PSAC Reduces Oil Field Activity Forecast

- May 2nd, 2019

The association believes uncertainty in the Canadian oil and gas sector is pushing explorers into other jurisdictions.

The Petroleum Services Association of Canada (PSAC) has lowered its oil and gas well drilling activity forecast for 2019 for the second time. 

The November 2018 outlook had estimated that 6,600 wells would be drilled this year, but the new, more modest position estimates that 5,300 will be. That’s a slight decrease from PSAC’s revised January estimate of 5,600, but a 20 percent decrease from the year-end prediction.

Despite Brent crude selling at US$70.12 a barrel, West Texas crude moving at US$61.30 and natural gas going for US$2.58 per thousand cubic feet (mcf), the PSAC forecast also considers the Canadian loonie’s performance and year-to-date activity.

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“PSAC has based its updated forecast on an average natural gas price of C$1.65/mcf (AECO), crude oil price of US$57.00/barrel (WTI), and a US, Canada exchange rate averaging C$0.75,” notes the report.

The association believes uncertainty in the Canadian oil and gas sector is pushing explorers into other jurisdictions.

“It is unconscionable that we continue to thwart our own prosperity, driving capital investment that creates good middle-class jobs and economic benefits for all Canadians to other countries while we make no dent whatsoever in global GHG (green house gas) emissions for our loss,” said PSAC President and CEO Gary Mar.

While the number of new wells has been reduced by 1,300, the number of active wells will need to be recounted as well, especially after Trident Exploration, a private Calgary-based natural gas company, unexpectedly went out of business earlier this week.

The end of operations for Trident has left the company’s 4,700 wells in a precarious position, with media outlets reporting they have been abandoned.

Trident cites the recent Redwater decision as one of the catalysts to its closing.

The court ruling, which was handed down earlier this year, found that energy companies are responsible and liable for properly cleaning up old wells and the properties they are situated on. The Supreme Court of Canada ruling also found that energy companies must clean the former wells even if they have filed for bankruptcy.

“As many have speculated and we have now unfortunately proven, the Redwater decision has had the unintended consequence of intensifying Trident’s financial distress and accelerating unfunded abandoned well obligations,” reads the Trident statement. “Without regulatory collaboration and clarity, Trident is unable to address its near-term liquidity needs and has no financial ability to continue operating.”

The Redwater case was launched by non-profit public safety agency Orphan Well Association (OWA), which is committed to managing the environmental risks of oil and gas properties that do not have a legally or financially responsible owner that can be held accountable. The sites the OWA oversees are considered abandoned or “orphans.”

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“We fear that many other companies may falter without clear, sound policy making post-Redwater. In the face of this extended uncertainty, lenders and investors may flee Canada and further job losses will occur,” continues Trident’s announcement.

“Without access to financing, we expect that the Orphan Well Association may grow exponentially.”

Since its establishment in 2002 the OWA has successfully decommissioned 1,400 orphaned wells.

According to PSAC, some 2,685 new wells will be drilled in Alberta this year, a reduction from the 3,532 well forecast in November. However, while numbers in Alberta and BC will decrease, the outlook for new wells in Eastern Canada has increased from 9 to 20.

The oversight group also credits the OWA’s efforts to remediate and clean old sites.

“On a positive note, closure activity — decommissioning, remediation and reclamation activity, has intensified. With increased funding to the Orphan Well Association and the new Area Based Closure program introduced by the Alberta Energy Regulator, more well sites are being decommissioned providing additional work for services companies when they sorely need it,” added Mar.

The ongoing dispute between Alberta and BC over pipeline expansion, as well as other pipeline issues, have also contributed to the reduced well forecast.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

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