• 7 hours Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 8 hours Oil Gains Spur Growth In Canada’s Oil Cities
  • 9 hours China To Take 5% Of Rosneft’s Output In New Deal
  • 9 hours UAE Oil Giant Seeks Partnership For Possible IPO
  • 10 hours Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 11 hours VW Fails To Secure Critical Commodity For EVs
  • 12 hours Enbridge Pipeline Expansion Finally Approved
  • 13 hours Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 13 hours OPEC Oil Deal Compliance Falls To 86%
  • 1 day U.S. Oil Production To Increase in November As Rig Count Falls
  • 1 day Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 1 day Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 1 day EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 2 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 2 days Aramco Says No Plans To Shelve IPO
  • 4 days Trump Passes Iran Nuclear Deal Back to Congress
  • 4 days Texas Shutters More Coal-Fired Plants
  • 4 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 4 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 5 days Chevron Quits Australian Deepwater Oil Exploration
  • 5 days Europe Braces For End Of Iran Nuclear Deal
  • 5 days Renewable Energy Startup Powering Native American Protest Camp
  • 5 days Husky Energy Set To Restart Pipeline
  • 5 days Russia, Morocco Sign String Of Energy And Military Deals
  • 5 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
  • 5 days China Set To Continue Crude Oil Buying Spree, IEA Says
  • 5 days India Needs Help To Boost Oil Production
  • 5 days Shell Buys One Of Europe’s Largest EV Charging Networks
  • 6 days Oil Throwback: BP Is Bringing Back The Amoco Brand
  • 6 days Libyan Oil Output Covers 25% Of 2017 Budget Needs
  • 6 days District Judge Rules Dakota Access Can Continue Operating
  • 6 days Surprise Oil Inventory Build Shocks Markets
  • 6 days France’s Biggest Listed Bank To Stop Funding Shale, Oil Sands Projects
  • 6 days Syria’s Kurds Aim To Control Oil-Rich Areas
  • 6 days Chinese Teapots Create $5B JV To Compete With State Firms
  • 7 days Oil M&A Deals Set To Rise
  • 7 days South Sudan Tightens Oil Industry Security
  • 7 days Over 1 Million Bpd Remain Offline In Gulf Of Mexico
  • 7 days Turkmenistan To Spend $93-Billion On Oil And Gas Sector
  • 7 days Indian Hydrocarbon Projects Get $300 Billion Boost Over 10 Years
Alt Text

Who Are The Biggest Buyers Of U.S. Oil?

Exports of U.S. petroleum and…

Alt Text

The “Amazon Effect” Is Coming To Oil Markets

The move toward using software…

Alt Text

Is The Bakken Profitable At $50 Oil?

The Bakken remains the second…

Drilling Frenzy? Oilfield Services Booked Out

Oil Field

“If you don’t have your crews lined up by now, you’re not going to be able to complete your wells in Q1,” replied my oilfield service friend. “We’re fully booked into the New Year,” he nodded, anecdotally confirming the trends I was starting to sense.

Back at the office, my line charts for Canadian upstream spending and oilfield activity were finally reversing, poking up through the lowest grid lines in the spreadsheet. And all this was happening before the OPEC-ites pushed oil prices into the low end of the $US50/B range last week.

Two Canadian pipeline approvals also pumped more positively charged ions into the industry’s mood.

But I’m wondering what’s going on? If the first quarter is already booked up for some vital oilfield services, what does the rest of 2017 look like? Could the next page flip of the calendar put the worst two years in the industry’s history back into the black?

I’m not exaggerating when I say that the last two years have been the worst in the 100-plus years of Western Canada’s oil and gas business. There is no other time in its history when the aggregated income statements of all upstream producers showed $C52 billion and $C32 billion of consecutive losses like in 2015 and ’16 respectively; 1998 doesn’t even come close as Figure 1 shows.

Related: OPEC Cheating Will Cap Oil At $52

Whether or not the industry will get back into the black in ’17 is still unclear. It will take more than a recovering first quarter, but at least it’s a start. Having said that, this nascent recovery is not going to be uniform across the business.

The cost-and-carbon laden oil sands that take far too long to develop will still remain hungry for investment well beyond 2017. On the other hand, the rejuvenation of the Canadian oil and gas industry is already happening in tight oils, liquids and natural gas plays located in western Alberta; northeast BC and southern Saskatchewan.

(Click to enlarge)

Post downturn, capital investment is heavily favouring a subset of the business that has three traits: bite-sized development, fast investment payback and lower carbon (natural gas and lighter oils). This trifecta is what the Canadian oil and gas industry will be biasing their bets towards to compete against their U.S. counterparts in Texas, Oklahoma and Pennsylvania.

Assuming $US55/B (WTI) and $C3.40/Mcf (AECO), prices in 2017 should boost the odds of success compared to the recent past. Two full calendars of fiscal pain have done much to tune up the industry for the future. Costs have moderated, field productivity has improved significantly, and the debilitating Canadian crude oil price discounts of 2012 and ’13 have almost retreated back to normal. A weaker Canadian dollar also eases the ante.

The tone will be better next year. Upstream revenue for the industry as a whole is likely to push back through $C 100 billion, up from $C 78 billion this year. Cash flow should more than double from $C20 to $C45 billion.

Following the money, capital investment will be up in ’17 too, but as mentioned the spending will not be uniform across Western Canada’s hydrocarbon geography. Recent financial disclosure from more than 20 publicly traded companies suggests an average 40 percent bump in 2017 over this year. Companies targeting coveted areas like the Montney represent the biggest spenders. On the other hand, oil sands spending will be down again next year with an estimated 20 percent reduction over an already-weak 2016. Related: OPEC Winners: Iran Brags It Can Now Sell As Much Oil As It Wants

Things are looking much better outside the oil sands, but let’s not get carried away with optimism. The aggregate financial numbers are far short of the peak in 2014 when the industry as a whole was investing $1.5 billion every week. Which begs the question, “Why are some oilfield service companies booked up in Q1 as if it were boom times again?”

Answer: Imagine any service industry in which its customer base has endured close to $C80 billion of losses and write-downs over two years. The Canadian oilfield service industry has been gutted (by the way this is a global problem, not one that is exclusive to Canada). For those service companies that still have a pulse, their talent pool has been weakened, thousands of qualified staff have been let go or have left voluntarily. Equipment has not been maintained. Banks have pulled their loans. The physical and financial capacity of the oilfield service business has been left lame. So any company left standing with the best equipment and people has a good looking order book for the next three months, even if they are still on financial crutches.

Headlines, ticker tapes and spreadsheets show promising signals that 2017 is looking quite a bit better for the oil and gas industry. But it’s only going to be better for a smaller set of producers and oilfield service providers than in the past.

(Click to enlarge)

By Peter Tertzakian for Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News