After 'very disappointing' 2019, Canada's oil and gas drilling forecast sinks even lower

Oil and gas drilling activity in Canada will continue to be dragged down by a sense of uncertainty in the oilpatch after a federal election that had an "unrelenting focus on climate action," according to the head of the Petroleum Services Association of Canada (PSAC).

The Calgary-based industry group released its 2020 Canadian Oilfield Services Activity Forecast on Thursday, predicting that 4,500 wells will be drilled in Canada in 2020. That's 500 fewer than PSAC's final revised forecast for 2019.

"Following a very disappointing 2019 that saw activity plunge to 2015/2016 levels with about 2,000 fewer wells drilled than forecast, the outlook for 2020 is even worse," said PSAC president and CEO Gary Mar in a release.

He said exploration and production companies are choosing to buy back their own under-valued shares, pay dividends and pay down debt rather than reinvest in Canada. 

"It's hard to justify spending or attract new capital investment when market access constraints remain and policy uncertainty persists," Mar said.

"With the unrelenting focus on climate action during the recent federal election campaign and the resulting minority government that is expected to be supported by parties that have no interest in the global GHG reductions that Canada's oil and gas industry can deliver, nor the economic benefits that Canada's most prolific industry and largest exporter provides, PSAC is forecasting a further five per cent decline in activity to 4,500 wells."

According to PSAC's newest forecast:

• In Alberta, 2,155 wells will be drilled in 2020, down 235 from 2019.
• Saskatchewan will have 1,795 wells, down by 200.
• At 190 wells, drilling activity in Manitoba is expected to drop by 20 wells year-over-year.
• British Columbia is projected to decrease from 390 wells in 2019 to 345 wells in 2020.
• Activity in Eastern Canada is expected to remain flat year-over-year at 15 for both 2019 and 2020.

PSAC bases its 2020 forecast on an average natural gas price of $1.60 per mcf, crude oil prices of $58 US per barrel (WTI), and the Canadian dollar averaging $0.76 US.

"The only bright spot for oilfield services companies is the spending on production optimization, maintenance and repair work (MRO) that continues along with new decommissioning and closure activity," Mar said.

"With additional funding in place for the Alberta Orphan Well Association and the introduction of the Alberta Energy Regulator's area based closure program, work in these areas has increased."

Allan Fogwill, president and CEO of the Canadian Energy Research Institute, says while market issues are still dampening drilling activity, there are hopeful signs on the horizon.

"It really is all about market access," he said. "If you're able to develop additional pipeline capacity to markets, a lot of the other issues in terms of lack of investment and lack of activity and unemployment will not go away overnight but will definitely go away over time."