Bleak days ahead

By Geoff Lee

November 24, 2015 10:25 AM

Forecast for coming year predicts number of wells, operating days, down

Hard times have hit the Alberta oil and gas industry and the worst may yet to come.
The Canadian Association of Oilwell Drilling Contractors anticipates Canada’s oil and gas industry in 2016 will experience some of worst economic conditions in years
“We’ll be seeing about a 58 per cent drop from 2014 in both wells drilled and operating days,” said CAODC president Mark Scholz with the release of their 2016 drilling forecast on Nov. 18.
CAODC projects the number of wells drilled in 2016 at 4,728.
That’s less than 5,150 wells projected by the 2016 Canadian Drilling Activity Forecast of the Petroleum Services Association of Canada released on Nov. 3.
PSAC expects there will be 5,340 drilled nationally by the end of this year.
Its 2016 forecast is based on average natural gas prices of $2.75 Cdn per million cubic feet (AECO), crude oil prices of US$53 per barrel (West Texas Intermediate), and the Canadian dollar averaging $0.75 per US dollar.
“Low commodity prices, oversupply and low cash flows, obviously impacted us significantly in 2015, resulting in an over 50 per cent loss of activity from previous year averages,” said Mark Salkeld, PSAC’s president and CEO.
Salkeld noted with those same factors continuing, the industry can’t expect anything better for 2016.
CAODC meanwhile said the rig utilization for his organization will be at about 22 per cent, the worst on record since 1977 when stats were first recorded.
Scholz also projects a 57 per cent drop in the number of operating days in 2016 to 56,260 compared to 131,021 in 2014.
The rig fleet is also expected to contract by 62 from 758 drilling rigs to 696 in 2016.
The cumulative impact on employment since the end of 2014 when oil prices went into a free fall will be about 30,000 jobs losses.
The job losses relate to CAODC’s estimate that every working drilling rig generates about 135 direct and indirect jobs.
“It’s going to be incredibly difficult,” said Scholz especially for Alberta where about 75 per cent of drilling activity in the country takes place.
“Alberta has been impacted the hardest,” he said speaking for Canada’s drilling and service rig industry.
CAODC says low commodity prices, market access challenges, and cumulative regulatory and taxation changes have combined to create an investment climate that is resulting in uncertainty in Canadian markets.
“In order to achieve a healthy oil and gas industry, government must ensure its fiscal policies are competitive, predictable and consider the cumulative costs of doing business,” said Scholz.
CAODC notes that activity in the Western Canadian Sedimentary Basin has been particularly affected, with escalating costs in an already expensive basin leaving operators exploring options outside of Canada.
Scholz said current activity levels suggest a significant de-listing of assets by member companies moving into the first quarter of 2016.
“There are going to be a lot of businesses, families and workers that are going to be negatively impacted because of this,” he said to the media in Calgary.
“There is no real clear answers where we go from here. It is definitely going to be a difficult time for a lot of people.”

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