Drilling activity in Canada set to slow down

November 4
9:39 PM 2015

The oil drilling activity in Canada is taking a hit as crude oil price is still hovering at $50 a barrel. The current situation is forcing Canadian oil companies to lower drilling activity in 2016.

The oil firms are slashing budget allocations and trimming headcount following the bleak drilling activity. Oil price fell over 40 percent during the past one year and giving jitters to oil and energy sector globally.

Oil companies are wary that production glut is likely to continue as OPEC(Organization of Petroleum Exporting Countries) continues to supply above its combined quota.

Oil companies in Canada are drilling 5,340 wells this year and have decided to reduce number of wells to 5,150 in 2016, according to Petroleum Services Association of Canada.

Companies with over 11,000 wells drilled annually in the past five years till 2014. Canadian companies are worrying about the production glut as it may continue in the wake of continued supply of OPEC above its combined quota.

Adding to this, the US production is hovering above 9 million barrels a day.

Mark Salkeld, President of the group, said in a statement that "the ongoing market access issues and an environment of regulatory and policy uncertainty has meant Canada's energy sector hasn't been able to make anything better out of a bad situation that began in 2015."

World Oil magazine forecasts the average WTI price at $55.75 per barrel and Brent at $58.80. The US drilling activity is also under pressure.

However, the drilling activity in the Middle East and Africa is not much affected owing lower lifting costs. 

Ron Higgins, Publisher of World Oil, said: "These items include potential projects in the Arctic and other high-cost frontier areas, unfunded heavy oil projects in Canada's oil sands and low-margin shale plays in North America. We expect that offshore projects that have a long producing horizon will continue, as will activity in fields where capital costs already have been sunk and operating costs are manageable."

Meanwhile, the drilling activity in the US is also stagnating. US shale oil producers are also finding it difficult to pump more in the wake of dropping oil prices.

The latest government data indicates that output per rig is flat as the drilling industry reached the limits of existing tools.

The well productivity fell at top three US shale fields during the past four months. The well activity at Permian Basin and Eagle Ford of Texas and the Bakken of North Dakota has dropped significantly.

Canadian oil producing companies are cutting down budgets and slashing jobs to withstand the impact of the slump in the commodities market. The group anticipates West Texas Intermediate (WTI) crude average price at $53 a barrel for 2016 year. 

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