Canada's oil drillers say business fine but harder times coming

Wed Dec 3, 2014 5:45pm EST
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CALGARY, Alberta Dec 3 (Reuters) - Western Canada's oilwell drilling industry has yet to be affected by falling oil prices, industry insiders say, even as they worry that their customers may be forced to soon begin cutting back budgets as weakening profits limit activity.

The winter drilling season is one of the most hectic for Canada's oil service industry as frozen ground opens up land inaccessible in warmer months. And although benchmark North American oil prices, recently trading for $67.38 a barrel, have dropped by a third in recent months, drillers are still busy.

In the week ending Dec. 1, 52 percent of Canadian drilling rigs were working, about the same as a year earlier, according to the Canadian Association of Oilwell Drilling Contractors.

But while activity remains robust, there are fears that oil companies could rework their drilling budgets to reflect lower prices, weakening the market particularly for older, less productive drilling rigs.

"We're starting to hear noises," said Lisa Ottman, a vice-president at Trinidad Drilling Ltd.

"It's not happening yet but there's potential we're going to start to see some impact on the ... older rigs. They're the first ones we'd expect to see come down."

Lean times are not unknown to Western Canada's oil drillers. In the 2008-2009 financial crisis that pushed oil prices below $33 a barrel, utilization rates, the percentage of available rigs working, dropped to 22 percent in March 2009, less than half the level in the year-prior month.

"This isn't new to our industry," said Mark Salkeld, chief executive of the Petroleum Services Association of Canada, a lobby group for about 250 oil and gas service companies. "We've had the peaks and valleys and the ones that have seen this before tighten things up."

Salkeld said his members' business was being supported by the potential expansion of oil pipelines taking crude from Western Canada to the United States and Quebec, as well as possible liquefied natural gas projects in British Columbia that require additional gas supplies to feed them. However even those projects may not be enough to sustain the oil-service industry if their customers feel the need to pull back.

"There's lot of work," Salkeld said. "But it just depends on the (oil) producers' balance sheets." (Reporting by Scott Haggett; Editing by James Dalgleish)