Demand exceeds supply for drilling rigs in northeastern BC
Coastal GasLink and Blueberry First Nations agreement contribute to increased demand
Demand for drilling rigs in British Columbia is close to exceeding supply, according to Precision Drilling’s second quarter 2023 report. This quarter also had the second highest cashflow in Precision’s history, Kevin Neveu, company president and CEO said in a conference call on July 27. This is good news, not only for drilling in Canada, but for northeastern British Columbia.
“The Canadian sector really stood out during the seasonally slow second quarter, traditionally known as break-up,” Neveu said. “The Canadian market for conventional oil and gas drilling has really transitioned over the past several years, and is perhaps now the best that it’s been. By best, I mean the most stable and healthy that I’ve experienced in my career.”
No longer is the summer and fall drilling program pinned on the gas prices realised in April and May. Precision now has visibility one or two, sometimes three years out for Canadian drilling activity.
“The Trans Mountain project, the Line 3 expansion, and the Coastal GasLink pipeline are solving the basin takeaway constraints which have hung over the Canadian industry for the past decade,” he said.
If one takes a look through Precision’s customer list, there are companies that have direct links to LNG Canada, and others that have recently announced long-term LNG gas sales contracts to the Gulf of Mexico.
Precision’s Super Triple fleet is fully utilised in Canada, linked to the LNG market, not seasonal price volatility.”
"We’re seeing an increasing demand for pad drilling, and increased pad sizes – all aimed at cost efficiency. Essentially, pad drilling has become the industry standard, and led to the full utilisation of pad walking rigs,” Neveu said.
On larger pads, these rigs can work through spring break-up, which smooths Precision’s revenue and improves cost-efficiency. This is achieved by drilling multiple entry points on a single surface location. The rig is walked to a different location on the pad, to drill each entry point. Prior to this invention, a rig had to be disassembled and moved, a time-consuming task. Pad drilling is more efficient, has less surface impacts, and leads to fewer pad sites.
“We continue to see customer demand exceeding our supply,” he said. “Twenty of our 29 Canadian Super Triples are contracted, and we still see customer demand well in excess of our available rig supply.”
Neveu says that with the stable oil price, the reduced Canadian differentials, and the soon to be commissioned TMX and Coastal GasLink pipelines, the outlook in Western Canada remains strong. There are approximately 15 – 20 rigs directly tied to LNG Canada, if one includes everyone who is a partner in the venture that Precision is drilling for.
“We’re adding another rig on January 1st, and I would be surprised if three to five more rigs weren’t required to satisfy the first two trains of LNG Canada.” Precision may even end up moving rigs from the US to fill the supply.
“At the beginning of winter, we had a demand for five rigs that we couldn’t satisfy. The Blueberry resolution led to a demand for another three to five rigs, and we actually moved rigs back into BC.”
The well-servicing business has also been peforming exceptionally well in the second quarter, Neveu said, despite industry activity being lower than last year.
“We’re expecting a very busy second half of the year. (Even with) industry wide crewing constraints continuing to limit industry capacity, we believe the outlook for well-servicing looks very good for the second half.”
All this drilling activity – the number of rigs operating in Canada is up 12 per cent from the second quarter of 2022 - has contributed positively to Precision Drilling’s bottom line.
Kerry Ford, Precision’s CFO said that in mid-2023, the company crossed a few important milestones. Precision’s total debt is now below $1 billion, and it has achieved a cumilative debt reduction of over $1.1 billion since 2016.
“We are committed to reducing debt by over $500 million bewteen 2022 and 2025,” Ford said. The debt reduction target for 2023 is $150 million, and the company is on target to meet this goal, having already reduced the debt by $100 million as of June 30.
This debt reduction was facilitated by increased earnings over 2022 levels. Revenue was $426 million compared with $326 million in the second quarter of 2022. Net earnings in the quarter were $27 million, compared to a net loss of $25 million in 2022.
Overall, Precision Drilling’s outlook for the rest of 2023 and into 2024 is good. The company’s new environmental solutions – Alpha technologies and EverGreen – continue to generate customer interest.
“PD’s EverGreen solutions are no-nonsense, high value, cost-saving additions, applicable to practially every PD rig,” said Neveu, “with the added benefit of reducing GHG emissions.”
“This is a win-win-win project, in the very early stages of market penetration.”