Covid-19 hits Australia’s mining, oil services sectors

Covid-19 is threatening Australia's mining and petroleum services industry, potentially limiting the ability of the resources and energy sectors to quickly rebound by creating skills shortages and reducing the availability of key equipment and services.

Australia's mining and petroleum services firms ensure the efficient operation of much of the country's mines, gas extraction facilities and oil wells, while taking on the risk of hiring most of the workers and owning much of the machinery. While most reported limited impact from Covid-19 in the January-March quarter, all are preparing for a difficult 2020 through refinancing to shore up their balance sheets, the cutting of all but essential capital projects and reducing staff and remuneration costs.

This cost cutting could lead to a slow recovery, as the mining services firms often provide the training and apprenticeships for key skilled workers, as well as the equipment required to increase production quickly and efficiently.

Engineering services firm Worley has cut 3,000 jobs and lined up an extra A$465mn ($303mn) in debt, as well as frozen salaries and halted all but essential project-based recruitment. It is also looking at options to further cut its 56,000-strong workforce, including using furloughs and workforce reduction, along with other measures to preserve cash. The firm is exposed to the upstream and midstream oil and gas capital projects, which have largely been shelved because of current low oil prices. But it also provides services for operating energy, resources and chemical projects, which have been less affected by the pandemic to date.

Drilling firm Boart Longyear partially or fully stood down its workforce in most parts of its business from 6 April, with the board of directors and executives taking a 75-100pc pay cut. It reported lower demand for its drilling services group in February and March, which it expects to escalate this quarter with exploration to be postponed across many commodities.

Engineering and construction firm Downer EDI has cancelled its planned sale of its mining services business. It also entered a new A$500mn syndicated bank facility, pushing debt that was due in 2020 into the second half of 2021 at the earliest, while deferring its interim dividend payment totalling A$83mn until September.

Mining truck firm Austin Engineering has a full order book at its Perth operations in Western Australia to supply iron ore customers well into the 2020-21 fiscal year to 30 June, although two large orders from Indonesian customers have been delayed and putting at risk jobs in the current quarter. The firm has also seen a softening in orders from coal mining firms in the Mackay region of Queensland.

By Jo Clarke

source: Argus Media