Forecast calls for fewer wells this year

Canadian market lags despite higher global oil price

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.

In the past two years, Precision has authorized building 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 of 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 break even or are still in negative territory,” PSAC CEO Tom Whalen said.

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 gas 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.