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Canadian service sector buoyant Oilfield service firms take most upbeat view in 18 months about outlook; investors not buying in, energy stocks down 20% Gary Park For Petroleum News
Having emerged from a difficult 12 months, oilfield services companies are counting on a vigorous rebound in Canada.
The big U.S.-based companies — Halliburton, Baker Hughes, BJ Services and Weatherford — are all issuing the most optimistic forecasts since early 2007.
Bernard Duroc-Danner, Weatherford’s chairman, president and chief executive officer, said he believes Canada will enjoy a strong recovery in the second half of 2008 and into 2009, led by heavy oil, shale and broad-scale new gas plays.
He expected to see an average 400 rigs working in the current quarter and more than that in the final three months. (The latest industry figures show 465 rigs, 55 percent of the available fleet, are operating.)
“We can see very healthy incrementals in Q4 and Q3,” he said.
Duroc-Danner said the drilling downturn in Canada, which was more severe over the past two years than in the U.S., has “bottomed out.”
Chief Financial Officer Andrew Becnel projected a 20 percent revenue growth for Canada in the second half of 2008 compared with the same period last year.
Halliburton expects strong activity for balance of the year Halliburton Chief Executive Officer Dave Lesar said that with natural gas prices on the rise and excess equipment capacity being absorbed, he expects strong activity over the balance of the year in Canada.
Tim Probert, Halliburton’s vice president of strategy, said some of the equipment which was moved into the U.S. during the Canadian slowdown will “return to meet expectations of the market.”
He forecast that the second-half contribution from Canada will be stronger than his company had initially anticipated.
Those same general themes were echoed in conference calls by Baker Hughes Chief Executive Officer Chad Deaton and BJ Services Chief Executive Officer Bill Stewart.
Duroc-Danner said average labor costs increased 8 percent in the second quarter and the cost of raw materials rose 25 percent everywhere except Canada, but added that “Canada’s turn will come.”
Investors have dropped value However, the positive mood isn’t reaching investors, who have wiped about 20 percent off the value of energy stocks in the past month, as the price of natural gas has fallen by a similar percentage.
Units of Precision Drilling Trust, Canada’s largest contractor, dropped C$1.75 each to C$21.83 on July 23, the same day it reported a second-quarter profit of C$22 million, a drop of only C$4 million from a year earlier, which it blamed on incentive compensation expense accruals of C$9 million, up C$5 million from the same period of 2007.
The market sell-off surprised Jeff Fetterly, an analyst with CIBC World Markets, who said he saw few, or no operational red flags in the second quarter, with cash flow only a fraction short of forecasts.
He suggested investors might be on edge because of a dip in gas prices, which could undermine drilling hopes.
Well completions in Canada dropped 18 percent in the first half to 8,129 from 9,897 a year earlier, with only oil exploration posting any gains, including 420 discoveries, up 14 from the same period of 2007, but the highest total for the period in 22 years.
Gas discoveries slumped to 896 from 1,482 last year and a record 2,332 in the January-June period of 2006.
The industry tallied 6,183 development well completions and 1,826 exploration well completions, compared with 7,510 and 2,219 in the same six months last year.
Drilling down from 2007 For June, well spuds totaled 1,145, just 13 behind June 2007, dragged down by Alberta’s drop to 761 from 819.
To the halfway point for the year, the total well depths drilled in Canada were 29.8 million feet, off 7 percent from 2007’s 32 million feet, with the tally helped by a 3 percent rise to a record 1,209 horizontal wells.
In Alberta rigs were released on 4,773 wells, off 16 percent from last year, and British Columbia was down 16.5 percent at 441 wells, while Saskatchewan trailed its 2007 count by 4 percent at 1,341 wells.
For the first half, operators across Canada started drilling 6,785 wells, off 11.6 percent from 2007, with only Manitoba recording an increase among the provinces, rising to 144 wells from 119.
EnCana led the operators with 1,338 well completions to the end of June, but also posted the largest decline with a drop of 310 wells from 2007.
Husky Energy finished 475 wells (down 29) , Canadian Natural Resources drilled 444 wells (down 113), while Devon Canada had 256 completions and Enerplus Resources Fund drilled 235 wells, compared with just 25 wells in 2007 for the largest year-over-year increase.
Among those who made solid gains, Apache Canada climbed to 161 from 92, Petrobank Energy and Resources jumped to 69 from 22, ConocoPhillips Canada recovered to 201 from 160 and TriStar Oil & Gas drilled 68 wells, up from 28 last year.
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