Alberta's Drillers Refute Royalty Review Panel Recommendations

Drilling contractors and rig crews have a huge stake in the current review of Alberta's royalty system. CAODC advised Alberta's royalty review panel that during 2006, 373 drilling rigs worked on average in Alberta, employing an average of 9,400 rig workers.

By the time CAODC saw Mr. Hunter on May 22, 2007, there were just 61 rigs running in all of Alberta - 1,525 people employed, an employment decrease of 84%. During the same month in 2006, there had been three times as many rigs running.

Over 70% of drilling activity in Alberta is related to natural gas, not oil, targets. When natural gas prices are low, as they have been for many months, our clients drill fewer wells. This low price, $5.07 per MCF as of yesterday, is compounded by the loss of almost $3.00 per MCF from the rising Canadian dollar. Drilling activity in Alberta in 2007 is down by 35% as of September 18, 2007 compared to the previous year.

Drilling employment was as high as 13,000 during the busy winter months, employing Albertans across the province. In February 2006, 5,000 Albertans were working on rigs between Red Deer, Rocky Mountain House, Drayton Valley, up to the Berland River. Another 3,500 were on rigs in the Grande Prairie, Peace River, Red Earth, Zama City, and Rainbow Lake country. Almost 2,000 were drilling from Pincher Creek through Lethbridge, Drumheller, Wainwright, Provost, to Lac La Biche. 1,400 were working the rigs in the Fort McMurray region, and another 300 worked near Turner Valley, Millarville, and the southern Rocky Mountains.

Alberta has a significant resource in unconventional natural gas – that is the gas trapped in tight sands and coalbed methane. No one is drilling this gas today because, even before the proposed royalty increase, it is uneconomic at today's natural gas prices.

Drilling is an industry where young people, particularly from rural Alberta, find ready employment. They raise their families in our towns, and they shop at the grocery stores, hardware shops, and car dealerships in these towns. The Canadian Energy Research Institute (CERI) estimates that on average, every drilling rig running in Alberta directly and indirectly employs 135 people. In 2006, that was an average of 50,000 people. As we approach fall this year, 22,000 of these people are not working in Alberta's drilling industry.

Last year, rig managers were making an average of $160,000. Drillers often made well in excess of $100,000. Workers make between $24.50 per hour (roughneck) and $37.25 per hour (driller), supplemented by up to $2.00 per hour for fully qualified rig technicians, in addition to the $150.00 per day they are paid to help defray their living costs.

These are excellent, high paying jobs. We are losing them.

The royalty review panel is wrong to believe that there is a surplus $1 billion that can be taken out of the natural gas business in Alberta. Their naiveté will undermine the confidence of energy investors in Alberta's natural gas industry.

With activity already down by some 35% this year, what will the investor uncertainty created by the panel's recommendations do to the drilling industry?

If MLAs in Alberta take the advice of the royalty review panel, our workers, their families, and communities lose the best jobs they will ever have.

The Canadian Association of Oilwell Drilling Contractors (CAODC) is a trade association that represents the contract drilling and service rig industry across Canada. The membership in the Association is comprised of 49 drilling contractors, 5 Atlantic Division offshore contractors, 78 service rig contractors and 144 associate members.

Company: Canadian Association of Oilwell Drilling Contractors more info
 - Canadian Drillers' Group Sees More Than 25,000 Jobs Lost (Jun 15)
 - Alberta's Drillers Refute Royalty Review Panel Recommendations (Oct 01)