PSAC boosts oil, gas drilling forecast to 7,200 wells

Alberta’s conventional oil sector will see an increase in drilling by 8 per cent, according to industry group PSAC.

PSAC forecast up by 8 per cent

The Petroleum Services Association of Canada, or PSAC, says it expects Canadian light oil producers to drill more wells this year than previously expected.

The industry association says investors are transferring capital out of the oil sands.  PSAC forecasts that 7,200 new wells to be drilled this year, which is up by 8 per cent over its prior estimate of 6,680 wells.

According to chief executive Mark Salkeld, PSAC underestimated how quickly investors looking for a return on capital in a low oil price environment would move from long-term investments, including the oil sands.

“One of the events that played out that was not well understood at the time of the original forecast was the relatively quick impact of the transfer of investment out of the oil sands into the conventional sector,” Mark Salkeld told Reuters.

The drilling rig count rose to over 300 operational rigs during the first quarter of the year, well above PSAC’s estimates of 200.

So far this year, international energy companies have sold off about $23 billion in Canadian oil and gas assets.  Most of the deals have been in the oil sands.

Alberta’s oil sands are home to the world’s third-largest oil reserves, but they are costly to operate.  Canadian light oil and natural gas sector is smaller, but it offers less expensive up front investment and quicker returns.

Oilfield services companies have had to drastically cut costs while oil prices languished to help oil companies continue drilling.  Salkeld warned that the cost cuts will not support innovation and improved techniques.

Salkeld also pointed to difficulties in building oil pipelines as being problematic for the industry.  Just last week, Petronas decided to cancel its investment in the $36 billion Pacific NorthWest LNG project in BC.

“Canada continues to struggle with its place in the world of energy supply given our lack of access to tidewater and public support for infrastructure suggesting the lofty levels of activity seen in 2014 are likely a thing of the past,” Salkeld said.