'It's going to be very difficult and very painful': Oilpatch begins layoffs and oil production cuts

After several weeks of speculation about when the oilpatch would take significant steps in response to record low oil prices, companies in Western Canada are now beginning to pull back on oil production and layoff workers.

Heavy oil prices in Alberta have been hit the hardest, selling for under $4 US a barrel in recent days.

Bonterra Energy has started to reduce its oil production and expects a total cut of about 20 per cent, according to CEO George Fink, in an interview with CBC News. The company has already suspendedits dividend for shareholders and significantly slashed the amount of capital spending it planned for this year.

"We're shutting in a fair bit of oil," said Fink. "Our capex we've pretty well turned it right off. We won't be spending anything and let the production volumes come off a little bit."

Bonterra Energy usually produces light sweet crude which sells for "top dollar" according to Fink, as it fetches close to the value of West Texas Intermediate (WTI), the North American benchmark. WTI has sold for about $20 US per barrel recently.

Fink has experienced many downturns during his career in the oilpatch, but said this is the worst he has seen because of the health risks.

"That's such a scary thing," he said. "You have to do everything you're supposed to and try to protect your employees."

Athabasca Oil is also cutting oil production at Hangingstone, one of its oilsands facilities. The company "has self-curtailed production by approximately 50 per centto maximize corporate funds flow and liquidity," according to a release.

Husky Energy has cut capital spending by $900 million this year and is "reducing or shutting in uneconomic production where it is cash flow negative on a variable cost basis," according to spokesperson Kim Guttormson.

No production cuts have been announced at Cenovus Energy, although spokesperson Sonja Franklin said, "we are reviewing all aspects of our business, including production."

As oil company cut spending, the service sector is bracing for work to dry up.

"We've got an Armageddon-typesituation that's about to unfold," said Murray Mullen,CEO of theMullenGroup, which specializes in transportation services.

"You're going to have a virtual lockdown in the oil and gas business for a period of time. It's going to be very difficult and very painful for people for an extended period of time."

His company has begun cutting staff and expects about half of its 6,100 employees will be given short term layoffs as the oilpatch and other sectors struggle.

There are usually seasonal layoffs at this time of the year in the oilpatch during a period called 'spring breakup,' when the ground thaws and it's often too difficult to work. Considering the oil price crash, there are concerns those jobs won't return.

Mullen expects more companies to pull back on oil production as oil prices show few signs of improving.

"You can cut costs, but if you are still losing money on every barrel of oil, you eventually have to say, 'I can't do it,'" he said.

"The service industry is going to get just hammeredwhen the oil companies are forced to take the necessary steps to protect their companies."