By Amanda Stephenson
CALGARY (Reuters) - Canada's oilfield drilling and services sector is already showing signs of slowing due to U.S. President Donald Trump's threatened tariffs, triggering fears that an expected industry rebound could stall if such levies go forward.
Employment levels in the Canadian drilling sector collapsed between 2014 and 2020 due to sustained low oil prices and reduced production during the COVID-19 pandemic. Activity has improved since 2020, but Trump's threat to impose a 10% tariff on the 4 million barrels per day (bpd) of Canadian crude imported into the U.S. could upend that, industry representatives said.
When volatility affects oil markets, oilfield service companies are often the first hit as their oil producer customers look to delay or defer spending.
Precision Drilling , Canada's largest drilling rig operator, saw a steeper-than-expected slowdown in its Canadian well servicing segment in 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 TD Cowen report from February predicted Canadian oil producers will "err on the side of conservatism" due to uncertainty over tariffs. Analysts at the bank reduced their 2025 Canadian rig count forecast by about 5% as a result, to average 175 active rigs versus a prior projection of 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), in an interview. "Any sort of investment reduction will have an immediate and very, very quick effect on our industry."
Scholz emphasized the slowdown thus far has been small, involving "just a handful" of rigs. He attributed it to uncertainty within the broader Canadian oil industry about the timing, duration and market impacts of tariffs.
While a 10% tariff on Canadian oil is not likely to immediately impact most oil producers' plans, at least near-term, smaller companies could get hit, warned Dane Gregoris, managing director with 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.