Canada’s oilfield drilling and services sector is already showing signs of slowing down due to US President Donald Trump’s threatened tariffs, triggering fears that an expected industry rebound could stall if such levies come into effect.
Employment levels in the Canadian drilling sector collapsed between 2014 and 2020 due to sustained low oil prices and reduced production during the COVID-19 pandemic. Activity has improved since 2020, but Trump’s threat to impose a 10% tariff on the 4 million barrels per day (bpd) of Canadian crude imported into the US could upend that, industry representatives said.
When volatility affects oil markets, oilfield service companies are often the first hit as their oil producer customers look to delay or defer spending. Precision Drilling, Canada’s largest drilling rig operator, saw a steeper-than-expected slowdown in its Canadian well servicing segment in the fourth quarter of 2024.
“It seems that some of the tariff uncertainty slowed down customer decision-making,” said CEO Kevin Neveu during a conference call last month.
A recent report from the investment bank TD Cowen predicted Canadian oil producers will “err on the side of conservatism” due to uncertainty over tariffs.
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Analysts at the bank reduced their 2025 Canadian rig count forecast by about 5% as a result, to average 175 active rigs versus a prior projection of 185 rigs. TD Cowen also downgraded its recommendation for two Canadian drilling stocks – Precision Drilling and Ensign Energy Services – from “buy” to “hold.”
“I know that certainly the anxiety level is rising,” said Mark Scholz, president of the Canadian Association of Energy Contractors (CAOEC), in an interview. “Any sort of investment reduction will have an immediate and very, very quick effect on our industry.”
Scholz emphasized the slowdown thus far has been small, involving “just a handful” of rigs. He attributed it to uncertainty within the broader Canadian oil industry about the timing, duration and market impacts of tariffs.
While a 10% tariff on Canadian oil is not likely to immediately impact most oil producers’ plans, at least near-term, smaller companies could get hit, warned Dane Gregoris, managing director with Enverus Intelligence Research. “A lot of (oil company) budgets are pretty set up at this point and disclosed. They might be hitting the low-end of their (forecast) ranges, but I can’t imagine massive changes to capital budgets,” he said.
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Still, there are other concerns among producers, including the possibility of retaliatory tariffs by Canada, which would raise the prices of inputs and drilling rig equipment imported from the US, said Gurpreet Lail, president of industry group Enserva.
Sand, for example, is among the items the Canadian government has identified on its list of proposed counter-tariffs. Sand is used heavily by the oil and gas industry in the hydraulic fracturing, or fracking, process.
If tariffs do come into effect, said Lail, it will likely mean job losses in a sector that still has not recovered to where it was a decade ago. Last year, total employment in Canada’s drilling sector was approximately half what it was in 2014.
CAOEC’s November 2024 forecast had projected 2025 would see the sector’s highest level of employment in ten years, but Lail said that is now in doubt. “We thought we had finally seen a light coming at the end of the tunnel here, and people were getting back to work,” she said. “But this is not good news.”
Conclusion:
The threat of tariffs has sent ripples of uncertainty through the Canadian oilfield drilling and services sector, with industry representatives warning that an expected rebound could stall if levies come into effect. As the sector continues to navigate the challenges of low oil prices and reduced production, the potential for job losses and reduced investment could have far-reaching implications for the industry and the broader economy.
FAQs:
* What is the impact of tariffs on the Canadian oilfield drilling and services sector?
The threat of tariffs has sent ripples of uncertainty through the sector, with industry representatives warning that an expected rebound could stall if levies come into effect.
* How will the sector be affected by the tariffs?
The sector may see reduced investment, job losses, and a slowdown in activity.
* What is the source of the uncertainty?
The uncertainty is driven by the potential for tariffs to be imposed on Canadian oil, which could impact the sector’s ability to recover from the COVID-19 pandemic.
* What is the impact on employment in the sector?
The sector has already seen significant job losses, with total employment in 2024 approximately half what it was in 2014. The potential for further job losses could have far-reaching implications for the industry and the broader economy.
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