drilling industry
Lower commodity prices are hitting the drilling industry hard, said Mark Scholz, president of the Canadian Association of Oilwell Drilling Contractors. In a forecast issued in November, CAODC predicted 2015 would see a 10-per-cent reduction in wells drilled and operating days over 2014 levels. The continued slide in prices has already made that forecast outdated. It will be reviewed early in 2015, Scholz said.
“I can assure you that if we see commodity prices in the $60-$65 range, there is no question that we will see a continual erosion beyond what we had originally predicted in activity,” he said. “If prices stay this low well into 2015, this is going to be an incredibly challenging time for the industry.”
Each working rig generates about 135 direct and indirect jobs, he said. When rigs are idle, jobs are lost and cash flow dries up. Well-servicing companies will feel the effects of a slowdown and so will the small communities where rig workers spend their money on groceries and beer, Scholz said.
In November the association projected 61 per cent of available rigs would be working in the first three months of 2015, dropping to 19 per cent in the second quarter due to spring breakup.
“The fear is we try to come out of spring breakup and just don’t recover,” Scholz said. “That’s what we’re worried about.”
Still, he said, there is hope that prices may recover.
“If oil goes lower than $60, this is going to be problematic. But three months down the road, we could be back up to $85. It’s hard to put your thumb on where things are going to land.”
Like oilsands developers, rig builders are also reducing capital spending plans for 2015. Calgary-based Precision Drilling said this month it expects 2015 capital spending will be $493 million, down from $885 million in 2014. Precision had previously estimated 2014 capital spending at $908 million.