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The president of a small oil company based in Calgary has laid off two employees and predicts other junior oil and gas companies are in “fairly serious financial trouble.”

Greg Kuipers of Black Sea Oil and Gas said Monday the combination of low prices, the credit crunch and Alberta’s new royalty regime could spell the end for about 200 juniors.

Black Sea Oil and Gas hasn’t been in its new offices in Calgary’s Beltline long enough to take the former tenant’s sign off the corridor wall. Instead, there is just a piece of paper with the company letterhead taped to the door.

But Kuipers laid off two of the nine people who work for him on Monday and cut the pay of another employee. He said many juniors could disappear by the end of April, some gobbled up by bigger companies, others closed for good.

“A good portion of engineers in downtown Calgary are going to be worried about their jobs. I would say about 20 per cent of them will probably get laid off,” he said.

“There is at least 200 producers in my size bracket, which is, say, under 1,000 barrels a day ?in fairly serious financial trouble. Most of them are going to have trouble meeting their bank commitments because there’s too much given to the government and not enough given back to the oil company to continue developing. Nor can they go out to raise money to continue developing.”

Analyst predicts oil to stabilize at $60

Bill Gwozd, an analyst with Ziff Energy Group in Calgary, says only the juniors with business models based on high oil prices could be in trouble.

“Let’s say a $100-plus oil price and built their entire model on that strategy, they’re going to be hurt.”

Gwozd said March will be a critical month for the oil patch, but he predicts oil prices will stabilize by then at $60 US a barrel and so will the industry.

That new rate structure was first announced in October 2007, with Premier Ed Stelmach saying energy companies will be charged 20 per cent more for the right to develop Alberta’s oil and gas resources starting this year.

Last November, Stelmach announced $1.8 billion in royalty savings over five years for new oil and natural gas wells that are within 1,000 and 3,500 metres in depth and started between 2009 and 2013. Companies that take up the one-time offer will have to start paying the same royalty rates as other companies beginning Jan. 1, 2014.

“The world has changed in recent months, and we must respond,” Stelmach said at the time. “We must be competitive, so we’re making this change to encourage new activity in the oil patch, which really means new investment and new jobs.”

Companies that are paying more in royalties say they are taking in less revenue, making it harder to borrow money from banks because their assets are worth less.

Don Herring, a spokesman for the Canadian Association of Oil Well Drilling Contractors, is critical of the new royalty program, which he says needs to be changed.

“It’s the silicon valley or the junior player that is being driven out of this market. And they are the guys that ?establish the momentum, take the big risk. And when they take the big risk and are successful, then big oil companies follow and a lot of drilling takes place and production takes place and we all win. So those are the people you don’t want to drive out.”

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