By November 4, 2016 Read More →

Canadian drilling activity flat in 2017, services not recovering for another year – PSAC

PSAC

Anadarko photo.

Oil producers are using higher revenue to repair balance sheets, service company margins won’t improve until Q4 2017

Canadian oil and gas drilling activity will be flat in 2017, up only marginally from the 3,950 wells drilled this year, according to the Petroleum Services Association of Canada (PSAC).

PSAC

Mark Salkeld, president and CEO of PSAC.

PSAC released its 2017 Canadian Drilling Activity Forecast and the new isn’t great for an industry still reeling from over two years of depressed oil prices and natural gas prices that plummeted during the Great Recession and have yet to recover.

A total of 4,175 wells (rig releases) are expected to be drilled in Canada in 2017. The forecast is based upon average natural gas prices of $2.50 CDN/mcf (AECO), crude oil prices of US$52/barrel (WTI), and the Canadian dollar averaging $0.76USD, according to a PSAC press release.

“We’ve still got a long way to go before we get back to seven-eight-nine thousand wells a year and there’s even a bit of skepticism on our part if we’ll ever go back to ten to twelve thousand wells in the near future,” said Mark Salkeld, CEO of PSAC, in an interview.

For the first time in a long time, energy powerhouse Alberta will be number two in drilling activity, with an estimated 1,900 wells to be drilled in Wild Rose country and 1,940 in Saskatchewan, year-over-year increases of 53 and 240 wells, respectively.

Drilling activity in Manitoba is expected to decline by 68% year-over-year, from 74 wells in 2016 to 50 wells in 2017. Activity in British Columbia is also projected to decline from 320 wells in 2016 to 280 wells in 2017, according to PSAC.

Salkeld says drilling is likely to be 80 per cent oil and 20 per cent gas.

“It’s oil ever since gas prices went in the tank and we figured out hydraulic fracturing works for all formations just as well as it does for gas, there’s been a flip,” he said.

“Prior to that, it was the other way around. When we were having gas at $7 or $9 an Mcf, then we were drilling 80 per cent gas and 20 per cent oil, but right now oil dominates.”

But even as oil prices slowly recover, testing $50/b WTI, producers are using the extra revenue to shore up their damaged balance sheets rather than paying higher rates to service companies.

“They hammered on us early and hard on our invoices. The oil fields services sector got shut down early in the spring of 2014. We called it an economic break up versus an environmental break up,” said Salkeld, referring to the spring conditions in Western Canada that usually slows oilfield activity.

“We started cutting our prices and laying off people and parking equipment and doing everything we could to survive.”

PSAC has already lost a number of members over the past two years as Canadian service companies failed or were bought by competitors. Salkeld expects more will disappear before the oil patch returns to some sort of stability.

“There’s still going to be mergers and acquisitions, there’s still going be bankruptcies, there’s still going to be a lot of pain out there, through 2016, through 2017,” said Salkeld.

“We might start to see something, some recovery in the oil field services side with respect to pricing going into the fall of 2017. Like the fourth quarter of 2017 when we wrap up for that winter’s activity. But that’s the soonest that I see anything changing at this point in time.”

psac

Ph: 432-978-5096 Website: www.mapleleafmarketinginc.com

Posted in: Canada

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