The number of oil and natural gas wells drilled in the first quarter of 2016 in Canada fell nearly 40% to 1,062, with there still being no signs of a bottoming out of oil prices, a leading drilling contractor said Monday.
In the same quarter of 2015 the total number of wells drilled in Canada was 1,783, Kevin Neveu, CEO of Precision Drilling, said on an earnings webcast.
Q1 "has been a very, very tough quarter and with WTI prices falling ... customers have responded by trimming drilling plans," he said. "We started the year with 61 rigs and 42 rigs in Canada and the US [respectively] and at the end of the first quarter we were down to 13 rigs and 24 rigs."
The company also saw five rig contracts canceled in Q1, of which three were in the US and two in Canada, Neveu said.
The cancellations in Canada were in the Cardium play in the Western Canadian Sedimentary Basin, where oil drilling activity slowed significantly due to low commodity prices and unfavorable differentials faced by the Western Canadian Select blend, he added.
The cancellations in the US were in Texas and Colorado, Neveu said. He did not give any reasons, but said more cancellations were expected.
"It is a still a structured market and not all oil companies will survive with there being a consolidation of [exploration and production] players. Winter signifies the onset of peak drilling activity in Western Canada. But this has been one of weakest in decades. We have little visibility for Q2 and Q3," Neveu said.
However, reduced rig counts and drilling activities have not resulted in decreased revenues from rig deployment.
Precision's earnings in Q1 averaged C$23,880 ($18,821)/day in Canada, compared with C$23,515/day in the prior year first quarter due to the payment of C$4 million for cancellation of the two contracts, he said.
In the US, the company's revenues in Q1 2016 were $31,830/day, compared with $25,180/d in the same quarter of 2015 due to cancellation payments of $13 million, he said.
For the current year, Precision is forecasting 57 contracts with that figure decreasing to 31 in 2017, Chief Financial Officer Carey Ford said on the same call.
In the second and third quarter of 2016, tight oil production and natural gas drilling for planned LNG projects in British Columbia are unlikely to be "encouraging," he said.
"Junior and medium oil producers [with less than 100,000 b/d of output] in Alberta and Saskatchewan are still dealing with reduced cash flows. We have seen of late equity financing, but that will go more for tightening their balance sheets and not to the drill bits," Neveu said.
However, steady demand from Alberta's oil sands producers for NGLs will drive "to an extent" investments in the WCSB for the next three years, Neveu said.
Canadian regulator National Energy Board said in January oil sands production will grow by 700,000 b/d to reach just over 3 million b/d by 2019.
Separately, Precision is also preparing for a turnaround in the industry, in case it does happen, Neveu said.
The company has 140 new-build Tier 1 rigs that can be pressed into service with "zero capital spending," he said, adding that the first capital to come back will be directed towards development drilling.
