Here鈥檚 something to ponder: oil sector service companies now have a stack of letters on their desks demanding they cut the rates they charge the oil producers. Those letters suggest if they want to keep the business from those companies, this must be done.
Now consider every vendor at some point has to buy fuel. Fuel is, in a roundabout way, produced and sold by the very upstream companies demanding cuts in rates. While the price of fuel has dropped (gasoline more than diesel), what would those same oil companies say when the people buying fuel send letters demanding a cut in the price of fuel, beyond the drop in the price everyone pays?
What will the insurance companies who underwrite those service companies say?
What about the owners of the real estate upon which long-term leases have been signed? Will they accept a cut in the monthly lease? A cut of as much as 30 per cent, a number we have heard floating around a lot?
Will the grocery store take less for a loaf of bread to make sandwiches?
Most of the oilpatch is not unionized, save big-inch pipeline. Will big-inch pipeliners abandon their hard-won contracts and take pay cuts?
In some cases, the answer to the broad question of 鈥渄o you take a haircut?鈥� is 鈥測es.鈥� Hoteliers are cutting rates. Nearly all oilfield service companies that have been asked to cut rates have done so, from the conversations we have had. Most, but not all.
In one case, the iron is up for sale and the owners are going to sit this downturn out. They might even cast a fishing line or two. In another, the answer is no, they are not cutting rates.
Estevan was abuzz on Feb. 12 after a letter to the editor by Svein Bryeide appeared in our sister publication, the Estevan Mercury.聽
Bryeide spoke of getting the same letters. He supposes he鈥檒l be the first on the blacklist.聽
As the oil price rout continues to take its toll, more pain will be felt. On Feb. 12, Cenovus announced it was cutting 15 per cent of its staff, mostly contractors. To save money, they鈥檝e slashed travel and even told workers to print in black-and-white, not colour.聽
Each business, each business owner, is now facing tough decisions. How much can they cut? Can they cut at all? Or, as Bryeide suggested, are they going to work themselves broke?
When oil prices were high, the saying was a rising tide floats all boats. But these days, it鈥檚 increasingly a case of sink or swim.
