PSAC not panicking, despite drop in price

The drop in oil prices hasn’t caused the Petroleum Services Association of Canada to hit the panic button. But the national trade association — which represents the service, supply and manufacturing sectors of the upstream petroleum industry — is forecasting a decrease in the number of wells that will be drilled in Canada next year.

The drop in oil prices hasn’t caused the Petroleum Services Association of Canada to hit the panic button. But the national trade association — which represents the service, supply and manufacturing sectors of the upstream petroleum industry — is forecasting a decrease in the number of wells that will be drilled in Canada next year.

PSAC president and CEO Mark Salkeld released his association’s projections for 2014 and 2015 during a presentation in Calgary on Wednesday. These include an anticipated 10,830 wells this year, up slightly from the 10,800 wells that PSAC initially forecast for 2014 a year ago; and 10,100 wells in 2015.

Last year, 11,097 wells were drilled in Canada.

Salkeld described the anticipated drop-off in 2015 as “a small slump in activity for the year despite the fairly rapid decline in the price per barrel.”

“There is a lot at play out there, but commodity pricing and market access are two of the biggest drivers behind forecasted activity levels,” he said. “But we are optimistic that 2015 will bring some resolve and positive movement on both those fronts.”

PSAC’s outlook for 2015 is based on a projected average price of US$85 a barrel for West Texas intermediate crude and C$3.80 per thousand cubic feet for natural gas (AECO). Its latest forecast for 2014 assumes an average oil price of US$95 a barrel for oil and C$4.45 for natural gas.

As of Wednesday, the December prices for these energy commodities were listed at US$82.20 and C$3.43 respectively.

PSAC expects much of the drilling slowdown to occur in Alberta, where it is forecasting 6,124 wells this year and 5,740 in 2015, down from 6,545 in 2013. In Saskatchewan, the count is expected to be 3,554 in 2014 and 3,365 in 2015, as compared with 3,384 last year.

The numbers in British Columbia are expected to climb from 565 last year to 690 in 2014 and then back down to 555 next year; while in Manitoba PSAC anticipates a slide from 536 in 2013 to 449 this year and 430 in 2015. Elsewhere in the country, there were 33 wells drilled in 2013, with this figure expected to drop to 13 this year and 10 next year.

Salkeld pointed out that year-over-year well-count comparisons have become less indicative of industry trends, due to vertical wells being replaced by much longer horizontal plays.

“Our 2015 forecast has the average metres per well doubling from 1,232 in 2005 to just over 2,400 meters,” he said. “So while we are drilling close to 60 per cent fewer wells than we had been a decade ago, we are drilling only 20 per cent fewer metres total.”

PSAC expects the total metres drilled next year to hit 24,392,000, as compared with a projected 24,216,000 in 2014, and actual totals of 22,846,000 in 2013 and 22,134,000 in 2012.

Salkeld said drilling activity is expected to be strong in the first quarter of 2015, before slowing with spring break-up and then improving over the final two quarters. He listed market access, the availability of capital, labour shortages and production levels elsewhere in North America as factors that could influence industry output.

Salkeld also said the well balance will continue to favour oil over natural gas, with nearly 90 per cent of next year’s well completions expected to be oil-related.

PSAC represents close to 250 member companies, with these employing more than 70,000 people.

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