Decent oil prices but many rigs not drilling
With decent oil prices, why aren’t many drilling rigs working? The CAOEC responds.
By Brian Zinchuk
CALGARY – Even though the past year has seen relatively decent oil prices, as high as US$94 per barrel a few weeks ago, Saskatchewan has not seen a related increase in drilling activity.
Indeed, the pronounced lack of a pickup in activity in Saskatchewan was directly cited as a reason why the Day Group of Companies decided to move their Cara Dawn (2019) heavy haul trucking business to North Dakota, to operate under a new name.
Alliance Drilling Rig 2 was drilling northeast of Glen Ewen on gorgeous Sept. 29. Despite weather that has been very agreeable most of the fall, many oil companies are cutting back on their drilling programs. Photo by Brian Zinchuk
On Nov. 14, there were only 27 drilling rigs making hole in Saskatchewan according to RiggerTalk.com, and two of those were drilling for helium and one was working on potash.
So with oil prices still pretty decent, at US$78 per barrel on Nov. 14, just what is going on?
Pipeline Online asked Mark Scholz, president of the Canadian Association of Energy Contractors (CAOEC) about this on Nov. 10. Scholz was in Saskatchewan a few days earlier, taking part in a CAOEC get together with MLAs at the Saskatchewan Legislature.
Scholz said, “I think there’s a lot of different issues at play here.
“A lot of that’s outside of our control, right? The pace of activity is based on the appetite of our customer, which is the producer. So there are a number of reasons why.
He continued, “At the end of the day, we’ve got 200 rigs working. It’s not just in Saskatchewan, that we’re seeing this anomaly. There are 200 rigs working today across western Canada, at US$85 a barrel. Gas is a little bit different story. But if this were back in, let’s say, 2014-2015, there would be 400 to 450 rigs working.
“So it’s an issue that’s taking place across the basin, and it’s not just unique in Saskatchewan. And part of that is the insane amount of capital discipline, and I would say constraints from producers, that are being incentivized by the market to send money back to shareholders as opposed to putting it back into the ground.
“And any time that companies, our customers, announce an increase in their capital spend, the market hammers them. They get penalized in the market.”
“And I don’t know how long that this type of environment is going to last. My assumption is, at some point, there is going to be a pivot. When that’s going to happen? I don’t know. But I would say in many cases, the market is looking for very short-term returns, and they’re not thinking very long term.
“And this is, I think, systemic across, really, the globe, when it comes to the oil and gas industry. Some of it has to do with public policy, you know, when we still don’t know where the federal government is going to go on things like emission caps and additional regulations that could potentially harm the industry.”
Scholz pointed out recent mergers and acquisition activity taking place with the oil companies. He said there’s only so much that a company can focus on, and if they’re working on mergers and acquisitions, that can distract from their drilling programs.
Also, an oil producer can grow its production through mergers and acquisitions instead of the drill bit. And when that happens, there’s fewer rigs working.
“I think it’s we’re still going to see probably some more deals,” he said. “That’s just this weird environment that we’re in. Yeah, it’s hard on the energy services sector. Growing through acquisitions does not help the energy services sector.”