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Precision reflects drilling recovery
Gary Park For Petroleum News
Precision Drilling, Canada’s largest onshore drilling contractor, has shrugged off a sharp drop in its second quarter earnings and last year’s decision to slash millions from its capital budget by pumping an extra C$121 million into its 2013 program.
Its optimism is supported by others who see the hopes of LNG export projects stirring fresh interest in the gas fields of British Columbia and Alberta, accompanied by signs that momentum is gathering pace across Western Canada, especially in resource plays.
Under its revised C$654 million spending plan, Precision will add five new-build Super Series rigs, up from its previous one rig, pointing to growing confidence in the Canadian and United States oil fields.
The company said the rebound is being driven by emerging resource plays in Alberta and British Columbia, powered mostly by the prospects of large new customers to export LNG from the Pacific Coast.
Company President Kevin Neveu told analysts three of the new rigs will go the U.S. and the other two are destined for northwestern Alberta natural gas drilling.
He said activity in Canada is recovering from an uncertain outlook for oil prices, weak gas prices and a lack of access to capital for Canadian junior producers.
“It’s clear we are seeing initial third-quarter demand ahead of last year’s and we expect this trend to continue for most Canadian areas,” he said.
“It’s a little early to say, but we expect to see this modestly improved customer demand continue through the third and fourth quarters. The unusual tail-off we saw in the fourth quarter of last year may prove to be a one-off anomaly,” Neveu said.
Duvernay could get rigs Dan MacDonald, an analyst with RBC Capital Markets, said the new Canadian rigs could be deployed to the emerging Alberta Duvernay formation, which Precision expects to see attract increased drilling along with the Montney gas formation.
Calgary investment bank Peters & Co. said it is counting on stepped up drilling in Duvernay, Horn River, Montney and Wilrich resource plays across northern British Columbia and Alberta where rig demand is forecast to increase to 160 in 2014 from 125 this year and 95 in 2012.
“Longer-term, annualized rig demand for these plays has the potential to increase to upwards of 300 rigs, with this predicated on the Montney and Horn River being principal supply sources for Canadian LNG export and the Duvernay and Wilrich developing into Montney-scale resource plays (needing about 500 wells per year),” the bank said.
It estimated that 100 new drilling rigs may be needed at a total cost of more than C$2 billion.
Demand rise expected this summer Neveu said Precision expects to see a rise in demand this summer for delineation drilling in northeastern British Columbia as producers prove up gas plays to meet LNG demand.
Hopes of an uptick in drilling were strengthened by the Petroleum Services Association of Canada, which raised its 2013 well count to 11.415, 15 more than it forecast in November 2012.
The association expects drilling levels to decline from its original target in Alberta, Saskatchewan and Manitoba, with gas-rich British Columbia more than making up for those declines with an 11 percent hike to 506 wells.
PSAC President Mark Salkeld said British Columbia is sending out “positive signals with respect to LNG,” attracting the companies with “big, deep pockets.”
He also said the swing to deeper, longer horizontal well sections means the industry is essentially giving customers five wells in one, while the service sector is getting “far more efficient” at drilling the complex wells.
Precision has reason to count heavily on a rebound in its global operations after net earnings for the second quarter dropped to C$473,000 from C$18 million a year earlier, due mainly to a C$73 million depreciation and amortization charge.
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