Oil patch pain drives bargain-hunters to equipment auctions

By Nia Williams
EDMONTON, Alberta, Dec 21 (Reuters) - 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 RBA.TO - 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 Clc1 .
"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 and farming. 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.
($1 = 1.3934 Canadian dollars)