Oil sands forecast suggests no quick recovery in 2020, PSAC update shows
The Petroleum Services Association of Canada (PSAC), in its third update to its 2020 Canadian Oilfield Services Activity Forecast, announced that it is decreasing its forecasted number of wells to be drilled (rig released) across Canada for 2020 from 3,100 (April 2020 revision) to 2,800 wells drilled.
PSAC is basing its updated 2020 Forecast on average natural gas prices of $2.00 CDN/mcf (AECO), crude oil prices of $40.00 USD/barrel (WTI) and the Canada-US exchange rate averaging $0.73. In its original 2020 Forecast, released in October 2019, PSAC had estimated that the total number of wells drilled in 2020 to be 4,500 wells.
PSAC Interim President & CEO Elizabeth Aquin said, "Activity levels are at lows not seen in decades and are taking their toll on a sector that was in its sixth year of a downturn when COVID-19 hit. Slow economic recovery, surplus crude oil supply, low commodity prices, and high debt levels are thwarting a quick recovery with 2020 expected to see 43 percent less activity overall than 2019.
"Optimism for a robust second half of the year has been hampered by continued excess supply offering little incentive to drill for more oil, and commodity prices that have languished below economic levels for much of this year. This has resulted in many companies struggling with balance sheets that will see the current uptick in prices applied to servicing debt before investment in new drilling.
"Where we do see activity is from companies facing decline rates in their reserves that look to new drilling to replace lost production. The majority of drilling is currently focused on oil at 67 percent of total wells over natural gas at 26 percent, however, we do anticipate marginally more activity on the gas front as associated gas production is expected to decline given the decrease in oil production as well as gas to meet continued interest in LNG."
Mark O'Byrne, PSAC Chair and President, Palliser Production Management Ltd. (a Schlumberger Canada Limited company), added, "Though further support is needed around access to capital to stimulate new drilling activity, many oilfield services companies are turning to maintenance and workover activities to see them through these trying times and those that offer services in the closure space are encouraged by the federal funding and provincial programs for orphan and inactive wells for which PSAC advocated. These activities will provide some cash flow relief and help to retain workers with essential skills and expertise. Others will pursue diversification in the nascent geothermal and hydrogen sectors."
On a provincial basis for 2020, PSAC now estimates 1,360 wells to be drilled in Alberta, down 37% from 2,155 wells in the original forecast. The revised forecast for Saskatchewan now sits at 1,055 wells, down 740 wells from the original forecast. British Columbia's revised forecast is for 285 wells to be rig released, 60 wells lower than the original forecast while Manitoba's activity was also lowered, from 190 to 80 wells.
Aquin continued, "Oilfield services companies are quintessential entrepreneurs and so understanding that the world continues to need oil and gas while also thirsting for cleaner energy, will continue to focus on innovation and the development of new technologies for their customers - the oil and gas companies, to reduce emissions, increase positive environmental outcomes, drive efficiencies, and grow profitability to ensure Canada is globally competitive."