Rising oil price expected to spur spending by small, intermediate producers

Rising oil prices that encouraged more spending by small and intermediate oil and gas companies in Western Canada in the first six months of 2018 are expected to lead drilling budgets to grow even further this fall.

Producers say last week’s steady march by U.S. benchmark West Texas Intermediate oil prices to higher than US$70 per barrel, a level last seen in early July, will encourage some to open their wallets.

“A lot of us spent a fair bit of our capex for the year in the first quarter, and before spring break in the second quarter, during that four-month period,” said George Fink, CEO of Bonterra Energy Corp., in an interview.

“With the second half now, it’s a situation where, if we can stay between US$68 and $70, I think there will be companies that will potentially increase their capital in the fourth quarter and spend a little more because the cash flow will be better than most of us anticipated.”

Bonterra spent $55 million in the first half of 2018, almost 75 per cent of its $75-million exploration and development budget for the year, in part because it was able to lock in good prices for drilling and well completion services, Fink said, adding it is considering but hasn’t yet committed to spend more in the second half.

Small and intermediate oil and gas companies reported spending an average of about 50 per cent of their planned 2018 exploration and development budgets in the first six months of the year, according to a report this week from analysts at CIBC World Markets.