The Royalty Review's First 100 Layoffs

Mullen Group laying off 100

Canadian Press October 12, 2007 at 2:32 PM EDT

Mullen Group Income Fund [MTL.UN-T], an oil field transportation and energy services company, is attributing 100 layoffs announced Friday to lower oil and natural gas drilling activity amid uncertainty surrounding Alberta's royalty system.

Mullen's temporary layoffs are among the first labour effects of the decline in natural gas drilling caused by falling prices and the chill that has swept through the oil patch in the last month over fears of new provincial royalties on the sector.

The Calgary-based company employed 2,500 people at the end of last year and generated more than $1-billion in total revenue.

Gas drilling is in a major slump because of high costs, depleting wells, the impact of the high Canadian dollar and weak gas prices because of a supply glut in the North American market.

An industry report this week warned that 3,500 jobs could be cut in Alberta next year from the drilling downturn and another 8,100 if the government brings in a new royalty charge recommended in September by a provincially appointed panel.

"The number of drilling rigs working in Alberta continues to decline, which is having a direct impact on several of our oil field service business units,” chief executive officer and chairman Murray Mullen said in a release.

“ Natural gas drilling activity has been in decline for the past year due to lower natural gas prices which is quite typical for a cyclical industry. However, many of our oil and gas customers have made it clear that they intend on reducing their capital investments in Alberta if the recently announced oil and gas royalty proposal, known as Our Fair Share is implemented. And in fact we have already seen demand for our services decline since the Sept. 18, 2007, announcement.”

Since the royalty proposal was made public, major companies such as EnCana, Canadian Natural Resources, Talisman Energy and ConocoPhillips have threatened to cut billions of dollars of capital spending on projects that would become money-losers at current gas price levels.
The industry has lobbied the government hard on the issue, prompting Alberta Premier Ed Stelmach to urge critics and oil patch executives to calm down and await his government's proposal.

"There is no doubt that if the royalty changes proposed are implemented by the province of Alberta the oil and gas service industry, and the hard-working employees that generate their livelihood from the industry, will bear an unfair burden of these changes,” Mr. Mullen said.

The layoffs are “a very unpleasant part of my job but the fact is that investment in the Alberta oil and natural gas drilling industry is already being curtailed.”

“I can only hope that Premier Stelmach and the members of the Alberta legislature balance the need for increasing the province's royalty take with the need to attract continued investment in the oil and natural gas industry. If they find the right balance these layoffs may only be temporary and we can get our employees back to work.”

Mullen is an open-ended income fund that owns a network of independently operated businesses. The group is the largest provider of specialized transportation and related services to the oil patch and a leading supplier of trucking and logistics services in Canada.