Oil patch pain drives bargain-hunters to equipment auctions

EDMONTON, Alberta - In an auction room a few dozen potential bidders scan a picture of a used oil drilling rig projected on the wall while an auctioneer raises his voice to drum up enthusiasm.

Buyers look over machinery at the Ritchie Brothers Auction on Dec. 11 in Nisku, Alberta. REUTERS/Topher Seguin

EDMONTON, Alberta - In an auction room a few dozen potential bidders scan a picture of a used oil drilling rig projected on the wall while an auctioneer raises his voice to drum up enthusiasm.

"If you came to this sale not looking for a rig you should be looking at it now," the auctioneer bellows into his microphone. Initial asking price on the rig - complete with water, mud and shale tanks - was C$150,000 ($107,650) and it eventually sold for C$52,500, a fraction of a cost of a new rig that can fetch between $7 million and $15 million.

Business is brisk at this 180-acre (0.73 square km) Edmonton site and other North American locations of Ritchie Bros. Auctioneers - a clear sign that the oil industry has little hope that crude prices will recover any time soon.

The world's largest industrial auctioneer stresses it sells more than oilfield equipment, but it is no secret that many sellers are oil companies reeling from the 18-month rout that has driven crude prices near 11-year lows this week.

"All the oil companies are pulling their horns in so there's none of that work. If the price stays low, it's going to get a lot worse," says Frank Richardson, a general contractor from central Alberta.


Richardson uses the auctions to sell equipment when warranties expire and replace it with newer machinery.

This year was one to forget for the oil industry, but a bumper one for the Vancouver-based Ritchie Bros., with record third quarter gross auction proceeds of $894.5 million from 54 auctions worldwide. U.S. revenue was up 25 percent in the first three quarters.

"There's been a slowdown in capital investment, which means people are working less and there's excess assets available," Randy Wall, Ritchie Bros. Canada president, told Reuters.

In six auctions held in Edmonton the company sold more than 38,000 pieces of equipment and trucks for a record of more than C$731 million, as high-cost western Canada oil sands producers were hit particularly hard by tumbling crude prices.

Much of the machinery sold in Ritchie Bros. auctions ends up in logging, construction andfarming. Wall said the transport and forestry industries were doing well, making up for weak demand in the oil sector, while the relatively weak Canadian dollar has lured more overseas buyers.

Foreigners usually bid in online "virtual auctions", such as one with the rig on the block - part of a complete sale of equipment of a small Calgary-based oil services firm including trucks, rig mats and catwalks.

In another "virtual auction" in one of Ritchie Bros. three auction rooms fitted with a big screen displaying the equipment on offer, a 220-ton all terrain crane went for C$405,000 to an online buyer from Egypt, who fended off bids from India and Saudi Arabia.

Some oil patch specific gear, such as vacuum trucks, water trucks and drilling rigs, is selling for around half of what similar used equipment fetched two years ago, according to auctioneer Kevin Tink, a sign buyers expected the oil downturn to continue.


He warns, however, that any crude market recovery could trigger a surge in demand and prices for machinery, which would possibly delay a rise in output.

"People are disposing of anything that has been sitting around and is not being utilised, they are sweeping the corners of the yard," Tink says.

"If demand gets really strong and delivery on a winch tractor is six to eight months, people will pay more for the asset than it costs new, because they want to go to work with it the following morning."

For now, that prospect appears distant. Ritchie Bros. says worldwide prices have come down last quarter from first-quarter levels and bargain-hunters say they expect prices of oil and gas related equipment to fall further next year. 

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