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More Pain Ahead for Canada’s Energy Sector in 2016

Industry group says expect more of the same.

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story_images_oil drillA drilling industry group says the oilpatch is in for another year of weak activity as low commodity prices continue to pinch.

The Petroleum Services Association of Canada expects 5,150 wells to be drilled in Canada in 2016, down from an estimated 5,340 wells this year.

And it’s a much more dramatic drop from the five-year average of 11,670 the industry saw before crude prices started to nosedive and then languish below US$50 a barrel for months.

Association CEO Mark Salkeld says the sector hasn’t been able to make anything better out of a bad situation because of pipeline constraints and policy uncertainty.

The group is basing its drilling assumptions on crude prices of US$53 a barrel, natural gas at $2.75 per 1,000 cubic feet and the Canadian dollar at 75 cents U.S.

“Low commodity prices, oversupply and low cash flows obviously impacted us significantly in 2015, resulting in an over 50 per cent loss of activity from previous year averages,” said Salkeld.

“With those same factors continuing, we can’t expect anything better for 2016.”

PSAC represents companies that provide drilling and other services to the oil and gas sector. So when producers scale back their output due to low prices, PSAC members see a drop in their business, too.

U.S. benchmark crude prices are currently near US$48 a barrel — below what many producers need to make ends meet.

When PSAC issued its original 2015 forecast in October 2014, it was expecting crude prices of US$85 a barrel.

The Canadian Association of Petroleum Producers has estimated 36,000 jobs have been shed in the oil and gas industry this year, mostly in Alberta.

It’s been estimated that each active drilling rig represents 135 direct and indirect jobs.

In Alberta and Saskatchewan, the level of activity is forecast to be flat 2015 into 2016. Manitoba is expected to see a slight improvement, while British Columbia is in for a 28% drop.

In addition to low prices, the lack of export pipeline capacity is also a big issue, said Salkeld.

The PSAC forecast comes a day after TransCanada Corp. asked for a delay in the U.S. review of its cross-border Keystone XL proposal, potentially adding another year to what has already been a protracted seven-year process.

“We have the third-largest oil reserves in the world, but have less than four per cent of the global market share,” said Salkeld.

“We’re resilient, yes, but as a country we need to get on with addressing the issues that are limiting our resource sectors, especially our energy resources, from contributing to the country’s prosperity and its reputation as a responsible developer of natural resources.”

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