From the Field
PSAC study reveals $65-billion industry employing 800,000
- Details
- Category: From the Field
- Written by David Yager
Most folks who live in Alberta know that the oil and gas industry creates a lot of jobs. Whether it’s seismic, construction, drilling, completion, tie-in, facilities or pipelines, the oilpatch is characterized by people and equipment in motion. The agricultural community is a regular participant through activities on their land, jobs during the winter, direct equipment ownership or operating an oil service company.
The problem is that governments often take these jobs and investment for granted. From time to time, they look at the profits of the biggest oil and gas companies and decide they are making too much money. The politicians rectify this perceived inequity by increasing taxes, royalties or both. It is only after the fact that the impact on jobs and investment on the folks at the bottom of the food chain becomes apparent.
It was bad public policy that resulted in the creation of the Petroleum Services Association of Canada (PSAC) in 1981. A year earlier, Ottawa’s National Energy Program had capped oil and gas prices and increased wellhead taxes, thus throwing the industry into turmoil. Projects were cancelled and capital fled the country. Jobs were lost by the thousands and hundreds of small suppliers went broke. The oil and gas services industry — the hundreds of companies that do everything from concept to processing on behalf of oil and gas developers — was virtually unknown. PSAC was formed to create public awareness of this important economic sector.
Fast-forward to 2007. The Alberta government decided that the province’s royalty share was “unfair” based upon high oil company profits and higher royalties rates in other jurisdictions. Prior to the policy changes, PSAC warned of “unintended consequences” in the services sector if royalties were increased. Edmonton proceeded anyway. Alberta’s New Royalty Framework, combined with the global economic crisis and commodity price collapses, devastated jobs and investment in small-town Alberta. The framework has all been changed since, but could it not have been avoided?
That’s the unfinished business behind PSAC’s decision to seek more information on the size and importance of the oil and gas services (OGS) sector across Canada and international markets. What we wanted was a benchmark study that would look exclusively at OGS as a stand-alone industry, not just a support industry for oil and gas developers.
The intention was to develop a solid set of facts about OGS so that when energy policy debates take place in the future, OGS can have a seat at the table before again becoming collateral damage.
PSAC contracted Calgary’s Canadian Energy Research Institute (CERI) to build an input-output model based on gross domestic product (GDP) data compiled by Statistics Canada for the latest year available, 2006. This involved sorting through 238 industries and 750 input commodities and picking the ones that applied to oil and gas development. The intention was not only track economic activity in the obvious direct supply chain (drilling rigs, service rigs, wireline trucks, frac units, etc.), but the indirect inputs as well. This includes steel, tires, food, shelter, cable, pipe, trucks, trucking, instruments and the myriad of industrial inputs required to keep this large and dynamic industry going.
For 2006, CERI discovered a $65-billion industry (as measured by GDP) that employed nearly 800,000 people across Canada. These companies and their employees paid $9.1 billion in federal and provincial taxes that year. By comparison, oil and gas producers paid only $12 billion in royalties.
perspective, PSAC had CERI examine other better-known industries. For comparison purposes and using the same methodology, the automotive sector was $25 billion, agriculture $26 billion, mining $18 billion, forestry $29 billion, residential construction $34 billion and non-residential construction $15 billion. What is remarkable about OGS compared to these other industries is that their contribution to the Canadian economy is well known and even considered essential. Incredibly, OGS is nearly twice as big as the next largest sector.
A concurrent study looked at 36 Canadian OGS companies with international operations. In 2009, these companies had revenues outside Canada of $12.9 billion. This study was done for two reasons. First, it demonstrated that OGS in Canada was much larger than the needs of the domestic producers. Second, it showed that Canadians have developed world-class equipment, technologies and processes that are highly valued in oil and gas producing jurisdictions around the world.
PSAC is adamant that all OGS needs to succeed is a profitable client base actively developing oil and gas in Canada. When governments decide that our clients are overly profitable and change the fiscal regime accordingly, they in turn clobber the services sector, by accident or design.
Either way, going forward PSAC is confident these major studies will ensure steady and rewarding activity and employment for all stakeholders.
ABOUT THE AUTHOR: David Yager has been involved in the oil and gas industry since 1970. He began his career working on the drilling rigs, rose to the position of derrickman, serviced oilfield equipment and downhole tools, trained as a fishing tool operator, and worked in Calgary sales for a company that is now part of Weatherford. Beginning with JCP Forewest Industries Ltd. in 1987, David helped create Tesco through the merger of three public companies and an equity financing in 1993. In 1994, he incorporated a predecessor company of Integrated Production Services Ltd. (IPS) that was merged into IPS in 2000. David is currently the chairman and chief executive officer of HSE Integrated Ltd., a public integrated industrial safety services company. He has been an editorial columnist for the Calgary Herald and Calgary Sun newspapers and is currently an editorial columnist for Oilweek.
