July 31, 2018 1:20 pm

PSAC lowers drilling forecast for 2018 as pessimism continues

Larry MacDougal / The Canadian Press

Despite the improving price for oil, an industry group is lowering its drilling forecast by 500 wells for 2018.

The Petroleum Services Association of Canada (PSAC) has revised its April forecast of 7,400 wells to be drilled to 6,900 wells.

In a Tuesday news release, PSAC based its updated forecast on average natural gas prices of $1.55 CDN, crude oil prices of US$65.00/barrel (West Texas Intermediate) and the Canada-US exchange rate averaging $0.77.

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PSAC President and CEO Tom Whalen says revenue numbers for the petroleum services sector are up this year compared to last, due in part to producers drilling longer wells, but the number of wells is down by 200 in the first six months of the year compared with the same period in 2017.

Provincially, PSAC now projects 3,735 wells will be drilled in Alberta this year, down from 3,998 wells in the original forecast.

Approximately 36 per cent fewer wells are expected to be drilled in B.C., and a drop of about 500 wells is forecast in Saskatchewan.

Only Manitoba is expected to see a slight increase in its well count.

READ MORE: National drilling contractors association forecasts ‘muted stability’ in 2018

Whalen said service companies in Canada are still facing major challenges.

“In general terms, revenue numbers for our sector are up year over year but we note that several publicly traded Canadian service companies are reporting minimal improvement in the quality of bottom line earnings; many are sitting at near break-even or are still in negative territory,” Whalen said.

“This is not sustainable from a business continuity and competitiveness perspective.”

“It’s also a compounding symptom of the sector’s lack of attractiveness for investment.”

Whalen says it’s good to see the West Texas Intermediate (WTI) oil price continuing to trade higher, but with the price differential between North American benchmark and Canadian crude, he says Canada is missing out on about $15 billion annually.

“Ironically, our ‘energy independent’ focused southern neighbour achieved a record-setting 11 million barrels per day of domestic oil production, which in contrast to Canadian oil, is fetching world-based pricing,” Whalen said.

Meanwhile, the natural gas industry is still challenged by soft prices and PSAC says Canadian gas companies estimate their are losing up to $10 billion annually due to the disparity between AECO (Alberta natural gas) pricing and other markets.

Whelan says access to tidewater continues to be “mission critical” for both oil and gas customers, and would mean an additional $25 billion for Canada.

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