By Paul Wells
Continued market unrest, lagging natural gas and volatile oil prices, a longer than hoped for spring breakup and another wet spring has the western Canadian oilpatch bracing for uncertainty as 2012 continues to unfold.
And with some exploration and production companies already having announced substantial cuts to 2012 spending plans, this year's industry drilling forecasts may soon be downgraded from previous expectations.
"One thing that we're watching very closely is we have seen some analysts come out with some very difficult information for the industry to look at -- they've been talking about depressed prices for the end of 2012 and going into 2013," said Mark Scholz, president of the Canadian Association of Oilwell Drilling Contractors (CAODC).
Although Scholz says the recent rebound in crude oil prices to in and around the $87 per bbl West Texas Intermediate range is a good sign, other factors in play could further pinch capital spending and drilling plans going forward.
"There is a tremendous amount of uncertainty in the market right now and that uncertainty ... may or may not affect projects coming into the fourth quarter," he said.
"We have heard reports of there being up to a 20 per cent reduction in capital expenditures for the fourth quarter, which certainly isn't good news for drillers and contractors."
Gary Leach, executive director of the Small Explorers and Producers Association of Canada (SEPAC), agrees that there could be an overall pullback in drilling for the remainder of this year.
"The larger trend to watch will be the extent to which the usual recovery in drilling activity over the summer is moderated due to producers cutting spending as a result of uncertainty caused by oil price weakness. Western Canadian drilling activity responds quickly to changes in the commodity price outlook," he said.
"A number of junior and intermediate producers have already cut their previously announced capital spending for this year and if the uncertainty persists, despite the oil price uptick in the last couple of days, and if larger operators follow suit, then drilling activity will be negatively impacted."
Leach noted that FirstEnergy Capital Corp.'s latest forecast, released a few days ago, calls for drilling activity this year that is well below the earlier forecasts issued by the Petroleum Services Association of Canada (PSAC) and CAODC.
Mark Salkeld, PSAC president and chief executive officer, said a long spring breakup and wet weather in May and June has already compromised the capital plans of some producers.
"To a certain degree it was like last year, although I don't think it was wet in some areas. Southern Saskatchewan was pretty severe last year and again this year, which is slowing us down -- although we're not getting the same degree of flooding -- but it's definitely affecting our ability to get on the road and to locations off the main roads," he said, adding that PSAC will release its updated drilling forecast next week.
"The Bakken, without a doubt, has been affected. Parts of central Alberta are still too wet to get the rigs out, the Cardium in the Pembina area was also affected, as well as the Duvernay a little bit."
Having said that, Salkeld noted that there are certain producers who will be less affected as they are using multi-well pads.
"They can get those pads built, get the wells drilled and get the equipment on location to drill and complete, which is extending our season to a certain degree," he said.
"But that's not the case with all the producers. You still have a lot of small explorers that have just one-off wells here and there and road bans and the weather affects them more."
Leach added that while parts of Western Canada have been experiencing an extended period of wet weather this spring, the rig count is "virtually the same as 12 months ago and not entirely unexpected" for this time of year.
"There may be some localized challenges re-scheduling rig moves and some smaller operators may be more impacted by this exercise than larger players as drilling activity climbs higher over the summer," he said.
CAODC's Scholz said that overall activity levels are off to a slower start this summer because of rain and the prolonged spring breakup.
"The last time I looked at the numbers we were sitting at about 37 per cent utilization this week and that, of course, is better than the prior couple of weeks when we were sitting at the very low 20s and in fact sometimes dipping below that to the 15 to 18 per cent range," he said.
"Usually in our industry we can expect to have your typical spring breakup, but the problem is that this one lasted longer than a lot of us would have liked."