PSAC sees no sign of drilling recovery
A tough year for oilfield services companies will get a bit worse in 2016, according to a forecast issued Tuesday by the Petroleum Services Association of Canada.
PSAC said it now forecasts 5,150 rig- released wells will be drilled in Canada in 2016, down from 5,340 wells it expects will be drilled to the end of this year.
Plunging oil prices have made forecasting difficult — a year ago, the association estimated 10,100 wells would be drilled in 2015, a number it revised to 7,650 in February. The 2014 total was 11,255 wells.
“Low commodity prices, oversupply and low cash flows obviously impacted us significantly in 2015, resulting in an over 50 per cent loss of activity from previous year averages,” said president and CEO Mark Salkeld. “With those same factors continuing, we can’t expect anything better for 2016.”
The news comes as Calgary driller Savanna Energy Services Corp. joined other companies in predicting drilling activity in Canada will fall off sharply in early to mid December as battered customers take a longer- than- usual holiday break before starting to spend their reduced 2016 exploration budgets.
“First- quarter 2016 bookings in Canada right now look like they might be 25 to 35 per cent lower than 2015,” said president and chief executive Chris Strong on a conference call on Tuesday.
“However, many of our customers have not finalized their budgets for 2016 and this number could change.”
Savanna reported it spent $ 1 million in severance charges in the quarter ended Sept. 30, taking its year- to- date workforce reduction costs to $ 10 million. It said it has reduced its non- rig- related salaried head count by 45 per cent this year, without giving a specific number of jobs eliminated.
Strong said most of the severance paid in the third quarter was related to closing Savanna’s rentals division headquarters in Redcliff in southern Alberta. The operation was consolidated with an existing facility in Lacombe in central Alberta and the Redcliff property was put up for sale.
In a regulatory filing in March, Savanna indicated it had a total of 2,879 workers at the end of 2014, with 1,684 in Canada, 653 in the United States and 542 in Australia. Most were field staff who are usually laid off when their equipment isn’t working.
PSAC said it is basing its 2016 forecast on average Alberta natural gas prices of $ 2.75 per thousand cubic feet, West Texas Intermediate crude oil at US$ 53 per barrel and the Canadian dollar averaging US75 cents.
It figures drilling activity will be flat in Alberta and Saskatchewan, at 2,733 and 1,789 wells, respectively. Manitoba activity is expected to rise 12.4 per cent and British Columbia’s is expected to drop by 28 per cent in 2016 to 344 wells.
An average of 11,670 wells per year have been drilled in Canada over the past five years, PSAC says.
Savanna shares closed 19 per cent or 23 cents higher Tuesday at $ 1.45 after it reported cost reductions and restructuring efforts reduced field office and general and administrative costs by $ 12.4 million ( not including the $ 1 million severance), or 42 per cent, in the three months ended Sept. 30 compared to the same period of 2014.
In the past year, it has traded between $ 1.01 and $ 6.20.
It beat analyst forecasts with adjusted earnings or EBITDAS of $ 24 million on as- expected revenue of $ 98 million, compared with $ 42 million and $ 200 million, respectively, in the third quarter of 2014, as activity fell in Canada, the U. S. and Australia and day rates dropped in Canada.
“Savanna’s aggressive cost management has resulted in three successive quarters of positive margin surprises, in spite of material revenue drops from 2014 levels,” wrote analyst Scott Treadwell of TD Securities.
The company’s third- quarter net loss was $ 10.2 million versus a loss of $ 23.5 million in the same period of 2014 ( when it took a $ 43- million impairment charge).
Savanna went through a major restructuring in early 2015, replacing president and CEO Ken Mullen, suspending its dividend, rolling back wages and salaries, eliminating layers from its management structure and closing and consolidating field offices.
Its capital spending was reduced to $ 45 million this year from $ 247 million in 2014.