Upbeat drilling forecast shows optimism is returning

Number of new wells expected to rise nearly eight per cent over last estimate

A new forecast for the oil and gas industry is slightly more upbeat than it was three months ago, but warns the “lofty levels of activity” reported pre-recession “are likely a thing of the past.”

The Petroleum Services Association of Canada, in its latest outlook, said 7,200 wells are expected to be drilled across the country this year, up by nearly eight per cent from its April forecast.

There were signs of improvement in Alberta, where an extra 280 wells are expected to be drilled this year, up to 3,600, accounting for half of the forecast total.

The industry group said the improved outlook was due in part to a broader rise of capital investment among oil and gas producers in what are considered conventional reserves, which are recovered by drilling and fracking. They also provide faster financial returns than costly oilsands operations.

Another factor paving the way for slightly more aggressive drilling activity in the oilpatch is the costs producers cut during the recession.

Mark Salkeld, chief executive of the industry group, said drillers, frackers and other oilfield service companies remain “cautious” about whether oil and gas producers will continue with their spending plans for the rest of 2017 while oil prices skirt the US$50 mark.

Despite the optimism, drilling activity is expected to be far short of levels reached in pre-recession 2014, when 11,200 wells were drilled. Salkeld said a return to an era similar to the pre-recession boom may be out of reach.

Calgary-based Precision Drilling Corp. reported this week that 51 of its rigs were operating, outpacing last year’s activity levels but still short of earlier expectations.

During the three months ended June 30, Canada’s largest driller had an average of 29 rigs active in the country, well above year-ago levels of 13 active rigs.

The second quarter generally marks a seasonal slowdown in oil and gas drilling in Canada, when softer ground can prevent movement of heavy equipment into remote areas.

“There’s no question that increased volatility and lower oil prices experienced late in the second quarter, combined with poor spring weather, proved to drag on second quarter activity, which is persisting in the third quarter,” Precision CEO Kevin Neveu said in a call with analysts and reporters Monday.

West Texas Intermediate crude bounced from a high of US$53.40 to a low of $42.50 between April and June, not counting intraday trading.

While the benchmark oil rose above the $50 mark for the first time in two months Monday, the jump was short-lived following reports of a rise in OPEC production.

“Stabilizing or improving commodity prices could bode well for Canadian fourth quarter activity as our customers consider ramping up for the winter drilling season,” Neveu said.

Companies that drill and frack wells often rely on capital budgets set by oil and gas producers as indicators of upcoming activity in the industry.

A report published by Barclays analysts before oil and gas companies began reporting secondquarter earnings predicted “capital spending reductions will be the major theme for the quarter” among mid-sized producers, due to concerns with commodity prices.

Still, the analysts said any spending cuts may have little impact on overall production targets.

In a separate report ahead of second-quarter earnings, analysts at CIBC World Markets said oil and gas producers hadn’t signalled any intentions of slowing down spending.

The analysts cited major increases in the number of wells completed, or ready for production, and the number of licenses issued to drill wells in Western Canada, compared to year-ago levels.