Steady is the word Petroleum Services Association of Canada (PSAC) president and CEO Mark Salkeld uses again and again when talking about the year ahead in the Canadian oil patch.
PSAC updated their drilling activity forecast for 2013 on Jan. 24, now suggesting it will be a slightly busier year they than originally anticipated when they released their earlier forecast in November.
“Last year, we were down. Last year, we dropped significantly,” said Salkeld, adding that 2013 is expected to see a three per cent increase in activity over 2012.
A big part of that increased activity as projected by PSAC is a bit of a surprise to Salkeld, simply because it is taking place in the natural gas fields of northeast British Columbia, where producers have been suffering from low commodity prices and market access issues stemming from the remote nature of the plays, the growing shale gas glut in the traditional export market of the United States and the slow development of a liquefied natural gas (LNG) export business that is still years away from becoming a reality.
“There’s just a really good interest in developing the gas there,” said Salkeld, explaining the 13 per cent increase in projected activity since the November forecast.
PSAC originally forecast 385 wells for the province, but they are now predicting 435 wells in B.C. this year.
“We’re talking the bigger players, the guys that can afford to play longer-term games,” he continued, citing Shell Canada and the money that company is investing in their B.C. operations and LNG export plans as an example.
Salkeld suggested activity is starting to pick up in northeast B.C. in preparation for LNG projects that are on the way.
“Not huge, but steady,” he said. “Because it’s still a tough area to play in. Expensive to operate.”
PSAC expects 7,165 wells in Alberta this year, which is a two per cent increase over the November forecast, but a good portion of that is being attributed to exploration activity in the Fort McMurray area.
“The producers in the area are still just identifying the scope of their assets,” said Salkeld.
“These wells are exploratory,” he added. “And not saying they can’t become producers.”
The forecast for Saskatchewan is staying the same at 3,199 wells, but Manitoba is down 13 per cent from the original forecast with 100 fewer wells than the 750 predicted in November.
Salkeld said that activity in Manitoba has been picking up in recent years because new technologies such as hydraulic fracturing and directional drilling have allowed producers to tap into unconventional reservoirs that the industry has known about for over 50 years.
“They’re having success,” said Salkeld.
However, Manitoba suffers from a lack of transportation infrastructure.
“A lot of these wells, the oil’s got to get trucked out. So, that limits your capacity to deliver,” he continued.
“Definitely lots of resource there. And lots of good initiatives. But until the infrastructure gets developed and we can get our products to market – to other markets – it’s going to be a little bit tight.”
That is a problem that doesn’t just plague Manitoba, but also causes trouble for oil producers in Alberta and natural gas producers in B.C.
PSAC said that their forecast for 2013 is tied to the fact that the Canadian dollar should close to par with the U.S. dollar throughout the year and the fact that natural gas and oil prices should stay fairly low, averaging $2.95 CDN per thousand cubic feet (mcf) and $90 USD per barrel, respectively.
Combined with market access constraints, the strong Canadian dollar and low commodity prices represent a real challenge for Canadian producers.
“We have across North America now an abundance of natural gas,” said Salkeld.
“The U.S. is working hard to become energy self-sufficient and an energy exporter,” he continued. “So, the gas prices are down just because of the supply side. And the demand has got to grow. On the oil side, it’s the same thing.
“It’s still demanding a higher price, but Canada’s at the bottom rung on the ladder when it comes to pricing because of our situation.”
That situation is that Canada is a landlocked basin far from producing heavier oil than other oil plays that are also closer to refineries.
“It costs more to produce here,” said Salkeld. “And you have to truck it out versus pipeline. So, it costs more to get our product to surface and … to refineries. And [there is] competition against fields that are closer to the refining capacity.
“We’re hurting in Canada overall because our oil is not priced as well as lighter oils closer to refineries.”
Salkeld said that situation highlights the value of developing new markets for Canadian oil and natural gas.
“Like getting our product down east to the refineries on the east coast and getting our product … down into the U.S. to the mega-refineries in Texas City.”
There is also the foreign market opportunity off the Pacific Coast.
“Just the amount of customers out there that we can sell to if we can just get it there,” said Salkeld.
Still, Salkeld is expecting a good year.
“Part of the nature of the Canadian oil patch in that if isn’t season, it’s political or it’s pricing,” he said. “We’ve been facing those kinds of situations for years. And we rise to the challenge in the boom times and we struggle through in the bust times. And right now we’re in between. We’re steady.
“We got a steady price for oil,” he continued. “We’d prefer gas to be up, but we still have to use it. Gas is still in demand. So, we still need to produce it.
“It’s steady as she goes. It’s going to be a good year.”