Oil well drilling association forecasts 2016 to be worst year in a generation

CALGARY – Canada’s oil well drilling industry will continue to shrink next year and may never bounce back to recent levels, the industry’s main representative body said Wednesday.

“The drilling and service rig industry is facing one of the most difficult economic times in a generation,” Mark Scholz, president of the Canadian Association of Oilwell Drilling Contractors, said in presenting the association’s 2016 forecast.

“The active rig count in Western Canada today is at the same level as we experienced in 1983, one of the worst periods in our industry’s history.”

The association is forecasting 56,260 operating days next year, a drop of 57 per cent compared with 2014 and 17 per cent compared with this year.

Fewer operating days mean fewer jobs, with direct and indirect jobs forecast to total just 21,465 next year, compared with 25,785 this year and 49,950 in 2014.

“It is difficult to quantify the challenges ahead, but there will be significant hardship on businesses, families and workers,” Scholz said.

Brian Krausert, chair of the association’s forecasting committee, said the year ahead looks grim as utilization rates are projected to be at 22 per cent, the lowest level since the association started tracking the statistic in 1977.

“What is different about this downcycle is the speed of the downturn and the projected length, and also the impact of what technology has done,” said Krausert.

He said the industry has already lost 180 rigs from its peak in 2009 and that with continued improvements in rig technology and performance, the industry will emerge from this downturn smaller and more technology driven.

Advances in technology will mean more automation and efficiency, which will require fewer rigs and fewer people to operate them, said Krausert.

“It will be a year of transition for the entire drilling industry,” he said. “We are on the cusp of massive change in the drilling industry.”

The association expects 4,728 wells drilled next year, compared with 5,531 this year and 11,226 last year. At 22 per cent, the utilization rate will be down from 25 per cent this year and 46 per cent in 2014.

The drilling industry has been hit hard as oil and gas producers have pulled back on exploration and development plans in the wake of lower oil prices.

Scholz also said new government policies aren’t helping the industry in these difficult times.

“An increase in taxes and an uncertain competitive landscape with respect to royalties, and new environmental taxes have left a big question mark on the attractiveness of operating in Alberta,” Scholz said.

“The cumulative impacts of fiscal policy changes implemented, or contemplated, by the Alberta government could drive away investment and jobs for a very long time.”

Follow @ibickis on Twitter.