Canada units ‘abysmal’ for drillers

Utilization country’s 857 rigs was 42% in the first half of the year compared to 66% in same period in 2006, lowest since 1999

Gary Park

For Petroleum News

Nabors, Baker Hughes and Precision Drilling Trust are among those pointing fingers at Canada.

The three oilfield service giants spread more gloom over an already floundering upstream sector by posting dismal results for the second quarter in Western Canada and offering no hope of an early recovery.

Baker Hughes reported the number of its rigs at work in Canada fell 51 percent in the quarter from a year earlier, warning that a “significant deterioration” of activity and profitability would take a chunk out of its profits.

Nabors reported an US$8 million operating loss in its Canadian unit and Chief Executive Officer Gene Isenberg ducked efforts to have him predict when a rebound might occur.

While forecasting 50 percent overseas growth for Nabors, he described the Canadian market as “abysmal.”

Precision Drilling, which runs about one-third of all rigs in Canada, chopped nearly 25 percent off its 2007 drilling forecast.

It said poor weather and uncertainty over the economics of gas drilling in Western Canada have forced some of its customers — which include EnCana, Canadian Natural Resources and Talisman Energy — to restrict their spending.

EnCana Chief Executive Officer Randy Eresman told analysts July 25 that the recent slide in gas prices, after a short-term recovery, “suggests we may be in for some bumpy prices near-term, but overall we remain bullish on natural gas.”

Precision’s executive Chairman Hank Swartout told analysts he is “bearish” about the remainder of 2007 and early 2008, but is confident that the trust will handle the turbulence.

“We’ve done it before, we’ll do it again,” he said, but warned it will take six straight months of strong natural gas prices to trigger a recovery and he doesn’t see that happening until 2008.

“At some point it has to turn,” Swartout said. “But there will be a lot of pain to get to that point.”

Petroleum Services Association does course correction

It now forecasts 17,650 well completions across Canada this year, 20 percent below its original forecast for the year and a 24 percent decrease from last year’s 23,306.

The biggest losers among the provinces will be British Columbia down a stunning 42 percent from last year at 795 wells, Manitoba off 17 percent at 440 wells and Alberta in a 17 percent plunge to 12,815 wells, with Saskatchewan expected to record a 7 percent decline to 3,520 wells.

Other forecasters are less pessimistic, with the Canadian Association of Oilwell Drilling Contractors targeting 18,961 wells and FirstEnergy Capital shooting for 19,300 wells.

PSAC based its revised forecast on average 2007 prices of US$65 per barrel WTI and C$6.75 (US$6.41) per thousand cubic feet of gas at the AECO hub.

PSAC President Roger Soucy said many areas of the Western Canada Sedimentary basin need gas prices of C$8-$10 to attract new drilling.

“The further we go into the year the less likely any turnaround will occur,” he said.

Utilization of Canada’s 857 rigs was 42 percent in the first half, the lowest since 1999 and dragging well behind last year’s 66 percent. By some estimates, the rate slumped to 18 percent in the second quarter.

The level of unhappiness with Western Canada was reflected in remarks to analysts by Ron Brenneman, chief executive officer of Petro-Canada. Despite the impact of low natural gas prices on asset values, his company did not regard Western Canada as an expansion area.

Instead, Petro-Canada will shift its focus to the U.S. Rockies, where current production of 80 million cubic feet per day is expected to reach 100 million cubic feet per day by the end of 2007, although pipeline availability could hamper that, Brenneman said.