Drilling forecasts see dramatic slashes for 2015

Encana drilling rig in Fort Nelson. Photo by Encana Corporation

Another oil and gas industry group is slashing its forecast for the number of wells that will be drilled in Canada this year to only 5,531.

In its second update of its 2015 forecast, the Canadian Association of Oil Drilling Contractors (CAODC) has cut its predictions since January for wells drilled and jobs lost by 16 and 9 per cent, respectively.

Going back to its initial forecast in October, it’s predicting “an astounding” 47 per cent drop in wells drilled, and, when it comes to job loss, the downgrade is 50 per cent — 25,110 fewer jobs than last year.

The only encouraging news from Association President Mark Scholz was for BC, when he was asked about the keys reasons behind what is now seen by many as service industry survival cuts.

He conceded last week’s Petronas LNG announcement puts this province, and more specifically this area, in a stronger position than other oil patch areas of the country.

“If that goes through, you’re going to see a real uptick in activity in B.C., as you get that terminal built,” he said.

“The rest of the country, there’s a few things that are really really curtailing. One of them is certainly commodity prices, and commodity prices have been incredibly volatile… that’s causing a lot of investors a bit of worry in terms of where things are going to be at.

“Second, producers are having a hard time raising money right now. The capital markets are tight, and if you want to go and raise some money to drill some wells, we rely on outside capital to be able to drive our business. If we can’t raise that money easily and efficiently, it makes it really difficult to a run a business,” he said.

It is argued by some that adding to those difficulties are last month’s government change in Alberta and the industries changes in drilling technology.

Scholz is hesitant about putting much of the investment concern on the newly elected Alberta NDP government.

“They are talking about energy policy reviews, that is causing uncertainty there’s no question about it, where we’re actually going to land when it comes to land in terms of royalties,” said Scholz.

“They’ve already announced a two per cent corporate income tax hike. However, we’ve actually had a chance to sit down on a few occasions and they’ve been incredibly receptive to working with the industry.

“They know this industry is incredibly important to job creation and to the Canadian economy,” he said.

We also asked Mr. Scholz about the possible downturn impact of technological advancement—both in terms of job loss and cost savings.

“It has improved productiviy. I think the overall composition on the crew hasn’t really changed that much,” he said.

“When you look at what sort of impact that’s going to have on a variable cost its not really that significant. But, when you’re able to drill a well, two, three, four days quicker, that is going to have a significant incremental cost savings.”

The CAODC is predicting a year-over-year job loss of more than 25 thousand — a 50 per cent decline — and also a 47 per cent nation-wide drop in the number of wells drilled, to 5,531.

That’s slightly better than the number forecast at the end of April by the Petroleum Services Association of Canada (PSAC), which predicted 5,320 wells drilled.

However, the simple explanation for that is PSAC numbers don’t just deal with the number of wells drilled, but rather the number of wells drilled and completed.