Canadian oil producers feeling pain of low prices as drilling rigs drop to 5yr low

Rigs searching for oil in Canada fell by 25 to 190 last week, the lowest on a seasonal basis since 2009. Matthew Staver/Bloomberg

Robert Tuttle, Bloomberg News 
Canadian oil producers are proving less resilient than their U.S. counterparts to plunging prices.

Rigs searching for oil in Canada fell by 25 to 190 last week, the lowest on a seasonal basis since 2009, Baker Hughes Inc. said on its website Dec. 19. The U.S. total dropped by 10 to 1,536, the highest for that time of the year in at least a decade.

Canadian crude has lost more than a quarter its value since a decision last month by the Organization of Petroleum Exporting Countries to maintain output targets amid a surge in North American production. Alberta’s oilsands and Duvernay shale are among the highest-cost areas in the world to produce. About one- fourth of oilsands projects are at risk as prices fall, the International Energy Agency said Oct. 14.

“On the Canadian side, it’s determinately the curtailment of capital budgets that’s affecting the drilling programs,” Dinara Millington, the vice president of research at Canadian Energy Research Institute in Calgary, said by phone Monday. “The wells are more costly to drill than the U.S.” because of the remote locations and higher labour costs, she said.

Project costs are as much as twice as expensive as in the Gulf of Mexico, Millington said.

Canadian oil producers have been scaling back investment plans as oil plunged. Penn West Petroleum Ltd. said Dec. 17 that it cut its 2015 production view to between 90,000 and 100,000 barrels of oil equivalent a day from 95,000 to 105,000 barrels of oil equivalent a day. The reduction included shut-in production of about 2,000 barrels of oil equivalent a day, the company said.

“Free market pullback of oil supply is going to come from the U.S. and Canada,” Peter Tertzakian, chief energy economist for ARC Financial Corp., said by phone from Calgary Dec. 19. “In terms of price recovery, that’s going to be one of the first signals the market is going to be looking for.”