CALGARY—Employees at Calfrac Well Services Ltd. are being forced to give up pay certainty as low commodity prices hammer the providers of well fracking services credited with creating the current North American oil and gas glut.
In a news release, the company confirmed it has joined its rivals who have abandoned the previous industry norm of paying a regular salary to move to “variable pay” for its Canadian fracturing and coiled tubing field employees. That means staff are paid only when they and their gear are working. Calfrac also said it has adjusted work schedules to save money.
Calgary-based Canyon Services Group Inc. broke with the tradition last year, increasing the number of its staff receiving variable pay to 74 per cent from just 10 per cent. The largest Canadian provider of so-called pressure pumping services, Trican Well Service Ltd., confirmed in early April its field staff will go to variable pay on June 1.
On Thursday, Calfrac reported first-quarter revenue of $216 million, down 64 per cent from the same period last year. It posted an operating loss of $11.6 million compared with a gain of $27.8 million in first quarter 2015.
“While this downturn has perhaps lasted longer than expected, there are many reasons … which lead me to believe that the market will improve in the coming 12 to 18 months,” said Calfrac chief executive Fernando Aguilar on a morning call, adding low demand has prompted predatory pricing by some competitors.
He said variable pay will help Calfrac offset anticipated second-quarter losses due to lower demand in Canada. Analysts expect the change to save millions for companies.
In March, Calfrac laid off 500 people for total staff cuts of 2,300 since early 2015, leaving it with 1,200 employees in its Canadian, U.S. and international operations.
In a note to investors, analyst Andrew Bradford of Raymond James said Calfrac’s adjusted earnings fell $4 million due to restructuring charges, but he praised the company for trying to get a handle on its net debt of $808 million.
Calfrac has 50 per cent of its Canadian fleet and 60 per cent of its U.S. equipment parked. It said it will cut its capital budget in 2016 by a further $10 million to $40 million.
Trican has cut its staff by 75 per cent in the past 16 months to 1,740 while selling pressure pumping operations in the United States and Russia to pare debt and retreating from positions in Australia, Algeria, Saudi Arabia and Colombia to save money.
Meanwhile, family-owned Sanjel Corp., the largest private fracking firm in Canada, has entered court protection from creditors while breaking up and selling its Canadian and U.S. operations.
Only 12 per cent of the Canadian fleet of 677 drilling rigs were working in March, according to the Canadian Association of Oilwell Drilling Contractors, and that fell this week to only six per cent due in part to spring road bans on heavy equipment.
Pressure pumping crews use truck-mounted equipment to inject liquids and sand under high pressure into underground formations to break up the rock and allow trapped oil and gas to flow into the well.