January 12, 2016 / 11:26 PM / 2 years ago

Canadian conventional crude output declines as rig count dwindles

CALGARY, Alberta (Reuters) - Oil companies reeling from the collapse in global crude prices have slammed the brakes on conventional crude production in Canada, with the Western Canadian active oil rig count halving from last year, data showed on Tuesday.

Storage tanks rise above corn fields at a well site about 60 kilometres east of the field office during a tour of Gear Energy's well sites near Lloydminster, Saskatchewan August 27, 2015. REUTERS/Dan Riedlhuber

Further declines in output are expected to follow, suggesting producer group OPEC is winning its battle for global market share in at least one small corner of the Canadian oil patch.

Data from RBC Capital Markets showed there were 228 rigs active in the Western Canadian Sedimentary Basin, home to the world’s third largest crude reserves, in the week of Jan. 11 - down 50 percent from 455 rigs during the same week last year, and 62 percent below the five-year average of 593 rigs.

Winter is typically the busiest time of year for drilling in Western Canada as the frozen ground allows companies to move heavy equipment around easily.

This week last year was the high point of activity for the whole of 2015 and the slow start in 2016 will likely heap added strain on companies such as Precision Drilling (PD.TO) and Western Energy Services (WRG.TO).

“Barring some sort of second half of year recovery in oil prices it’s going to be a very rough year in the patch,” said Raymond James analyst Chris Cox said.

Conventional crude production in Canada is dwarfed by output from northern Alberta’s vast oil sands, where tarry bitumen is mined or steamed out of the ground, but still amounted to around 1.5 million barrels per day (bpd) in 2015, research firm Raymond James said. In 2014, it was just under 1.6 million bpd.

Given the sharp decline of crude prices by 20 percent this year, Cox said output was expected to drop by 100,000 bpd in 2016.

Oil sands production is set to rise to around 3.1 million bpd by 2020 despite the crude price rout as new projects already under construction start up.

Oilfield services companies have been forced to accept rate cuts of up to 30 percent by oil producers, who have sharply curtailed conventional crude drilling activity even as they plough on with long-term oil sands investments.

Canadian Natural Resources Ltd’s CNQ.TO third quarter 2015 conventional production was down 8 percent versus a year earlier at 265,000 bpd as a result of a 84 percent decrease in drilling activity and the decision to shut-in 5,700 bpd of uneconomic heavy oil production.

Husky Energy (HSE.TO) saw overall production decline 2 percent over the same period to 333,000 bpd, in part because of lower production in Western Canada. It completed five wells in the first nine months of 2015 versus 24 during the same period a year earlier.

Reporting by Nia Williams; editing by Grant McCool

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