CALGARY, A.B. — The Petroleum Services Association of Canada released its midyear update to its 2018 Canadian Drilling Activity Forecast, and lowered the forecast for the number of wells drilled across Canada for 2018 by six percent.
PSAC is forecasting that 7,400 wells will be drilled in Canada this year, 500 less than its original forecast of 7,900 made last October. PSAC has based its updated forecast on an average natural gas price of $1.75 CDN/million cubic feet (AECO), a crude oil price of US$61.45/barrel, and a Canada-US exchange rate averaging $0.79.
“While our oilfield services sector is marginally busier than it was last year at this time, this hasn’t necessarily translated into financial bottom lines that signal business sustainability,” said PSAC President and CEO Tom Whalen. “In fact, we still have a number of services companies making staff reduction adjustments of 5-15 percent. This pales in comparison to the 40-60 percent staff reductions we saw mid-2015 to the end of 2016, but still a very telling sign that our services sector is far from healthy.”
“The improved WTI price shift into the mid to high $60’s is certainly a welcome sign for our industry. However, the disconnect and volatility of the differential between WTI and WCS pricing means that exploration and production (E&P) companies and Canadians are not benefiting to the same level as our ‘energy independent’ focused southern neighbour. It’s shameful that we continue to sell our oil to the U.S. at a steep discount to WTI, short-changing Canadians over $15 billion per year. The sooner we expand our customer base, the better off Canadians and quite frankly, the rest of the world will be.”
On a provincial basis for 2018, PSAC forecasts that approximately 32 percent fewer wells will be drilled in B.C., with PSAC’s revised forecast now at 500 wells, down from 730 in the original forecast. PSAC now estimates 3,800 wells to be drilled in Alberta, down from 4,000 wells in the original forecast. The revised forecast for Saskatchewan now sits at 2,840 wells compared to 2,930 wells in the original forecast, and Manitoba is forecasted to see 255 wells or a jump of 25 in well count for 2018.
“On reflection of our adjusted Forecast for 2018, we can’t help but note there is a continued shift by the E&P’s from gas to oil well drilling. That shift to oil is easily supported by the ‘lower for longer’ price outlook for Canadian natural gas. We’re also seeing a geographic shift, forecasting 110 less wells to be drilled in B.C than in 2017. While this doesn’t seem like a large number, one needs to keep in mind that these are some of the most complex and ‘service intensive’ wells being drilled in North America today. We estimate these 110 wells represent over $850 million in capital that won’t be spent in B.C. this year. On the winning side of the equation is Saskatchewan which we estimate will see just over 300 additional wells drilled than 2017. We estimate the capital cost to drill those wells is approximately $400 million. When you add those two scenarios together, we’re conservatively looking at approximately $450 million less capital being deployed in Canada than our earlier forecasted numbers suggested.”
Whalen said that completion of the Kinder Morgan Trans Mountain expansion is but one key imperative to restoring investor confidence in Canada. Equally important, he said, is the need for Canada to communicate its energy brand internationally, one that proudly speaks to resource development that’s responsible, safe, ethical and to the highest environmental standards in the world.
“The International Energy Agency (IEA) recently projected that global demand for energy will increase 31 per cent by 2040. This increase includes a 49 per cent increase in demand for natural gas and a 12 per cent increase in demand for oil. Canada must be an active contributor in providing affordable, reliable natural resources to energy constrained developing nations to help lift them out of energy poverty so they too can enjoy the standard of living and quality of life that we Canadians enjoy.”