Canadian Rig Count Slumps At Year-End

Dec - 31
2018

Canadian Rig Count Slumps At Year-End

Canada’s drilling rig count fell by 61 rigs in the last week of December from a week earlier, with the annual decline at 66 rigs, per the latest weekly rig count report by Baker Hughes. As Canadian drillers gear up for winter season, the rig count usually drops before the end of the

year, this year, the figures add a more grim shade to the landscape of the Canadian oil industry, which this year suffered a major slump of the local benchmark, Western Canadian Select, to West Texas Intermediate, at one time dipping to a discount of over US$50 to WTI.

Over the last two weeks of the month and the year, according to the data, the number of active drilling rigs deployed in Canada fell by a combined 104 to just 70, highlighting the effect of low local oil prices but also the obligatory production cuts enforced by the Albertan government to arrest the slide in prices and clear excessive crude oil inventory.

The production cut will begin at a rate of 325,000 bpd, to be reduced to 95,000 bpd once the excess supply is cleared, which is expected to happen within three months. Afterwards, the cuts will be in place until the end of next year.

Not everyone in the local oil industry is thrilled with the production cut. Suncor was against it when the idea was first floated, proposed by the chief executive of peer Cenovus. Most large companies in the field, who also have processing capacity, are better placed to weather the effects of the lower prices as they refine their own crude oil. Premier Notley has also floated the idea of building a new refinery in Alberta that would absorb more of the oil that is produced in the province instead of shipping it to U.S. refiners at cut-throat rates.

According to Canadian media reports from earlier this month, Albertan energy companies were interested in expanding the province’s processing capacity. Alberta has four refineries at present, with a combined refining capacity of 475,000 bpd. There are also two other specialized diesel-producing facilities that can refine 110,000 bpd of crude.

A new refinery would indeed serve to stabilize prices of Canadian crude, but there is one problem: a refinery cannot be built in a month, even in a year. What’s more, some experts argue that Canada’s oil province already has too much refining capacity and the only solution to its price problem are more pipelines.

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