Industry Synopsis – October 2019
The Back Story
In the US, despite a $25 slide of the WTI oil price in early October 2018 and currently hovering in the mid $50/bbl., US unconventional shale players are showing no sign of reducing drilling programs in the short term. In a continued oil price scenario growth will continue in 2019, estimated at 7%, according to Westwood’s new U.S. Drilling and Completion Q2 2019 Outlook.
Locally, market conditions are less than ideal, with Western Canada’s continued lack-luster performance, low commodity prices & the Canadian political handicap. The Petroleum Services of Canada (PSAC) expects a total of 5,100 wells (rig releases) to be drilled in Canada in 2019, drilling activity is slumping off an averaged 3-year plateau of ~ 6,600 wells/yr. The net effect equates to approximately $1.5 to $1.8 billion less in capital spending by exploration and production companies, 16,000 more job losses & a total annual loss of approximately 15-25 Billion CDN in revenue.
The boom-bust cycle in Western Canada is a cyclic pattern, this is not new and can vary in duration, however there are distinct differences relative to historical down cycles. Record global production capability, due to evolution in well design & stimulation techniques have flooded the world with oil, changing the supply-demand dynamic between Western Canada & other oil producing regions…other regions can now produce regionally in greater quantities, more efficiently … while Western Canadian oil benefiting from the same evolutions, must contend with not only flooded markets, but also lack of market access (pipelines), high labor costs, non-parallel environmental standards & governmental handicap.