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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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The U.S. Oil Boom Is Attracting Canadian Drillers

Oil pipelines

Canadian oil and gas drillers are moving their rigs to the United States in response to greater demand for their service there and an investment climate at home that is, according to industry insiders, only making their lives harder.

In a recent story for The Globe and Mail, Dan Healing quotes a few executives from drilling companies who say they’re taking rigs to the Permian in Texas, and the exodus will likely intensify, even if not all drillers are too comfortable with the move so far to the south.

One of these executives, Trinidad Drilling’s CEO Brent Conway, put it in simple terms: "We've raised taxes, we're increasing costs because of labour laws that are changing, we aren't building pipelines and we can't get federal or provincial governments to do anything to help us."

Meanwhile in the Lower 48, drillers are getting closer to the 10-million-bpd mark by the day, despite warnings that they might “drill themselves into the ground” if they don’t rein in production growth. These words, spoken last year by Continental Resources’ Harold Hamm, rang out across the industry when benchmarks were just beginning to recover. But now, with Brent still very close to $70 a barrel and WTI enjoying a lift to $66, it’s easy to forget them, so shale boomers are drilling and hedging their future production at the higher prices. For them, life seems to be good.

For Canadian drillers, not so much. A lack of pipeline capacity seems to be the most pressing problem. It is not a new problem. It has been around for years, and even in 2015, Canadian media reported warnings that the discount at which Canadian crude trades to West Texas Intermediate will only widen if no new pipelines are built, and this will hurt the performance of the local oil industry. Related: The Biggest Threat To U.S. Oil Exports

Things haven’t changed for the better since then. Keystone XL has not yet received a final investment decision as doubts persist about it being economical, and environmental opposition remains strong. Trans Mountain’s expansion — a project that the federal government of Justin Trudeau approved last year — is also far from certain as the government of British Columbia has put its foot down, vowing to do whatever it takes to shelve the project forever.

Western Canadian Select (WCS) is currently trailing WTI prices by a discount of more than $30 a barrel. That’s a very wide gap, and even PM Trudeau seems to be aware of it because at a recent town hall meeting in Edmonton, he said that Canadian crude needs new markets and therefore needs the Trans Mountain expansion to reach the coast of British Columbia. Yet there was no cheer at the meeting. Opposition to the project, to all pipeline projects in Canada, is riding the high wave of saving the planet, oblivious to questions like where the more than 100,000 people now working in oil and gas in Alberta alone are going to go and what is going to replace the industry’s contribution to the provincial and federal GDP.

This contribution may not be 50 percent, as it is in much more oil-dependent economies, but it is there. Until the pipeline problem is solved, more drillers will leave for the Permian and the rigs, according to the industry executives that spoke to The Globe and Mail, may never come back.

By Irina Slav for Oilprice.com

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  • Jonathan on February 05 2018 said:
    Alberta should become the 51st state starting a domino effect that allows the US to merge with Canada. This is needed for a number of reasons including increased geopolitical moves in the arctic by Russia and China. Canada is wilderness and unexplored and can't defend itself. A US/Canada combination will create an unstoppable powerhouse in the world.
  • Richars on July 15 2018 said:
    I absolutely 100% agree with Jonathan. And with Alberta currupted by British Columbia and Saskatchewan, why do Albertans still think the difference in politics or culture is more important?! There would still be freedom rights, peace, a greater economy, and a fully fair rights on how Alberta's money is spent for Alberta as a U.S. state. How worse do things need to get in Alberta as a Canadian province for Albertans to agree U.S. statehood is their only alternative? And of course the rest of Canada could join the U.S.. First, Quebec, since Quebec already has plenty of separatists who want Quebec to become a U.S. state. Then Ontario, since people have already considered the idea to join the U.S.. Then British Columbia, since for one thing, it is at the west coast. Canada once made the offer to the U.S. that the U.S. could annex British Columbia to the U.S.. British Columbia joining the U.S. would link Alaska with the rest of the continental U.S.. Next or later, Newfoundland, since during World War 3, Newfoundland had a very close economic tie to the U.S. Also next or later, Northwest Territories, since it is east right next to Alaska, less uninhabitable than Nunavut for example, and although many people would least rather live in a more habitable state if Northwest Territories were a state, Northwest Territories as a state would have only 1 state to look forward to people living in and that's Northwest Territories. And just like Alaska for example, not every percent of the state needs to be habited just to become a successful state. And since so few people currently live in Northwest Territories and it has a low economy, joining the U.S. would make an economic and successful difference for Northwest Territories by a number of times over. The last 3 I would expect to join the U.S. unless all of Canada joined the U.S. all at once, are Prince Edward Island, Nova Scotia and New Brunswick, since they are already very successful in their economies for their sizes.

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