Forecast calls for 500 fewer wells this year despite higher global oil prices

CALGARY — The head of Canada's largest drilling company says he's not surprised that a Canadian drilling forecast is being chopped despite higher global oil prices so far this year.

Kevin Neveu, CEO of Precision Drilling Corp., said Tuesday his company is in the process of moving an idle drilling rig from the Deep Basin of northwestern Alberta to Pennsylvania, where it is expected to find work drilling natural gas wells in the Marcellus Basin.

article continues below

In the past two years, Precision has authorized the building of two new rigs in the U.S. but none in Canada, he said, because demand hasn't justified it.

"Oil prices are not too bad — and when you throw in the exchange rate, they're actually probably OK — but a lot of our Canadian customers are still quite gassy in their production and rely on natural gas sales to fund a lot of their programs," said Neveu.

"With (Alberta) AECO prices so tight, it's just really tough for a lot of our customers."

The Petroleum Services Association of Canada said Tuesday it is cutting its 2018 Canadian drilling forecast by 500 wells to 6,900 oil and gas wells, 200 fewer than were drilled in 2017, and nearly seven per cent less than its April forecast for 7,400 this year.

"In general terms, revenue numbers for our sector are up year over year but we note that several publicly traded Canadian service companies are reporting minimal improvement in the quality of bottom line earnings; many are sitting at near breakeven or are still in negative territory," PSAC CEO Tom Whalen said.

"This is not sustainable from a business continuity and competitiveness perspective. It's also a compounding symptom of the sector's lack of attractiveness for investment."

Producers are drilling longer wells but the number of wells is down by 200 through six months of 2018 compared with the same period of 2017, PSAC reported.

Benchmark New York oil prices averaged US$67.91 per barrel in the second quarter ended June 30, up from US$48.33 in the same period of 2017, but Alberta natural prices fell to C$1.20 per million British thermal units from C$2.69.

Whalen says Canadian companies aren't able to gain from higher world crude prices because pipeline capacity is inadequate to take products to market, resulting in higher-than-usual price discounts for western Canadian oil.

Meanwhile, natural gas prices continue to languish thanks to both gathering pipeline constraints in B.C. and Alberta and competition from burgeoning U.S. shale gas plays.

Precision reported last week it had 78 rigs operating from its fleet of 103 in the United States as of June 30 but only 60 from its larger fleet of 136 in Canada.

U.S. operations have recovered to about 80 per cent of their peak 2014 activity but Canadian operations remain at less than 40 per cent, Neveu said.

Earlier this year, Calgary-based Akita Drilling Ltd. and Trinidad Drilling Ltd. each announced they would move rigs from Western Canada to West Texas at the invitation of producer customers.

Follow @HealingSlowly on Twitter.

Companies in this article: (TSX:PD, TSX:AKT, TSX:TDG)

@ Copyright 2018 Pipeline News North