Budget Cuts: Trickle Down Effect

July 8th, 2009 by

By Pat Hinds
Recently I have spoken with several people from companies that service the oil & gas energy producers including energy service, engineering and manufacturing companies; what I’m hearing is pretty similar – they are all in a tough spot. The majority of the companies have either completed or are now in a significant lay-off stage of the economic downturn. Meeting with these companies has been an eye opener as it has provided considerable insight as to what happens with a major downturn in the economy.

Listed below is a timeline that provides insight to what is happening in the Alberta economy:

Q3 2008: Energy producers set 2009 budgets that were significantly lower due to the new royalty tax on natural gas in Alberta.

Q4 2008: Budgets are reduced further due to the credit crises; for example, a company like Encana adjusted its expenditures to cut 1 billion dollars out of its 2009 operating and capital budget.

Q1 2009: Energy service companies, engineering, and manufacturers are filling back orders from the 2008 budgets to keep people employed, but no new orders are on the books in 2009.

Q2 2009: Energy service companies, engineering and manufacturers have completed back orders and have laid off personnel as a result of no new orders.

Q3-Q4, 2009: Companies are in no new hires mode and no new capital expenditures will be issued until they see the 2010 budgets for the energy producers.

The good news in a bad news story is Q2 and the beginning of Q3 2009 should be the bottom of the jobs market fall. Some industries will see the job market bounce back faster than the energy sector due to lower inventories and greater demand. The energy sector in North America may not see a job rebound until the middle of 2010 due to the weakness in natural gas prices. Nevertheless, the hope is through the easing of the tax royalty structure, an improved credit market, and a higher oil price will result in an improved job market in 2010.

http://www.businessweek.com/bwdaily/dnflash/content/jul2009/db2009072_670329.htm

Topics: Sales Consulting