Vacancy rates in the office towers of downtown Calgary are steadily climbing toward 20 percent or higher, according to industry experts.
Entire sections of many high rises are blacked out and even more buildings are nearing completion after being approved and started at a time when US$100 oil seemed like a good long-term bet.
And it’s not yet clear that the wave of downsizing is over, with pipeline company Enbridge cutting another 370 positions in its Canadian workforce.
But not all the signs are doom and gloom, with Tourmaline Oil making yet another significant expansion of its asset-base and Precision Drilling, Canada’s largest land-contract driller, rehiring about 1,000 employees and raising the price it charges customers for specialized rigs known as “super-triples,” pointing to a belief that oilfield activities are starting to recover.
Tourmaline, a gas-liquids weighted company, has built a reputation for marching to its own drummer, while drawing praise for its stellar operational performance, led by the savvy management of Chief Executive Officer Mike Rose.
C$1.37B investment
Casting another vote of confidence in the longer-term future of the petroleum industry, Tourmaline has invested C$1.37 billion in non-core oil and gas properties held by Royal Dutch Shell in northern Alberta and northeastern British Columbia, with combined estimated proved plus probable reserves of 473.5 million barrels of oil equivalent and an evaluated drilling inventory of 2,147 locations.
The deal involves 206,000 acres of developed and undeveloped lands that produce 25,000 barrels of oil equivalent per day, of which 145,000 acres yielding 18,650 boe per day are in the company’s key Deep Basin play and 61,000 acres are in the Gundy area of British Columbia.
Deep Basin also contributes three 100 percent-operated gas plants with processing capacity estimated at 200 million to 225 million cubic feet per day and 430 miles of pipelines.
Production from the British Columbia property is about 6,200 boe per day from 25 existing horizontal wells and about 1,000 feet of Montney gross pay, where liquids content ranges from 10 to 80 barrels per million cubic feet.
New production
For 2017, Tourmaline said it plans to add 100 million cubic feet per day of new production from Deep Basin through the drilling of 31 horizontal wells, while 67 horizontal wells will be drilled over the next two years in the Montney play, providing a “significant uplift to Tourmaline’s overall condensate production levels.”
The acquired Montney assets will give Tourmaline sufficient size and scope in the northern play area to drive strategic company-operated infrastructure development, it said.
Including the new assets and associated development, Tourmaline is targeting production of 250,000-260,000 boe per day in 2017 and 310,000-320,000 boe per day in 2018, with natural gas accounting for 85 percent.
The purchase includes a cash consideration of C$1 billion, funded through equity financings of C$740 million.
Part of Shell divestment
For Shell, the transaction is part of its world-wide US$30 billion asset divestment program.
In Canada, the company has pulled back from a final decision on its LNG Canada gas liquefaction plant and marine terminal at Kitimat on the northern British Columbia coast, blaming instability in global energy markets.
A year ago, it also halted construction of its Carmon Creek oil sands project in northwestern Alberta because of the industry’s inability to build pipelines to the Pacific Coast for export to Asia.
Shell’s upstream director Andy Brown said the assets being sold to Tourmaline did not fit into the company’s near-term development plans.
Robert Fitzmartyn, director of institutional research at GMP FirstEnergy in Calgary, said the delays and asset disposals were a bad sign for the long-term oil and gas outlook in Canada.
However, a Shell spokesman said the company’s remaining 650,000 net acres in the Montney and Duvernay shale plays would provide most of the gas needed for the Kitimat project if a decision is made to go ahead.
Precision sees rebound
Precision Chief Executive Officer Kevin Neveu told analysts Oct. 21 his company was “in the early stages of a rebound” and had reactivated 53 rigs across North America, especially in the United States where the company reported the increase in upstream activity is up 35 percent from the second quarter.
“We’re encouraged by the significant improvement in the sentiment of our customers and the resulting increase in activity and market share that we’ve achieved,” he said.
AltaCorp Capital analyst Aaron MacNeil said Precision is well-positioned in the market for larger, more automated rigs and has been able to sign new contracts and better prices for those rigs in 2017.
But Neveu cautioned that despite the return of activity to 2015 levels his company’s third quarter results, when revenues declined 44 percent from a year earlier to C$201.8 million, “demonstrate how very tough, how brutal and unforgiving, this business can be.”
MacNeil said he expects activity to recover slightly this winter drilling season, with more rigs working than last year, suggesting that the second quarter of 2016 should mark the cyclical low point of the current downturn.
