Intermediate energy producers spending more, hiring more rigs
Companies increase drilling activities as recovery takes hold across industry
After years of restraint, intermediate oil firms are starting to spend money again and send rigs back to work in Alberta, although not at the same pace as rigs are returning to work in the U.S.
Baytex Energy Corp. president Ed LaFehr said Tuesday his company had recently restarted its Canadian drilling program, which had been paused during the protracted oil-price rout and recession in Alberta. Baytex had also shut in some of its heavy-oil producing wells in Alberta’s Peace River region while oil prices were falling from above US$100 per barrel in June 2014 to the US$30 range by the end of 2015.
The benchmark West Texas Intermediate oil price has since recovered and traded at US$53.29 per barrel Tuesday, which has renewed optimism in the Alberta oilpatch.
The company announced it had restarted production from a handful of those wells and that rigs were in the field drilling in new locations. “We are very excited to be drilling again in Peace River,” LaFehr said.
Baytex, Whitecap Resources Inc. and Bellatrix Exploration Ltd. all revealed plans to contract more drilling rigs this year, announcements that show mid-tier energy producers are increasing their spending plans as the recovery takes hold across the industry.
In a release, Bellatrix said improving commodity prices this year “underpin the resumption of profitable growth.” It also said it had increased the number of rigs it had contracted by one to a total of three in February.
The number of drilling rigs actively working in Canada has steadily risen since bottoming out at 35 in May, averaging 279 in January and 270 in February, according to the Canadian Association of Oilwell Drilling Contractors.
“We have seen a fairly substantive increase in activity from what we saw in 2016, but let’s keep in mind that ‘16 is a pretty low bottom to be coming off,” CAODC president Mark Scholz said, adding, “It is encouraging, for sure.”
Scholz said drilling crews in the U.S. went back to work earlier than Canadian crews because the regulations in states such as Texas are more competitive than in Alberta.
Baytex, which operates in Texas’s Eagle Ford formation and in Alberta, had first allocated new growth spending to Texas late in 2016 before hiring new rigs in Canada.
Raymond James analyst Chris Cox said in a research note the company’s Texas acreage is “expected to garner roughly three-quarters of the spending program for 2017.”
LaFehr said that costs in both locations have fallen sharply. “We’re seeing the lowest well costs we’ve ever seen in the Eagle Ford as well as in our Peace River and Lloydminster assets,” he said.
Whitecap, whose earnings markedly improved in the fourth quarter of 2016, announced it would consider “increasing our field capital spending ” in the second half of 2017 as commodity prices improve and as it generates more cash.
Light-oil producing Whitecap pulled in $191 million in net earnings in the fourth quarter of 2016, which is up sharply from the $87 million net loss it recorded in the same period a year earlier.
AltaCorp Capital analyst Thomas Matthews said in a research note the company had beat analysts’ cash flow estimates. He also noted that Whitecap’s total capital expenditures of $174 million in 2016 represented only 45 per cent of the funds it generated.
As cash flow improves in 2017, Matthews said he expects Whitecap could increase capital spending in the fourth quarter “to enhance its 2018 growth rate.”
Similarly, Baytex’s LaFehr said the company expects to grow its production by roughly four per cent this year.
The company posted a $359 million net loss in the fourth quarter, which is a 14 per cent improvement on the $419 million net loss it recorded a year earlier.
We have seen a fairly substantive increase in activity from what we saw in 2016 ... It is encouraging, for sure.