillers and rig managers from all three rigs going. It’s pretty much what you have to do. I’m loyal to my people, and hopefully they’re loyal back.
“If you’ve got your core, your drillers and some of your derrickhands, you can crew up fairly quickly. But holy moley, your frackers, directional drillers, they’ll be screaming for everybody.
“It’s going to be scary when it starts to fire up, I can tell you that,” he said.
On the positive side, Saskatchewan’s political climate and diversity of its economy work in our favour, he noted.