FOR IMMEDIATE RELEASE:
CALGARY, AB (April 29, 2021) – In its second update to the 2021 Canadian Oilfield Services Activity Forecast, released today, the Petroleum Services Association of Canada (PSAC) has revised the number of wells drilled (rig released) across Canada for 2021 to 3,600 wells. This is an increase of 250 wells over PSAC’s January 2021 Forecast of 3,350 wells.
The updated forecast is based on a stronger commodity price outlook for 2021 with PSAC now expecting the WTI crude oil price to average US$58.00/barrel (WTI) for 2021, natural gas prices of $2.75 CDN/MMBtu (AECO) and the Canadian dollar slightly stronger averaging $0.80 USD.
PSAC Interim President & CEO Elizabeth Aquin commented, “Global demand for oil is expected to recover and grow with the ramp-up in vaccinations despite harsh restrictions to counter the third wave of COVID-19 currently wreaking havoc on several key markets around the globe. According to Platts Analytics, oil demand is expected to reach 102.6 million b/d by the fourth quarter of this year, the highest since Q4 2019 when it averaged 103.9 million b/d .
“With price support from OPEC and demand recovering, commodity prices for oil have also rebounded. While we are seeing some increased activity, exploration and production (E&P) companies are using their improved cash flow to strengthen balance sheets, pay down debt, issue dividends, and bolster reserves and production through M&A activity over re-investment in new production. Between 2011 and 2016, after-tax cash flow reinvestment averaged 140% but over the past four years (2017 through 2020) this ratio fell to an average of 83%, and is forecasted to plunge to a mere 35% for this year . This dearth of investment combined with demand growth trending up and storage levels trending down, could portend an upswing in activity.”
Activity levels in the first half of 2021 are expected to account for only 45% of the year’s total versus 64% last year before the full impact of pipeline blockades, project cancellations, oil price war, and COVID-19 was felt. Although Q1 2021’s rig release count trailed Q1 2020 by over 30%, we expect that drilling from April to December will be almost double that for the same 9-month period in 2020. The majority of drilling this year is expected to be focused on oil with 67% of total wells, gas with 29%, and the balance being service wells.
Aquin added, “Maintenance, repair, and operations (MRO) and turnaround activity is growing over that seen last year and helping to keep oilfield services (OFS) companies working. Also helpful is the increased work from the $1.72 billion in federal funding that aligned with PSAC’s advocacy, for activities to decommission and close well sites, facilities, and pipelines. Work under these programs in the three western provinces is underway, helping to retain jobs and provide some revenue for OFS companies while drilling and completion activity levels are down.”
On a provincial basis for 2021, PSAC estimates 1,920 wells to be drilled in Alberta and 1,125 wells for Saskatchewan, representing year-over-year increases of 482 and 48 wells, respectively. At 90 wells, drilling activity in Manitoba is expected to increase modestly from 83 wells in 2020, whilst activity in British Columbia is projected to increase from 367 wells in 2020 to 450 wells in 2021. At 15 wells for 2021, activity in Eastern Canada is expected to decrease nominally from its 2020 figure of 16 wells.
Despite the expected demand growth for oil and positive outlook for natural gas, headwinds continue with rising climate goals and emissions reductions targets of the federal government that will impact costs and capital investment decisions in Canada. Rising inflation is another factor that is already impacting costs of the OFS sector that will undoubtedly affect the economics and decisions of future activity.
“On the bright side for OFS companies, developing new technology and innovating is their forte and how they compete for business. They will continue to improve ESG performance outcomes, reduce environment impacts, and increase efficiencies. As well, government strategies that include blue hydrogen from natural gas bode well for increased OFS activity and OFS services are also well positioned to provide technology, expertise, and products for the development of helium and geothermal,” said Aquin.
The Petroleum Services Association of Canada (PSAC) is the national trade association representing the service, supply and manufacturing sectors within the upstream petroleum industry. PSAC is Working Energy and as the voice of this sector, advocates for its members to enable the continued innovation, technological advancement and in-the-field experience they supply to energy explorers and producers in Canada and internationally, helping to increase efficiency, ensure safety and protect the environment.
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Elizabeth Aquin, Interim President and CEO
Petroleum Services Association of Canada (PSAC)