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Canada faces generational test Upstream sector predicts gain in wells, jobs; industry leader points to uphill battle after worst year for activity since 1977 GARY PARK For Petroleum News
Modest is the operative word for the turnaround forecast by Canada’s upstream oil and natural industry in 2017, with the shaky optimism fueled by gains in investment and jobs despite the squeeze in government fiscal and regulatory policies.
The Canadian Association of Oilwell Drilling Contractors is predicting its member companies will drill 4,665 wells next year, compared with an expected 3,582 wells this year (which is 25 percent short of CAODC’s original target) and could create about 3,000 more direct and indirect jobs.
However, CAODC President Mark Scholz was blunt in his assessment of the increases, noting the industry “has an uphill battle ahead even with a recovery in the price of oil.”
He said the industry is facing “the most difficult time in a generation,” making 2016 the worst year on record since 1977.
Scholz said CAODC is concerned about the impact of government policies, such as new carbon taxes and higher corporate taxes in Alberta and federal delays in approving new pipelines and LNG projects - which are “making a bad situation worse ... and creating significant investment uncertainty.”
If the new goal is achieved, the drilling sector will still fall 58 percent short of the well count of 11,226 in 2014 before the commodity price slump started to unfold.
Cost, job cutting During the downturn, the industry has embarked on a sweeping program of cost and job cutting and the use of new technology to achieve savings.
Brian Krausert, chief executive officer of Beaver Drilling, said in a statement that “the types of rigs that will be in demand in this new environment will be highly specialized to drill manufactured wells. These rigs of the future will drill wells faster, more efficiently and with more consistency while reducing risk.”
The Petroleum Services Association of Canada had earlier forecast 4,175 wells in 2017, 63 percent below the 2014 well count.
The failure so far to obtain corporate approval for major LNG projects has surfaced in British Columbia’s northeastern gas region, where operators punched 267 new wells in the first 10 months of 2016 compared with 450 wells in the same period of 2015.
In addition to the LNG stalling, the resurgence of U.S. production has turned Western Canada’s biggest market in the U.S. Midwest into its biggest competitor over the past five years, said Dave Tulk, a consultant with Gas Processing Management.
He said there could be a gas price spike in the depths of winter that will be sport-lived because of the North American gas in storage.
Tulk said producers are unable to earn enough from the wells they are drilling now to justify embarking on new wells.
Suncor trims budget Suncor Energy, Canada’s largest oil producer, is opting to continue its drive to lower costs as it aims for 680,000-720,000 barrels per day in 2017, up from 610,000-625,000bpd.
Beyond the two major projects that are scheduled to come on stream next year - the Fort Hills oil sands mine and the Hebron oil field offshore Newfoundland - Suncor is trimming its capital budget to C$4.8 billion-C$5.2 billion, about C$1 billion less than it will spend in 2016.
Suncor’s budget shows cash operating costs in the oil sands will average C$24-C$27 per barrel next year as the company maintains what Chief Executive Officer Steve Williams said is an “unwavering focus on cost management, which has helped us to generate strong cash flow” over the past two years.
The International Energy Agency has forecast Canada’s oil and gas sector will attract US$1.1 trillion in investment over the next 24 years, averaging about US$40 billion a year, predicting output will average 6.1 million bpd by 2040, 600,000 bpd below the IEA’s estimate a year ago.
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