Active winter to boost drillers’ results
High oil prices and the most active winter drilling season in five years are expected to bolster first-quarter results for Canadian oil and gas drilling companies, industry insiders predict.
Drillers and pumpers should relish the strong numbers because poor natural gas prices and wide differentials between Canadian and U.S. crude will see annual activity slide from 2011 highs.
“There was a notion that strong oil pricing would entice additional drilling, but it appears oil-related activity will not be sufficient to reverse declines in overall (Western Canadian Sedimentary Basin) drilling,” Firstenergy Capital Corp. said Tuesday.
The investment brokerage lowered its 2012 outlook of operating days by four per cent to 47 per cent, and its well count to 11,800 from its last forecast of 14,000 wells.
As companies continue to shift drilling toward $100 a barrel oil and away from $1.50 a gigajoule gas, utilization rates are falling, along with pricing and margins for Canadian well servicing operations, analysts predicted.
“The single biggest factor is natural gas prices have moved to the $1 to $2 region, which we haven’t seen in ages,” said Dana Benner, analyst with Altacorp. Capital. “Those are shocking numbers which not only force you to economically re-evaluate but it’s a psychological shock which plays to risk aversion.”
Energy services companies launch their reporting season Thursday when Precision Drilling Corp., Canada’s largest drilling company, posts its first-quarter results.
Oilfield drillers such as Precision, Ensign Energy and Savanna Energy Services will probably echo strong fourth-quarter results, with hydraulic fracturing giants Calfrac and Trican Well Drilling feeling more of the pinch of low gas prices.
Pressure pumpers have increased capacity by 30 per cent annually, for the past three years on frenetic shale gas activity in the U.S., while drillers have barely offset rig retirements with new builds, noted UBS analyst Chad Friess.
“The biggest concern of the investing community is what’s happening in the U.S.,” Friess said. “It sounds like things are deteriorating fairly quickly there, with respect to pricing, and that should start to have first impact on margins for pressure pumpers like Calfrac and Trican.”
Uncertainty over global demand for oil and debt levels also has played into energy companies’ more cautious outlook this year, said Mark Salkeld, president of the Petroleum Services Association of Canada. The national trade association reduced its 2012 well count outlook by 200 to 13,350 wells on record low gas prices eliminating incentives to drill.
“There have been some conditions that have affected expected drilling activity that were beyond our industry’s control,” Salkeld said. “That said, productivity so far this year is high and activity is still on the uptick.”