Oil and gas drilling expected to come back with a vengeance

Drilling expected to come back with a vengeance

PSAC raises its 2017 drilling activity forecast by 60 per cent

JUNE 2, 2017 09:34 AM
mark salkeld
Mark Salkeld   Photo By Brian Zinchuk

Calgary– The number of oil wells drilled is a leading indicator of the industry’s health as a whole, and on April 27, the Petroleum Services Association of Canada (PSAC) forecast a big improvement in the oil sector’s prognosis.

PSAC released its in its second update to the 2017 Canadian drilling activity forecast, one that now sees a 60 per cent uptick in expected activity.

The revised forecast of the number of wells drilled (rig released) across Canada for 2017 has shot up to 6,680 wells. This represents an increase of 2,505 wells and a 60 per cent increase from PSAC’s original 2017 drilling activity forecast released in early November 2016 of 4,175 wells rig released. 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.

On a provincial basis for 2017, 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. PSAC now estimates 3,320 wells to be drilled in Alberta, up from 1,900 wells in the original forecast. Approximately 60 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.

On April 28, PSAC president and CEO Mark Salkeld spoke to Pipeline News about the expected increase. He said, “When we did our original forecast back in November, we were still in the grasp of ‘lower for longer.’ We were only just kind of coming around to US$50 oil and realizing it might be here for a bit. We were reluctant to get too excited, so, based on the data we had for the first three quarters of 2016, that was where we were at – 4,000 (wells).

“Then we got the data for the fourth quarter of 2016, and there was a good uptick in that fourth quarter. Saskatchewan is just rocking it; Crescent Point, and their cookie cutter wells and stuff like that. So we thought we’d give it a 24 per cent increase and then we got our first quarter stuff in, and holy cow!

“What we saw was a couple of things driving it. There was confidence in US$50 oil. There were definite cost reductions on the part of the service sector, because they had no choice. Producers like Crescent Point and whatever sent form letters saying, ‘Reduce your cost by 30, 40, 50 per cent.

“The other thing was, because there wasn’t this high level of drilling activity, producers are looking to build their inventories again. It’s kind of an ideal situation where costs were down, they were reasonably confident in their prices, and they needed to get some production to service,” Salkeld said.

“In my mind, Crescent Point was the star player in all of this. They just developed that formula for easy to drill and complete wells, and to get production to surface quickly for good return. They went ahead with it.”

Their forecast does not look at specific company’s announced forecasts of their own work, but rather the broad spectrum.

Some companies are moving money out of the oilsands into the conventional side.

“The single biggest factor in all of this is the cost of services was reduced, significantly.”

Asked if that translates to service companies working for nothing and going broke along the way, he replied, “That’s exactly right. That’s been my soapbox rant over the last couple of years. The cost savings for producers have not been sustainable. We’ve seen companies go broke. We’ve seen consolidations, we’ve seen mergers and acquisitions, and that’s just expanding. We’ve got fewer service companies, but the ones that survived are bigger, some of them, but there’s lots gone.”

He noted that PSAC has lost about 100 members. Salkeld estimates that about a third have been through mergers and acquisitions, another third have chosen to prioritize their spending on something other than membership dues (like paying their staff and preparing equipment for work), and the last third are simply gone out of businesses.

“There are labour pressures. We started to see it right at the end of winter, here,” he noted. Some companies are now hiring green hands, having exhausted the labour pool.

“They put the people to work they kept on payroll, first off. They put the people to work, their ex-employees, laid off employees, they went back to work. And now they’re hiring. They’re hiring green, but there’s also a bit of scalping going on, encouraging crews from the competition to come across,” Salkeld said.

He saw it the most in fracking and cementing, which are holding job fairs. “They’ve got ads out, trying to hire like crazy.”

He noted those areas are seeing demand with respect to getting wells completed, and that those segments are starting to see a bit of a rate increase.

As for when oilfield services companies can start raising their rates, Salkeld noted some oil producers are willing to wait, or to tell an outfit that wants more an hour to go away and they’ll find someone they’re comfortable with.

“The rate increase, across the board, is going to take a couple years, I would say. The in-demand, critically-needed services are going to get something,” he said. That includes top-rated companies with squeaky-clean safety records.

“We’ve still got member-companies operating at cost, or at a loss, or waiting. The waiting period is when there’s enough critical mass, when there’s enough producers out there firing up rigs and crews to get commitments to have production going and wells spudded to qualify for permits, but we’re not there now.

“We’ll coast along this spring and summer, and we’ll start to see some pressures build up in the fourth quarter. The pressures will be labour and equipment recertifications. There’s lots of iron, rigs and frac spreads that are parked. The rigs need Level 4 (recertifications), the pumps and all the high-pressure equipment needs recertification. It all costs money.

“When all the available equipment has gone to work, and all the equipment against the fence has gone to work after some money is spent on it, that’s when the producers that need the services more and the services companies will get away with rate increased.”

All told, Salkeld said, “It’s good!” about finally having some good news, but he added there’s cautious optimism. This country still needs access to markets other than the United States, and that requires pipelines to tidewater. If the United States brings in a border adjustment tax on energy products, that will put even greater pressure on getting those export pipelines completed.

PSAC will be part of the Saskatchewan Oil and Gas Show again, held June 7-8 this year. “We’re coming down full force to host the barnstorming breakfast,” he said.

They will also have roundtable discussions with members.

Minister responds

In response to the revised forecast, Energy and Resources Minister Dustin Duncan said in a release on April 28, “This announcement is a clear sign of renewed operations in Saskatchewan, in part because of our province’s stable and competitive operating environment.

“After an extended period of cost management and reductions, this industry is showing us once again the kind of resiliency and efficiency that makes it one of our most dynamic economic sectors and a major contributor to Saskatchewan’s economic growth.”
© Copyright 2017 Pipeline News

– See more at: http://www.pipelinenews.ca/features/drilling-exploration/drilling-expected-to-come-back-with-a-vengeance-1.20321374#sthash.sOCM4xGM.dpuf



About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on June 5, 2017, in economic impact, oil. Bookmark the permalink. Leave a comment.

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