The numbers are indicating that the oil industry is in a continued slump, given the perspective provided by the Petroleum Services Association of Canada (PSAC)’s 2016 Drilling Activity Forecast.
Mark Salkeld, president and CEO of PSAC, said the economies of western provinces like Saskatchewan and Alberta are getting used to the phrase “lower for longer,” with an overall drop in the number of wells predicted for 2016.
PSAC revised its forecast for Saskatchewan with 1,643 wells, a decrease from the 1,789 wells in its original forecast. Manitoba’s forecasted wells have dropped to 205, instead of 280, and Alberta’s forecasted wells have dropped to 2,718 from 2,733.
The PSAC reported a five per cent drop in forecasted wells drilled across Canada, forecasting a total of 4,900. That represents a decrease of 250 wells, since its prior forecast for 2016 in November, 2015.
Forecasts were based on crude oil prices of US $38/barrel, a Canada-U.S. exchange rate averaging US $0.72 and an average natural gas price of US $2.50.
“We don’t see anything changing over the next year,” said Salkeld in an interview with the Mercury. “There’s nothing indicating improvement to the status quo. If anything, our report might be a little too optimistic, based on the environment we’re in today.”
Factors influencing the forecast’s drop include oversupply, North American reserves being near capacity and low cash flows in the industry.
“We’ve seen significant layoffs and businesses have to close their doors, with mergers and acquisitions that are going to support that. It’s going to put pressure on really tightly controlled money and will be a tough business environment this year,” said Salkeld. “There are a lot of business components that are going to be put under the microscope, not just for service providers, but for producers as well.”
Salkeld noted that there is a silver lining to the dark clouds that are hanging over the industry in Saskatchewan. He contended that the drop in Saskatchewan, relative to other provinces, hasn’t been quite as bad.
“Saskatchewan was actually a bit of a bright spot. We attributed it to good, solid producers down in southern Saskatchewan, lots of rail cars and loading capacity and access to get their product on the train and across the border,” said Salkeld. “Producers there are well positioned to get their oil to American refineries. It’s a bit of a success story, all things considered.”
Salkeld noted proximity to oilfield services and good regional manufacturing have also been advantages that have served Saskatchewan during the downturn in the price of oil and the consequent industry slowdown.
“The area has all the resources, a solid supply chain and strong support of the government,” said Salkeld. “That’s significant.”
In a media release from PSAC, Salkeld said Canada has the third largest oil reserve in the world, but less than four per cent of the global market share, emphasizing the importance of infrastructure projects.
He said the updated 2016 forecast is the result of a lack of progress in projects like pipelines, which he described as counter-productive to Canadian energy resource development.
