The Mullen Group Income Fund, which is based in Calgary, said Friday it will begin laying off up to 100 employees at several of its oilfield services units because of the uncertainty related to oil and natural gas drilling activity in Alberta.

“The number of drilling rigs working in Alberta continues to decline, which is having a direct impact on several of our oilfield service business units,” said CEO Murray Mullen. “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…is implemented.”

Mullen said that his company has already seen the demand for oilfield services decline since the province announced possible changes to the royalty regime (see Daily GPI, Sept. 20). Since the announcement, several of Alberta’s largest producers have threatened to reduce their spending in the province, including EnCana Corp., Talisman Energy Inc., Petro-Canada, Canadian Natural Resources Ltd. and ConocoPhillips (see Daily GPI, Oct. 10).

“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,” said Mullen.

The CEO 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 [Ed] 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.”

Friedman, Billings, Ramsey & Co. Inc. analysts said in a note that if the full recommendations by the royalty review panel are not implemented, they expect the stock prices of Canadian producers to respond positively. In any case, they did not think that the changes, if implemented, would affect emerging oilsands projects.

“On average, the Canadian energy names have underperformed the U.S. E&P [exploration and production] sector by 4.4% since the royalty recommendation announcement, reflecting the potential changes. Therefore, if the changes are not fully implemented, it would be incrementally positive for the oilsands names…With or without the royalty change, we expect most of these projects to continue as expected…”

Alberta officials are expected to announce their decision on the royalty recommendations in the coming few weeks.

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