Drilling forecast calls for 500 fewer wells despite higher global oil prices

The Petroleum Services Association of Canada is cutting its 2018 Canadian drilling forecast by 500 wells as pessimism continues to grip the industry despite higher global oil prices.

The organization says it now expects 6,900 oil and gas wells to be drilled this year, 200 fewer than were drilled in 2017, and nearly seven per cent less than its April forecast for 7,400.

PSAC CEO Tom Whalen says revenue numbers for the petroleum services sector are up this year compared to last year, due in part to producers drilling longer wells, but the number of wells is down by 200 through six months of 2018 compared with the same period of 2017.

He says service companies are reporting minimal improvement in earnings and many are continuing to lose money despite benchmark New York oil prices that rose from $50.17 US per barrel a year ago to close at $70.13 US on Monday.

Whalen says Canadian companies aren't able to gain from higher world prices because pipeline capacity is inadequate to take products to market, resulting in higher-than-usual price discounts for western Canadian oil.

Meanwhile, natural gas prices continue to languish at levels that are often less than profitable thanks to competition from burgeoning U.S. shale gas plays.

"In general terms, revenue numbers for our sector are up year over year but we note that several publicly traded Canadian service companies are reporting minimal improvement in the quality of bottom line earnings; many are sitting at near breakeven or are still in negative territory," Whalen said.

"This is not sustainable from a business continuity and competitiveness perspective. It's also a compounding symptom of the sector's lack of attractiveness for investment."

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