Drilling activity expected to drop 10% next year

The Canadian Association of Oilwell Drilling Contractors is anticipating a 10 per cent drop in drilling activity next year — its pessimism fueled by the uncertainty surrounding market access and energy prices.

The Canadian Association of Oilwell Drilling Contractors is anticipating a 10 per cent drop in drilling activity next year — its pessimism fueled by the uncertainty surrounding market access and energy prices.

In its 2015 forecast, which was released on Thursday, CAODC projected that 10,354 wells would be completed in 2015 This would equate to 119,578 operating days for drilling contractors.

In contrast, 2014 is expected to end with 11,534 completed wells and approximately 133,000 operating days.

“There are basically three issues here at play,” said CAODC president Mark Scholz. “Market access uncertainty, B.C. LNG infrastructure uncertainty and commodity prices.”

In the case of market access, Scholz expressed frustration with the delays in getting projects like the Keystone XL pipeline approved and underway.

“We’ve got to get these pipelines built if the industry, particularly on the investment side, is going to see Canada as serious contender.”

It would be a mistake to assume that the world is dependent on Canadian oil, because there are alternatives, said Scholz. If we fail to develop international markets now, they may not be there in the future.

Similarly, he said, continued delays in getting natural gas pipelines and liquefied natural gas terminals built in British Columbia could have dire economic consequences — not just for Western Canada but for the country as a whole. If those projects began to move forward, the number of rigs working in B.C. could nearly triple from the current fleet of 45, said Scholz. And with each active rig generating 135 to 200 direct and indirect jobs, the economic spin-offs would be considerable.

CAODC is basing its forecast on an average price of US$85 per barrel for West Texas intermediate crude — about $10 more than oil is currently trading at.

“We think that this is a temporary cycle and we’re going to get back, hopefully, to the $85 territory in the next quarter or so,” said Scholz. “But if we continue to see crude sitting at $75, $70 or lower, we will have to review and amend our forecast.”

CAODC anticipates brisk activity in the traditionally busy first quarter of the year, followed by a slowdown during spring break-up and then increased activity over the balance of 2015. Rig utilization rates are expected to bounce from 61 per cent in the first quarter to 19 per cent in the second. The third and fourth quarters will be at 41 and 46 per cent respectively, it forecast.

CAODC represents the drilling and service rig industry across Canada. Its members include 46 drilling contractors, 83 service rig contractors and 217 associate members.

hrichards@bprda.wpengine.com

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