Canada’s oilfield drilling and services sector is already experiencing signs of a slowdown, as the threat of US President Donald Trump’s proposed tariffs raises concerns about the industry’s recovery. Industry representatives warn that if the tariffs move forward, the anticipated rebound could face setbacks.
Between 2014 and 2020, employment in Canada’s drilling sector suffered a sharp decline due to prolonged low oil prices and reduced production during the COVID-19 pandemic. Since 2020, activity has picked up, but Trump’s plan to impose a 10% tariff on the 4 million barrels per day of Canadian crude imported into the US has created fresh uncertainty.
Oilfield service companies tend to feel the effects of market volatility first, as their oil-producing clients often delay or reduce spending in response. Canada’s largest drilling rig operator saw an unexpected slowdown in its Canadian well servicing segment during 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 February report from TD Cowen projected that Canadian oil producers will “err on the side of conservatism” due to uncertainty surrounding the tariffs. As a result, analysts at the bank adjusted their 2025 forecast for the Canadian rig count downward by about 5%, expecting an average of 175 active rigs instead of the previously estimated 185.
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). “Any sort of investment reduction will have an immediate and very, very quick effect on our industry.”
So far, Scholz described the slowdown as minimal, affecting only “just a handful” of rigs. He attributed this to broader uncertainty within the Canadian oil sector regarding the timing, duration, and overall market impact of the tariffs.
For most oil producers, a 10% tariff is unlikely to immediately alter investment plans, at least in the short term, according to Dane Gregoris, managing director at 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.
Beyond the direct effects of US tariffs, Canadian producers are also concerned about the potential for retaliatory measures. If Canada responds with its own tariffs, this could increase costs for inputs and drilling rig equipment imported from the US, noted Gurpreet Lail, president of the industry group Enserva.
One of the items on Canada’s proposed counter-tariff list is sand, which is a critical material used in hydraulic fracturing.
If tariffs are implemented, Lail warned that job losses in the sector are likely. While employment levels remain well below where they stood a decade ago, the industry had been on track for a potential recovery.
CAOEC’s November 2024 forecast had predicted 2025 would bring the highest employment levels in the sector in ten years, but Lail now sees that outlook in jeopardy.
“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.”
(Reuters)
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