PSAC Forecast update confirms low investor confidence in Canada

Today, the Petroleum Services Association of Canada (PSAC), in its third update to its 2019 Canadian Drilling Activity Forecast, announced that it is decreasing its forecasted number of wells to be drilled (rig released) across Canada for 2019 from 5,300 (May 2019 revision) to 5,100 wells drilled. PSAC based its updated 2019 Forecast on average natural gas prices of $1.60 CDN/Mcf (AECO), crude oil prices of US$57.00/barrel (WTI) and the Canada-US exchange rate averaging $0.76.

On a provincial basis for 2019, PSAC now projects 2,425 wells to be drilled in Alberta, down from 3,532 wells in the original Forecast. The revised Forecast for Saskatchewan now sits at 2,035 wells compared to 2,422 wells in the original Forecast, and Manitoba is forecasted to see 230 wells or a decline of 25 in well count for 2019. Approximately three percent (3%) more wells are expected to be drilled in British Columbia, with PSAC’s revised Forecast now at 395 wells, up from 382 in the original Forecast.

PSAC President and CEO Gary Mar said, “Compared to last year, the total number of wells expected to be drilled is lower by 31%. These are levels not seen since the lows of 2015 and 2016 at the onset of the downturn.

“It is clear that our industry continues to face challenges for a healthy recovery.  News of the Trans Mountain Pipeline Expansion being approved for a second time following its purchase by the Government of Canada has not restored investor confidence in Canada. Concerns remain that it will be built in a timely fashion to open market access beyond the US, and with the passage of Bills C-69 and C-48 by the federal government, support for this industry at all in Canada is in question. For the first time in Canada, sovereign risk is an issue.”

Mar continued, “On the provincial front in Alberta, while optimism is evident with a new government in office, curtailment of oil production remains in place and continues to be a factor against new investment. Across both Alberta and B.C., gas production is also hampered by low prices, again from lack of market access beyond the US until LNG Canada is in service.

“The result of these challenges is that capital, companies, equipment and crews are leaving Canada for better opportunities, with the US an easy choice as it forges full-speed ahead with a supportive government and a welcoming and competitive business environment. Having only one customer for our oil and natural gas has not been a good strategy for Canada. Canadians are losing out on jobs and $15-25 billion per year in lost revenue that could be used for social programs such as health care, education and roads as well as for R&D and innovation.”