OKOTOKS, AB – The board of the trucking and logistics and oilfield services provider Mullen Group Ltd. has slashed the company’s capital spending budget for next year, due in large part to the steep decline in oil and gas prices and activity.
The amount of $25 million is down from $55 million this year with the majority of the 2016 capital budget focused towards acquiring trucks, trailers and specialized equipment to support operations for the company’s trucking/logistics segment.
According to the company, as with past practice, the annual process encompassed an extensive review of a wide range of issues including: expectations for economic activity in North America, the impact commodity prices have on the oil and natural gas sector, including drilling activity in western Canada and capital investment plans, the balance sheet of Mullen Group, the impact of previously announced acquisitions and expected cash outflows.
“2015 has been both challenging and difficult for anyone associated with the oil and gas industry. Unfortunately I believe 2016 will not be any better,” said Murray K. Mullen, chairman of the board and CEO. “Crude oil and gas prices are at levels that have a significant negative impact on oil and gas producers. As industry cash flows decline, capital investment and drilling programs, two very important demand drivers for the oil and gas services sector, are slashed.”
He said the company’s business plan for 2016 reflects this reality but is well positioned to manage through this very challenging cycle primarily due to its diversified business model, and well-structured balance sheet with over $140 million of cash on hand.
“Our Trucking/Logistics segment is on track for a record year in 2015 and I expect another solid year in 2016,” Mr. Mullen said.
Despite this expectation, Mullen Group said it expects some slowing in the trucking and logistics business nex year, primarily due to an anticipated contraction in the Alberta economy, associated with declines in the oil and gas industry.
“However, the Canadian economy is expected to continue to expand as consumers and the manufacturing sector benefit from lower commodity prices, particularly crude oil, and the lower Canadian dollar,” the company said in a statement. “Margins are expected to decline slightly primarily due to competitive pricing pressures in western Canada.”
Meantime, in the oilfield services business, Mullen Group anticipates business to be down from 2015 due to the continued weakness in commodity prices and competitive pricing.
“Drilling activity in western Canada is estimated to decline again in 2016, directly impacting those business units leveraged to drilling and to a lesser extent our business units focused on servicing producing wells,” the company said. “Lower oil prices will also negatively impact investment decisions in Canada’s oil sands operations.”
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