Light at the bottom of the barrel

By Geoff Lee

March 30, 2017 12:00 AM

Patch predictions mostly positive

The Lloydminster region oil and gas outlook is like a game of snakes and ladders, with more pieces falling on the upward moving ladders in the short term.
Well-drilling and servicing are up, oilfield service companies are hiring again and contractors are gearing up for forthcoming Husky turnarounds at the Lloydminster refinery and upgrader.
“There’s a lot more optimism right now than what we’ve been hearing for the last couple of years,” said Glenn Stang, CEO of Synergy Credit Union.
“Some of the things we’re seeing is there are some new job postings related to oil and gas, so that’s exciting.”
He said there’s some new work emerging as a result of some local maintenance projects, in addition to the turnarounds.
Lurking in the weeds, however, are the snakes of uncertainty with geopolitical and oil supply and demand factors among others at play.
“In this region, I think it’s 14 new wells that have popped up, which shows a little bit of optimism in what’s happening, but I think the sand is a little bit too shaky to say ‘OK, we’re going to fully commit to this,’” said Terry Kashuba, founder of BrainBlender Technologies Inc. in Lloydminster.
“I see a lot of things happening in the U.S.—the new Wolfcamp shale play (Texas) and things like that; they say that’s bigger than Fort McMurray.”
He noted oil inventories are also well over what the industry thought they would be.
Kashuba is an analyst and future forecaster who was a former oil and gas industry troubleshooter
He expects the price differential between Canadian Western Select and benchmark West Texas Intermediate oil prices—which dropped from $30 to about $15 a barrel—to widen again.
“You’ve got to account for the Trump factor,” he said.
He said 2017 is the year the U.S. wants to be self sufficient.
“Our largest trading partner is going to be on their own, so we’ve got to look at China and Asia and they’re pulling back as well,” he said.
In the short term, he said he expects there will be a jump in service rig activity in the region.
Canadian drilling activity remained at a two-year high at the start of February, according to BDC’s monthly Oil Market Update.
Companies such as CWC Energy Services, Wrangler Well Service and R’ohan Rig Services are some of many local companies actively looking for rig personnel this quarter, with activity levels picking up.
“Our members are looking for employees,” said John Bayko, spokesperson for the Canadian Association of Oilwell Drilling Contractors (CAODC) in Calgary.
“We’ve seen the utilization rates pop up a little bit back to more regular levels, I guess.”
Rig utilization rates were 50 per cent in January, but Bayko expects with spring breakup, the first quarter rate will be on par with CAODC’s forecast of 30 per cent for the first three months on 2017.
Bayko said the steadier price of oil means some companies are bringing production on to some wells that they put on the shelf for a little while.
He added companies are starting to look for new wells that might not be as complex as other ones.
“It’s positive, things are picking up a little bit and the steady price means companies are finding economics where they make sense,” said Bayko.
However, Kashuba warns there could be a drop in service rig activity after the turnarounds, as he sees oil dropping below $50 again.
“Once China releases their (production) numbers—they are well over-supplied—it should drop down to below $50 and you will see another readjustment in budgets,” he projected.
He noted the recent OPEC cutback amounted to winter production rates, creating an artificial jump in oil prices.
Meanwhile, locally, optimism is brewing over the prospect Husky will go ahead with plans to double the capacity of the local asphalt refinery that would take about three years to build.
The company held an open house on the project on March 1, noting it would be located south of the upgrader.
“That would be a terrific shot in the arm to help bring us back towards where we were in general activity levels, but it will also bring us to sort of a new base level as well,” said Ward Read, CEO of the Lloydminster Economic Development Corporation.
“Having the plant in place, it will create another new level of minimum jobs, I guess you might say.”
The rise in local job postings has also caught Read’s attention as he surmises what that means for the near future.
“That does make things in front of us look better than they have been for certainly the last couple of years,” said Read.
Stang at Synergy said he’s been hearing some companies are struggling to find people to fill jobs, and he’s not sure why.
“Have we lost a lot of skilled workers back to their home provinces?”
Bayko at CAODC, said it’s a combination of low day rates for rigs, and, therefore, lower wages.
The increase in the minimum wage in Alberta has closed the gap between full time employment in other sectors, and part time employment on the rigs.
“They (rig operators) aren’t willing to give up that position and take a chance on the rig if they don’t know how consistent the work will be,” said Bayko.
Bayko said the best job scenario, other then boom time oil prices, is to have steady oil prices so exploration and production companies can set up their budgets with no surprises.
“I think a consistent oil price more so than a high oil price will be good for business,” he said.
Kashuba added Lloyminster needs to diversify.
He said he believes we’re on the map as an innovation community globally where people look to Lloydminster for innovation in oil and gas.
“We have to diversify in order for Lloydminster to sustain itself,” he said.

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