Market Snapshot: Conventional Oil Drilling Activity in Western Canada Down 60 per cent year-over-year

Release Date: 2015-02-12

The recent decline in crude oil prices has already impacted Canadian drilling activity. The number of rigs drilling oil wells in Western Canada, excluding bitumen, fell to 108 in the last week of January 2015 – a 60 per cent decrease from the same time last year. Moreover, the number of new oil well licences issued, which is an indicator of future drilling, dropped significantly, down 34 per cent in January compared to a year prior.

Western Canadian drilling activity is seasonal by nature. Activity typically increases in the winter months when the ground is frozen and equipment can be moved through otherwise inaccessible terrain such as bogs and marshes. The dip in oil rig activity observed during the last week of January 2015, however, comes three months ahead of the usual decline in activity associated with the spring thaw.

Figure Source and Description

Source: JuneWarren Nickles

Description: This stacked cake chart shows the number of oil rigs drilling in Western Canada from 2009 to January 2015 on a weekly basis. It has two layers, vertical or directional drilling and horizontal drilling; horizontal drilling represents the majority of activity. Drilling activity has a seasonal pattern, with activity dropping sharply every year during the spring. Other than declines in the spring and generally lower drilling activity in 2009, drilling activity was relatively strong from 2010 to 2013. Activity in 2014 was generally lower and then dropped significantly in early 2015.

The decline in drilling suggests that light crude oil production in Western Canada is unlikely to increase in 2015, and could possibly start to decline. The impact of lower drilling activity could be partly mitigated, however, by high grading. High grading is when producers focus their drilling efforts on their best prospects. Producers will also push to improve efficiency, which can cut costs and increase production from new wells.

Unlike conventional oil, bitumen production in Western Canada is expected to increase in 2015 despite low oil prices. Oil sands projects have three to four year lead times with significant costs incurred before starting production. As a result, bitumen production tends to be less responsive to short-term price fluctuations compared to conventional production. With several oil sands projects expected to come online throughout 2015, bitumen production will increase over the coming year.

 

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