Enerflex shuts oil sands facility and cuts jobs amid squeezed margins

Oilfield services company Enerflex Ltd. is the latest entity in the Canadian oil patch to report compressed margins and job cuts as the oil price downturn continues to reverberate across the industry.

The Calgary-based company is closing its production and processing facility in Nisku, Alta. and discontinuing operations in the oilsands module fabrication market due its inability to secure business and a weak market environment. Project deferrals and cancellations from clients also forced the company to take cost-cutting measures, the company said late Thursday

“The bookings have slowed, the opportunities have slowed — you will see customers trying to re-bid,  looking for different kinds of discount mechanism,” company president Blair Goertzen told analysts on a conference call Friday. “That’s the market that we are in, so bookings will be less, margins will get squeezed.”

The company has cut an undisclosed number of staff, initiated a hiring and wage freeze and slashed business travel and marketing expenses as its braces for lower demand for its products and services during the year.

While the company saw its backlog rise 6% to $916.5-million and bookings soar 23% to $422.5-million in the fourth quarter compared to the same period in 2013, “the current market conditions create significant uncertainty for bookings and activity levels for the first half of 2015,” Mr. Goertzen said.

The company expects to get a clearer view on project cancellations and deferrals by the first quarter of the year, James Harbilas, the company’s chief financial officer told analysts.

Canadian companies are reeling from a 50% drop in oil prices in the space of six months. Energy consultant Wood Mackenzie predicts oilsands companies’ combined cash flow will shrink by US$21-billion over the next two years, leaving the industry scrambling to cut capital expenditures and find cost-savings amid falling revenue.

The uncertain outlook offsets a “solid” quarter for Enerflex, according to RBC Capital Markets. Revenue rose 49% to reach $523-million, while earnings before interest, taxation, depreciation and amortization missed RBC’s estimate.

“We see demand for natural gas/liquids related infrastructure investment as more robust than conventional services businesses in this environment given the decline in commodity prices,” RBC analyst Dan MacDonald said in a note to clients.

Although Enerflex expects to see slower demand for maintenance and equipment parts, it’s also careful not to expose its rental business to cash-strapped clients in the current environment.

“They [clients] come to us, and they are looking for us to sort of bankroll – well, we are not any different than banks around credit and commercial risks,” Mr. Goertzen said.

Financial Post

yhussain@nationalpost.com
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