Oil and gas well drilling forecast plunges again, as slowdown deepens

The Petroleum Services Association of Canada has lowered again its forecast for the number of oil and gas wells to be drilled in Canada this year — a 20 per cent drop from its original predictions.

Petroleum Services Association of Canada says its original outlook has dropped by 20%

Former PSAC chair David Yager says a number of factors have led to a reduction in the 2019 drilling forecast. (Stephanie Rousseau/CBC)

The Petroleum Services Association of Canada has lowered its 2019 drilling forecast for the second time.

It now anticipates 5,300 oil and gas wells will be drilled in Canada, down from a revised estimate of 5,600 wells in January and a 20 per cent drop from its original 6,600 forecast in November 2018. 

That's also well off the pace of last year when 6,948 were drilled. 

According to PSAC's newest forecast, released Wednesday:

  • In Alberta, 2,685 wells will be drilled this year, down from 3,532 in the original forecast.
  • Saskatchewan will have 1,960 wells, down from 2,422.
  • B.C. will see a negligible drop from 382 wells to 375.

"There was a serious drop in cash flow in the fourth quarter when oil prices went way down," said past PSAC chairman and energy analyst David Yager, who presented the forecast. 

"Obviously there's the curtailment issue, which is tightening up the amount of funds available, and then there's just the issue of pipeline takeaway capacity."

He pointed to the Trans Mountain pipeline expansion and delays for both the Line 3 and Keystone XL pipelines as ongoing concerns. 

"These things, last fall, they looked better than they do today, so we just can't get a break."

Cash but no investments

He said the oil and gas companies have the cash on hand, but they are reluctant to invest that money until some of the capacity issues are resolved. 

Duncan Au, who is the current chair of PSAC and the president and CEO of CWC Energy Services, said stronger bottom lines for producers are not trickling down to the oilfield services sector. 

"Clearly, cash flow for our E&P [exploration and production] customers has improved with higher [West Texas Intermediate] prices and narrower [Western Canadian Select] differentials, but has not translated to reinvestment in new crude oil production," he said in a news release, referring to the prices for oil and natural gas. 

"Instead, E&P companies are reducing debt, paying dividends, buying back their own shares and investing elsewhere rather than reinvesting in this country."

He said the result has been layoffs in his industry at a time when most companies would be hiring. 

The forecast arrives as well completion firm Calfrac Energy Services Ltd. reports a $36-million first-quarter loss compared with a $3.2-million profit in the same period of 2018.

The Calgary-based company says revenue from Canadian operations came in at $131 million compared with $190 million in the same period of 2018, mainly due to lower activity and pricing.

The Canadian Association of Drilling Contractors has reported that only 36 per cent of its members' drilling rigs were employed in the first quarter, which is traditionally the busiest time of the year in Canada as frozen ground allows access to remote backcountry drilling sites.

PSAC notes there is some good news for its industry with increased activity in the realm of decommissioning wells and remediation and reclamation of well sites.

With files from The Canadian Press