Oilpatch firms show cautious optimism
CALGARY After a prolonged and brutally challenging oil price collapse, one of Canada’s largest energy players has signalled it will send additional rigs back into Western Canada’s oilfields, a tentative sign of confidence in rising prices.
Canadian Natural Resources Ltd., the country’s largest producer of natural gas and conventional heavy oil, said it will spend $50 million more than initially planned to drill 123 new heavy oil wells, five new light oil wells and 11 thermal oil wells in the second half of this year, with the first of those newly deployed rigs starting work in July.
The additional spending is small relative to the company’s overall budget, targeted between $3.5 billion and $3.9 billion, but shows a renewed confidence in the sector.
CNRL president Steve Laut said at the company’s investor day this week that the decision was made “with oil prices strengthening,” but was cautious to commit any more money to further drilling, even if prices continue to recover.
“Right now, we’re pretty happy with taking this first step. We’ll wait and see,” Laut said Thursday.
Spending more money and drilling more wells was a “possibility,” he said, “but I think we’ll need to wait until we set our budget for 2017.”
CNRL is one of the first large oil and gas producers to deploy more capital spending since oil prices began their long slide roughly two years ago. The company is able to re-deploy rigs in part because it has been able to sharply reduce its costs.
During investor day presentations, CNRL executives said the company could add 210,000 barrels of daily oil production with West Texas Intermediate benchmark prices at or near US$50 per barrel.
A handful of other producers around North America have also begun deploying more rigs in recent weeks. Oklahoma City-based Devon Energy Corp. boosted its capital expenditure budget to US$1.3 billion from US$1.1 billion this year to bring more production online.
Calgary-based Tourmaline Oil Corp., another low-cost producer, said Wednesday it could increase the number of rigs it plans to use in 2017 to 22 from 12, if prices rise.
WTI declined Wednesday to under US$47 per barrel Thursday after the benchmark had settled at above US$50 earlier this month.
Moody’s Investor Service said in a report Thursday there are still risks to the oil price recovery since the gains have been supported by temporary factors such as the wildfires around Fort McMurray and violence in Nigeria.
“As companies start to drill and increase supply, it contributes to the price issue,” Moody’s senior vice-president, corporate finance group Terry Marshall said.
Marshall added he expects oil producers will be cautious about rig redeployments in 2016 given oil prices have risen and fallen to and from US$50 and US$60 at various times over the past two years.