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More gloom for oil, gas drillers Contractors’ association takes knife to forecasts, lowering Western Canada target by 22%; consultant warns of slump in prices Gary Park For Petroleum News
The outlook for oil and gas drillers is so gloomy that the Canadian Association of Oilwell Drilling Contractors has, for the first time in more than 20 years, lowered its forecast in the middle of the winter drilling season.
Four months after releasing its 2009 predictions, CAODC has cut its target for the year by 22 percent to 11,176 wells in Western Canada, reporting that the downgrade was necessary because weekly rig counts have been significantly wide of the mark set in October.
It now expects the number of operating days will be 95,000, 34,000 short of the original target.
If accurate, the number of wells will drop almost 5,700 from last year’s tally and will be only half the wells completed in 2005 and 2006.
Of the 860 available rigs, an average of only 262 will be active through 2009, with utilization in the first quarter expected to average 333 rigs, or 39 percent of the fleet — the lowest level in 10 years, when there were far fewer rigs.
CAODC anticipates a slight recovery in the second half, with the average rigs at work reaching 267 in the third quarter and 361 in the final quarter, close to the performance level in the same period of 2007 and 2008.
The predictions are based on price assumptions of $50 per barrel for oil and C$7 per thousand cubic feet for natural gas.
The drilling sector is already bracing for the worst by laying off workers, rolling back wages and canceling rig orders.
Drillers being laid off Peak Energy Services Trust — which operates in Western Canada and the U.S. Midwest — will reduce its workforce by 15 percent, or about 100 employees.
Chief Executive Officer Curt Whitterton told the Calgary Herald the “slowdown is much different from anything we’ve seen before, certainly much deeper. Managing our head count in this downturn is not going to suffice. We’ve got to do salary rollbacks,” he said.
Trinidad Drilling said it has cut spending in half to C$165 million for 2009, delayed some rigs and cancelled some service equipment.
CAODC President Don Herring said that as some rigs are laid down “we just won’t call very many people back to work.”
John Langille, vice chairman of Canadian Natural Resources, Canada’s second largest independent explorer, said his company will have to remove even more money from its gas operations’ budget if commodity prices continue to fall short of expectations.
“We have the ability to adjust our capex by 50 percent as we go through 2009 and I can tell you right now that it looks like probably we will be adjusting our capex number … down rather than up,” he said.
Langille said cuts are not likely to affect the 2009 production guidance, but could start to make their mark entering 2010.
He said there are no signs of a recovery this year in gas prices, which have hit a six-year low, prompting even more dire warnings.
Gas forecast to drop Michael Sloan, senior project manager for ICF International, based in Fairfax, Va., told a Calgary conference gas prices on the New York Mercantile Exchange at Henry Hub could drop below US$4 per million British thermal units and AECO-C prices could slide under C$2, resulting in a 30-45 percent decline in volumes on TransCanada’s pipeline system.
He said ICF is “projecting a very fundamental collapse in prices which we are seeing right now and expect that to continue through the summer.”
If AECO hits its forecast number, Sloan said he expects to see some shut-in supply in order to balance the market as prices crater in certain supply regions.
Assuming the economy starts to recover later this year, he is counting on prices to rise to the US$7-$8 level.
ICF is forecasting that Western Canadian production will decline by 1 billion cubic feet per day over the next two years from about 16 bcf per day in 2009. Sloan said that is a “fairly realistic reflection of what is happening in terms of investment and decline rates in the field.”
He suggested TransCanada’s mainline shipments could slide to 2.5 bcf-3.5 bcf per day by 2011, compared with traditional rates of 4 bcf-5 bcf per day.
If shale gas production fails to make its hoped-for appearance in 2009-2011, he said TransCanada could see a decline in volumes of 30-45 percent, which will have a “huge impact on anyone who does business in Alberta, or who holds capacity on the TransCanada system,” where costs go up as volumes go down, imposing higher rates on existing shippers.
If there is a prolonged period of prices below $4 there could be a significant supply shortfall when the economy does revive and that could easily result in gas prices spiking at $10-$12.
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