As the job losses mount in the Canadian oil patch, the severity of the current downturn continues to hit home. As of the end of this month, an estimated 35,000 people have been laid off by oil and gas companies in Alberta and while no true figures are available for field people who work as subcontractors, the likelihood is that at least that many, if not double are currently not working in the various industries that support the upstream oil and gas industry. That plus the number of job losses at likely 100,000 and counting.

The only glimmer of hope right now is the coming of winter, when, as anyone in the oilpatch knows, the drilling season gets started and people get back to work. However, with capex budgets not yet set and third quarter earnings fully reflecting the carnage of the low price environment, it is hard to see how this winter will be one to remember for any of the right reasons. WIth current utilization at around 25%, the likelihood of a positive breakthrough in the coming months is low, raising the likelihood of more head office layoffs in the future and some of the field jobs never coming back.

As just a small example of the fallout of the price environment, Shell recently cancelled its multi-billion dollar Carmon Creek oil sands project citing lack of export capacity, adding to the long list of projects delayed, postponed, mothballed, whatever.

The fiscal environment for oil and gas companies also continues to deteriorate, or at least promises to. Tax rates on corporations are rising, royalty regimes are under review, tax incentives intended to spur activity are likely to be eliminated, carbon pricing is impending.

There is probably no one in Alberta who has not, at least tangentially, felt the impact of this downturn. Friends, neighbours and family have lost jobs and livelihoods. As a whole, the industry is expected to lose billions of dollars in 2015.

This is an industry that represents more than 10% of the national economy.

(Bear with me, this is going somewhere).

Yet not once – not once! – has there been any talk of (or request for) government money being spent on assistance for the oil patch, no hand out, no hand up. In fact, the energy industry has rarely, if ever, received any bailout money during a downturn. And currently, no one in the industry is even thinking of that – rather the industry takes its lumps, rationalizes, adapts, fixes itself and moves on, because that’s what private-sector companies are supposed to do.

All that is asked is a stable regulatory and fiscal regime and for governments to set the rules, apply and stick with them and then move out of the way.  So in addtion to a stable investment and regulatry climate, what does the industry really want? A pipeline to a coast, so that it can safely ship and export its product, receive better pricing and create thousands of jobs and support industry across the country. Does it need any taxpayer money to do this? Nope – the industry pays the whole cost.

I mention this because on Thursday it was announced that Bombardier was receiving a $1 billion bailoutfrom the Quebec provincial government to prop up its C-Series commercial jet program after it reported a $6.5 billion loss (!) for the quarter.

As most Canadians know, Bombardier, the rail and aerospace giant and one of the larger employers in Quebec, has been on the receiving end of billions of dollars in bailouts, sweetheart contracts and other breaks over the past few decades from the Quebec, Ontario and federal governments and, with GM, is a poster child for government handouts and croporate welfare.

It is speculated that another $3 billion will be needed to see the company through, likely from the federal government. It appears that this decision to place the taxpayers of Quebec, and most likely Canada as well, on the hook for potentially billions of dollars was reached in a matter of days with minimal due diligence.

Bombardier employs some 15,000 people in Quebec and has a large network of third party parts suppliers, so there are jobs depending on the company. But given its succesful rail business, it is disingenuous to say all the Bombardier and related jobs are at risk. In fact, Quebec Premier Couillard himself defended this bailout as crucial to saving the 2,500 high paying jobs associated with the massively over-budget C-Series programme.

Peanuts I say – in Alberta we lost 21,000 jobs in July and there were probably 2,500 layoffs last month alone in Calgary head offices, all high paying, value added jobs. And no one outside of the province seems to care.

So, speaking of Peanuts and in light of Halloween being tomorrow, please humour the following tortured tale…

Bombardier and the energy sector went trick or treating and stopped at the Premier of Quebec’s house. As they ran away towards the next house, they stopped to compare their haul.

Bombardier looked in its bag and said “I got five pieces of candy!” The energy sector looked in its bag and said glumly: “I got a rock.”

 They next went to the Premier of Ontario’s house and afterward Bombardier said “I got a chocloate bar!” and the energy sector said, “I got a rock.”

 After their last stop (oddly, a guest house at Rideau Hall in Ottawa – go figure), they looked again and Bombardier said “I got a popcorn ball!” and a dejected energy sector said “I got a rock.”

I think it’s fair to ask – if Bombardier can get five pieces of candy (and likely a chocolate bar and a popcorn ball) to save a collossally mismanaged aerospace company, maybe the energy sector can get something instead of a bunch of rocks? Like maybe some actual support for a pipeline that creates jobs and costs taxpayers nothing? Hello? Is anyone listening?

Prices as at October 30, 2015 (October 23, 2015)

• The price of oil ended the week up, after a choppy week of mixed indicators.
  • Storage posted a less than expected increase
  • Production was flat
  • Markets are by and large drifting
  • The rig count decreased again
• Natural gas gained slightly during the week as production declines were offset by a persistently warm fall

• WTI Crude: $46.37 ($44.62)
• Nymex Gas: $2.326 ($2.289)
• US/Canadian Dollar: $0.7649 ($ 0.7580)

Highlights

• As at October 23, 2015, US crude oil supplies were at 480.0 million barrels, an increase of 3.4 million barrels from the previous week and 100.3 million barrels ahead of last year.
• The number of days oil supply in storage was 31.1, ahead of last year’s 24.8.
• Production was flat at 9.112 million barrels per day. Production last year at the same time was 8.933 million barrels per day. Based on the numbers, it is likely that by December year over year production growth in the U.S. will be negative. The increase in production this week came from Alaska.
• As at October 23, 2015, US natural gas in storage was 3,877 billion cubic feet (Bcf), which is 4% above the 5-year average and about 12% higher than last year’s level, following an implied net injection of 67 Bcf during the report week.
• Overall U.S. natural gas consumption decreased by 0.4% this week with a power consumption increase of 1.1% being offset by a residential and commercial decrease of 2.2%
• Oil rig count at October 30 was down to 578 from 594 the week prior.
• Natural gas rigs drilling in the United States are up to 197 from 193.
• As of October 26, the Canadian rig count was at 191 (25% utilization), 122 Alberta (23%), 31 BC (38%), 35 Saskatchewan (28%), 3 Manitoba (16%)). Utilization for the same week last year was 50%.
• US split of Oil vs Gas rigs is 75%/25%, in Canada the split is 44%/56%

Drillbits

• Earnings Watch – Q3-15 (Q3-14)
  • Husky – loss of C$4.1 billion ($571 million). The company recognized $3.8 billion in impairments. The company has shed 1,400 jobs so far this year.
  • ConocoPhillips – net loss of $1.1 billion. Excluding impairments a net loss of $466 million (income of $1.6 billion)
  • Shell – net loss of $7.4 billion (income of $4.5 billion). This includes a $2 billion charge for its abandoned Alaska venture and $2.6 billion charge for cancelling Carmon Creek
  • Imperial – Net Income of C$479 ($936).
  • Chevron – Net income of US$2.04 billion ($5.59).
  • Suncor – Net loss of C$376 (profit of C$919)
• From the “cool” file: In San Diego, the world’s first LNG -powered container ship began service. LNG -powered ships have 70% less emissions than their current counterparts. This initiative is part of the MARPOL initiatives first signed in 1973 and updated since to reduce marine pollution. Wide-spread adoption of LNG powered ships will require an infrastructure of LNG in ports, but this is a promising first step to replacing the tens of thousands of container ships plying the world’s oceans.
• The Alberta NDP government introduced its long-awaited (dreaded?) budget, projecting a record deficit of $6.1 billion, massive borrowing to support government operations and infrastructure programs as well as increased taxes. No spending cuts are planned nor are there any job cuts projected, leaving many in Alberta scratching their heads as to whether the government is aware of what is happening in the real world.
• In a theatre of the absurd follow-up to the plan to export U.S. tight oil, the U.S. government is debating whether to begin selling part of the U.S. Strategic Petroleum Reserve (SPR) to pay for budgetary items. The idea of selling off millions of barrels of oil into an already over-supplied and depressed market (many of these barrels were likely purchased at higher prices) seems, well, dumb.
• Drumpf Watch – The Donald was quiet this week, notwithstanding a televised debate about the economy.