Regina – Four months of low oil prices have led to significant declines in drilling activity, according to the Petroleum Services Association of Canada (PSAC).
In its mid-year update to the 2015 Canadian Drilling Activity Forecast, released April 30, PSAC is now forecasting a total of only 5,320 wells drilled (rig releases) across Canada for 2015. This dramatic decrease of 4,780 wells from PSAC’s original 2015 drilling forecast, released in October 2014, represents an astounding 47 per cent drop.
PSAC is basing its updated 2015 forecast on average natural gas prices of C$2.50/mcf (AECO), crude oil prices of US$53/barrel (WTI) and the Canadian dollar averaging C$0.77 per US dollar.
In a release PSAC president and CEO Mark Salkeld explained, “Oil prices dropped from an average of US$84.40 in October 2014, to an average of US$47.83 in March 2015. It’s no surprise that an almost 44 per cent drop in oil prices has led us to forecast a similar decline in drilling activity for the year, compared to our October 2014 forecast.”
On a provincial basis for 2015, PSAC now estimates 2,976 wells to be drilled in Alberta, down from 5,740 wells in the original forecast. In Saskatchewan, the expected well count is now 1,507 wells, less than half of the 3,365 wells in the original forecast, while Manitoba is forecasted to drill 270 wells, down by 160 wells from the original forecast. The outlier is British Columbia, which is expected to have a marginally increased 2015 well count, from 555 wells to 560 wells.
“The interesting outcome from this downturn will be the innovative actions taken by companies to lower costs and create efficiencies that will better position Canada in the world of energy services, extraction and production,” continued Salkeld. “When prices rebound, these companies will be more than ready – no doubt about it.”
Two days prior to this release, Salkeld was one of the speakers at the Williston Basin Petroleum Conference in Regina, where he took part in the supply chain forum.
In that presentation, Salkeld noted, “Even in a low-growth scenario, we still need people.”
Salkeld said there is less competition for labour now that the oilsands are slowing down. “The oilsands are always tough to compete against, because it is like a factory up there. It’s 24/7, 365 days a year, whereas on the conventional side, it’s cyclical.”
He pointed out, “Eighty per cent of our folks are in the field. Our folks are the service companies in small towns in Western Canada. We don’t get any cashflow from production; we have to work. So we need the producers to be successful, so we can be successful. We are seasonal and cyclical employment, but we do get into developing technologies and innovation.”
Canadian service firms have experience from 30 C below to 30 C above, in a wide range of different formations, so we have a lot of experience which is now seeing more international exposure. “We say if it can work in Canada, it can work anywhere in the world,” he said.
Oil companies are no longer vertically integrated, operating their own drilling rigs and production. Rather, they employ service firms to do that. That shift 30 years ago has led to the growth of our oilfield services industry.
“A lot of the time, the well becomes the laboratory,” Salkeld noted.
Oilfield services are the second largest contributor to national gross domestic product, second only to the producers they work for, he noted.
He referenced a new phenomenon some people are calling a “fracklog,” where companies drill the wells, but hold off on spending the money on completing them (via hydraulic fracturing). This means the peak production of the well will (hopefully) not take place when the price of oil is low. Salkeld had read that there were, in late April, some 2,000 wells like that in the United States and 1,000 in Canada.
Talking about the drop in drilling, he said, “It’s not pretty out there.”
There’s been a substantial shift in how we drill wells. Around 2005, we drilled about 24 million metres. In the past few years, we’ve drilled a similar distance, but about half the number of wells. That is due to the adoption of horizontal drilling and longer, deeper wells.
“The likelihood of going back to vertical wells is slim to none.”
“Somebody once told me, ‘I wish they had told me I was in a boom cycle,’ in 2014,” Salkeld said. Labour supplies and labour were tight, but it was good. Now things have changed.
Salkeld related a recent conversation he had with long-time PSAC member Ray Frehlick of Estevan, in which Frehlick didn’t paint a pretty picture in that neck of the woods. “He was actually more concerned about getting seeds in the ground than drilling wells, because there was nothing happening around Estevan and Weyburn,” Salkeld said.
“It is tight. No doubt about it.”
Salkeld noted that technology is continuing to improve. Newer rigs don’t have five diesel engines, but one, and the rest of the rig is run off AC power. That generator can also be run off natural gas in addition to or instead of diesel. “You have your driller sitting in a cyber chair running all your pumps and top drives to the roughneck. The whole nine yards.”
PSAC represents all of the fracking companies in Canada. It’s not that fracking is new, but the technology has gotten so much better, he said.
“Our members have our own research centres,” he added. In years past, it was the big oil companies that did research.
“Our members have their own labs, their own engineers, their own scientists. They’re buying downhole testing equipment for testing heat and vibrations. The producers are coming to the service providers for this information.”
He spoke of holographic 3D theatre rooms in Calgary for examining formations.
New microseismicity and real-time data while performing directional drilling is having an impact, he noted. “You can have (horizontal) six wells off a vertical (well).”
The Petroleum Services Association of Canada is the national trade association representing the service, supply and manufacturing sectors within the upstream petroleum industry. PSAC represents a diverse range of over 230 member companies, employing approximately 70,000 people and contracting almost exclusively to oil and gas exploration and production companies.