Quarterly Industry Watch
There have been a number of landmark developments in the oil industry, and in regional public policy, that we have witnessed in the last year since beginning this publication. Consequential to the dramatic fall in the price of oil, to a level that our industry hasn’t seen since the recessionary mid- to late- 1980s, we’ve observed an unprecedented number of camp closures, a tightening of investment capital, a freeze or retraction of investment capital, and significant world-wide cuts in workforce sizes in the sector. Public policy has also affected our industry directly, notably, government direction in the U.S. Fracturing regions prohibiting camps from operating near municipalities in favour of using permanent housing. Corporate tax rate changes, a royalty rate review, the introduction of carbon tax credits in the Alberta Oilsands regions, and continued government inaction on Western Canada’s LNG sector in favour of further environmental and economic impact assessments add to the negative pressure on workforce and capital deployment.
With both copper and aluminum losing 30% of its value over the year, mining camps have also contracted, as companies in these sectors continue to exercise caution and review of their operating strategies. Consequently, we’ve seen a precipitous drop in camp activity though the free-fall now appears to have perhaps hit bottom, at least in terms of operating measures, as camp operators and owners have now adjusted their practices to the new, hopefully shorter term, reality of the industry.
About The Data
Over 1.5 million resident days in CampWare™
Average Camp Capacity:
January 1, 2016 to March 31, 2016
Alberta Oilsands, U.S. Fracturing, Western Canada, Other U.S.A.
Along with an apparent stop to the freefall in occupancy and booking levels in the U. S. Fracturing areas, Q1 2016 revealed continued strength in the Alberta Oilsands region. With increased reservation volume that significantly offset modest booking activity in other regions, and despite a number of camp closures in the area, the Alberta Oilsands continues to weather the downturn better than the others.
As of this writing however, the impact of the wildfires of May 2016, in which a number of workforce camps took in evacuees from the Fort McMurray area, is unclear. With planned outages reported by major producers and refiners and an extended time period anticipated before restarting, we expect the ramifications for camp operators will be significant.
Our dataset now allowing full year comparisons, the impact on workforce housing in the U.S. Fracturing and Western Canadian regions in particular is made clear. The freefall in the U.S. Fracturing region appeared to find a floor in 2016, with the drop from 19.8% occupancy in Q4 2015 to 17.5% in Q1 2016 being its smallest reported to date.
In Western Canada, the occupancy rate sampled fell by more than half from the Q4 2015 rate of 43%, and by much more when compared to the same period last year. By contrast, the Alberta Oilsands and Other U.S.A. regions showed relatively modest year-over-year declines in the 8-12% range – in line with the negative growth shown throughout 2015.
The U.S. Fracturing region showed 10.25 days this quarter vs. 10.40 days in the final quarter of 2015, signaling perhaps, as it did with Occupancy, a floor in the metric’s freefall. Meanwhile, stays closer to two weeks were observed in other areas, with the Alberta Oilsands declining from 14.2 days at the end of 2015 to 12 days this quarter, but still showing growth year-over-year, and the Other U.S.A. region extending out to nearly two weeks, compared to just six days at the end of 2015. Generally, we continue to attribute any elevation in numbers to longer residencies and wider use of cross-shifting.
Q1 2016 reservations across all areas sampled proved to be in line with the average volume in 2015 as a whole (54,054), but significantly higher on a year-over-year basis at 17% growth – perhaps unexpected given the difference in energy prices. In both 2015 and Q1 2016, the Alberta Oilsands region was the main driver, more than offsetting low booking volumes in the U.S. Fracturing region.
“Standard” room requests in Q1 2016 remained largely in line with 2015 levels, at 78% of total reservations. In addition to a relaxation of the travel restrictions imposed early in 2015, we suspect essential workers may be housed in rooms previously occupied by now-departed staff. The result was an increase in “Executive” bookings, representing 17% of reservations in Q1 2016. At this level, the “Executive” room class exceeded the peak of 15% observed in Q1 2015, and was double the 8.5% reported at year-end.
At 30% of all reservations, bookings made within seven days or less of arrival – and to the detriment of operators’ ability to plan and optimize resources – remained consistent with levels sampled in the last two quarters of 2015. As cross shifting and standard shift rotations are embedded and without an incentive for guests to book further in advance, we don’t expect much change in this metric through 2016.
Year-over-year, cancellations within 72 hours of arrival remained consistent at 4.5-5% of all reservations. Where operators would have benefited in Q1 2016 versus Q1 2015 was in the reduction in no-shows. At 2.7% the ratio of no-shows to reservations was cut almost in half over the year, equating to close to 1,000 fewer guest no-shows in our sample. It remains possible operators’ enforcement of penalties has contributed to the reduction in no-shows.
With the exception of the U.S. Fracturing region, all areas sampled showed at least a full day on average, before a room was cleaned post-checkout. Given that no area showed an average occupancy greater than 50%, the extended length of time to clean a vacated room comes as no surprise, and continues to imply staffing held at or below 2015 levels.
In the case of the U.S. Fracturing region, we suspect that the minimum staffing levels in the camps sampled accommodate a more rapid response while occupancy is less than 1/5th of capacity.
Defined as a room removed from booking eligibility, the number of rooms off-market in our sample remained similar to the 29,491 reported in Q4 2015. More notably, however, was the year-over-year increase of 29%. With operating cost reductions having perhaps reached their maximum utility at the current level of asset deployment, we can see further de-commissionings occurring in 2016 as operators and owners attempt to shift their entire cost structures.