PSAC boosts 2017 drilling forecast 60%, service rates rise more slowly

PSAC

PSAC Drilling Forecast ConocoPhillips photo.

3,320 wells to be drilled in Alberta, up from 1,900 wells in the original PSAC forecast

The Petroleum Services Association of Canada (PSAC) announced a revision of the forecasted number of wells drilled across Canada for 2017 to 6,680 wells, according to a press release.

That’s an increase of 2,505 wells and a 60 per cent increase from PSAC’s original 2017 Drilling Activity Forecast released in early Nov. 2016 of 4,175 wells rig released.

CEO Mark Salkeld says never under-estimate the tenacity or efficiency of the Canadian oilfield services sector.

“The drilling seasons of 2015 and 2016 were difficult to say the very least and the sector is still making adjustments to manage costs and meet growing expectations of their customers, but with some degree of confidence in $50 oil and the dramatic lowering of costs by the service sector, we are seeing increased activity levels,” said Salkeld.

PSAC based its updated 2017 forecast on average natural gas prices of $3.00 CDN/mcf (AECO), crude oil prices of US$52.50/barrel (WTI) and the Canada-US exchange rate averaging $0.74.

Producers are recognizing that the cost reductions delivered by the service sector over the last three years are not sustainable, says Salkeld, especially now that there are indications of an upturn in industry.

“The leading edge innovation, safety and efficiencies for drilling and completing oil and gas wells in Canada come from modern certified equipment and highly trained workers which are difficult to deliver with razor thin margins,” said Salkeld.

“Rate increases for oilfield services are being realized slowly which will help this sector get back to work delivering the best in class services our customers, the producers, need and rely on.”

PSAC now estimates 3,320 wells to be drilled in Alberta, up from 1,900 wells in the original 2017 forecast.

Although the amount of wells has been significantly raised, most service companies won’t see rate increases in the near term, according to Salkeld. PSAC is hearing from members that rates for services are not increasing as rapidly as the need for their services.

“There are pockets of services that are realizing some incremental gains in rates such hydraulic fracturing and cementing services,” he said.

“Those services in higher demand over the first quarter that were critical to getting wells drilled and completed so as to realize production revenue sooner rather than later for their customers got the most attention.”

Other services not as critical were not seeing any rate increases as customers are willing to wait versus paying higher prices to get services sooner rather than later.

“So although the industry saw an increase in activity in Q1 2017, it will be a few more years before rates are up across the board for all services,” said Salkeld.

Approximately sixty per cent more wells are also expected to be drilled in British Columbia, with PSAC’s revised forecast now at 449 wells for the province up from 280 in the original forecast.

The revised forecast for Saskatchewan now sits at 2,670 wells compared to 1,940 wells in the original forecast, and Manitoba is forecasted to see 221 wells or a jump of 171 in well count for 2017.

“The oilfield services sector has proven once again that they are resilient in tough times, because they have to be in order to compete and survive. We have seen some member companies fail, but we have seen others grow, consolidate and expand,” Salkeld said.

“There are certainly fewer oilfield service companies today than there were just few short years ago but those that remain are the leaders that will continue to succeed in this sector going forward.”

The former heavy duty mechanic added that two pressures still weigh on the oil industry. One, Canada desperately needs pipelines actually built to move oil to tidewater. Secondly, industry needs LNG train approvals.

“We are among the best in the world at getting oil and gas out of the ground for domestic use across Canada and so it also makes sense to provide our responsibly developed Canadian oil and gas to parts of the world that want and need oil and natural gas,” said Salkeld.

“The days of relying on one customer purchasing our oil and gas at a discount must end. The sooner we expand our customer base the better off Canada and all of its citizens will be.”

Posted in: Canada

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