With lease sales of petroleum rights in Western Canada headed for a 17-year low it’s no surprise that the industry’s major drilling organization is forecasting a mere 4,728 wells will be drilled in 2016, down 58 percent from 2014.
Canada’s National Energy Board reported that land sales in the four provinces had tallied C$322.3 million by the end of November compared with C$1.08 billion for the same period of 2014 and light years from the all-time high of C$7.4 billion in 2008.
At the same time, average revenues have spiraled down to C$193 per hectare (equal to 2.471 acres) from C$745.
The heaviest setbacks occurred in Alberta, which slumped to C$263 million from C$494 million, compared with that province’s benchmark year in 2011 of C$3.6 billion, while British Columbia plunged to C$12.3 million from C$383 million and Saskatchewan dropped to C$45.5 million from C$197.9 million.
NEB cites factors
In a rare flag-waving by the NEB, the federal regulator said the volatile land revenues stem from a number of factors.
“Low commodity prices have been a significant contributor to low leasing revenues so far in 2015 due to companies cutting back on exploration and expenditures,” the board said.
“Volatility exists because there are often ‘land rushes’ when new prospective trends are discovered, or when oil or gas revenues rise high enough for companies to justify acquiring when had been previously considered uneconomic resources.”
The NEB listed the major “land rushes” in the past decade as: Alberta oil sands from 2005 to 2008; Saskatchewan tight oil prospects for 2007 to 2010; British Columbia Horn River Basin shale gas and Montney Formation tight gas prospects in 2008; tight oil in the Exshaw Formation of southern Alberta in 2010; and shale gas and shale oil in the Duvernay Formation of Alberta in 2011.
“Since 2011, the majority of known prospect land in Western Canada has been leased and no new major prospective trends have been identified,” the NEB said.
Martin Pelletier, portfolio manager at TriVest Wealth Counsel in Calgary, told the Globe and Mail that with both gas and oil “in the toilet” he is close to the point of wondering whether it really matters “what uncertainties are unfolding in Alberta.”
Barometer of drilling intentions
Land sales are one of the strongest barometers of industry drilling intentions in the next year.
The Bank of Canada has already forecast industry spending will fall 49 percent this year and another 20 percent in 2016, which points to a further decline in land sales.
The Canadian Association of Oilwell Drilling Contractors has added to the negative outlook by estimating the anticipated decrease in well drilling next year with contribute to a 57 percent fall in operating days to 56,260 and a 57 percent drop in upstream employment to 21,488 jobs from 49,973 in 2014.
CAODC President Mark Scholz said the utilization rate for the rig fleet is predicted to hit its lowest point in the 38 years that his organization has been collecting the data.
The Petroleum Services Association of Canada is taking a slightly less gloomy view, predicting 5,150 wells will be drilled, down 4 percent from 5,340 n 2015 and 56 percent from the five year average of 11,670 wells.
PSAC estimates 2,733 wells will be drilled in Alberta and 1,789 in Saskatchewan, flat for both provinces against this year’s anticipated final count; British Columbia, which needs sanction of LNG projects to revive exploration, is expected to fall by 28 percent to 344 wells; and Manitoba is expected to post a slight improvement of 12.4 percent to 250 wells.
PSAC Chief Executive Officer Mark Salkeld said low commodity prices, oversupply of oil and gas and low cash flows will extend in 2016, meaning the industry “can’t expect anything better.”
