The imminent startup of Canada’s Trans Mountain oil pipeline, with LNG Canada set to ramp late this year, should provide “significant tidewater access” to boost near-term activity, according to the CEO of Calgary-based Precision Drilling Corp.
CEO Kevin Neveu laid out the near-term forecast for the international contract drilling expert during the recent quarterly conference call.
“In Canada, we currently have 48 rigs operating, 10 more rigs than a year ago, and expect this trend to continue throughout spring break-up,” he said.
Precision’s active Canadian rig count was 73 in the first quarter, compared with 69 in 1Q2023. However, Canada’s drilling activity is usually stronger during the winter season than any other time of the year.
Western Canada exploration and production (E&P) customers are “increasing year-round pad drilling,” both in the gassy Montney Shale and the heavy oil programs, according to Neveu.
“If the question is, do we see customer demand increasing in anticipation of the Trans Mountain startup? The answer is resoundingly yes,” Neveu said. “We see this momentum continuing throughout the summer and exceeding our prior view on Canadian rig demand.”
The top-of-the-line Super Singles rigs are “fully utilized,” with several customers looking to upgrade.
Gas Prices? Not A Drag
“Despite the weak AECO pricing, customer sentiment for natural gas remains surprisingly positive,” Neveu said.
In spite of the weak price environment, forward prices at the Western Canadian benchmark appear poised for growth. NOVA/AECO C natural gas prices averaged C$1.330/GJ in April, down from C$2.395 a year ago (C$1.00/US 73 cents), according to NGI Daily Historical Data. However, NGI’s Forward Look shows prices averaging US$2.430/MMBtu in 2025 and slightly below $3.00 in 2030.
In Western Canada, “I’ll be quite clear, we haven’t seen any drag due to natural gas prices.”
For one thing, TC Energy Corp.’s Coastal GasLink pipe, which would move gas from the Montney, is complete. In addition, LNG Canada, the Shell plc-led liquefied natural gas export project in Kitimat, British Columbia, is “targeting final commissioning later this year, with first gas shipments to follow.”
Based on conversations with E&P customers, it appears that “once we’re closer to export startup, we’ll start to see response on increased demand on Montney rigs. So that’s why we’re thinking that the day LNG Canada announces that they’re commissioning and they’re going to be launching their first shipments, I think we’ll see a response on the gas side.”
Meanwhile, the near-term outlook for the Lower 48 is still in a holding pattern. Precision today is running 39 rigs in the U.S. land division, compared with around 60 a year ago.
U.S. rig demand “remains muted by weak natural gas prices and operator consolidation,” Neveu told analysts. “While the leading indicators we monitor continue to point to a likely rebound in demand, the timing of that rebound is not clear.”
Neveu said the “muted demand will persist during the second quarter…We have line of sight to several seasonal reactivations in the Northern Rockies this quarter, and our team will continue to actively manage near-term rig churn, particularly in the gas basins where we operate. However, I’ll not be surprised by somewhat choppy activity levels during the quarter.”
When activity does pick up, “we think that the first movers in the U.S. will be Permian for oil, if there’s oil response,” Neveu said. “If there’s a natural gas response, it will be the Haynesville, where we’re very well-positioned…”
Precision, which reports in Canadian dollars, said net earnings during 1Q2024 were $37 million ($2.53/share), compared with $96 million ($7.02) a year earlier. Revenue dipped to $528 million from $559 million, with the decrease “mainly attributable to lower U.S. activity.”
