Precision Drilling sees Western Canadian rig shortage in 2025 as activity ramps up

The Western Canadian Sedimentary Basin is experiencing a major spurt in drilling for heavy oil and condensate/NGLs that will likely create a rig shortage in 2025, Precision Drilling CEO Kevin Neveu said July 31.

The spike in drilling activity is being fueled by incremental rates of return following the startup of the Trans Mountain Expansion pipeline this summer and LNG Canada preparing to start its first train later this year on the British Columbia coast, Neveu said during the company's second-quarter earnings call.

"We are a little surprised by the activity and feel we kind of underestimated the demand," Neveu said. "Producers are receiving higher prices with the new pipeline egress and along with it a favorable US/Canadian dollar exchange rate."

A WCSB producer that previously had to rely on a rail car or find a storage tank for its heavy barrels now has "certainty of a pipeline that is guaranteeing a higher rate of return," he said.

The 590,000 b/d TMX, which started commercial operations May 1, is providing additional market access for WCSB oil sands and heavy oil producers from Edmonton, Alberta, to refiners in Asia and the US West Coast through export docks at Burnaby in British Columbia.

Heavy oil producers add NGLs/condensate to their crude to reduce the viscosity and help it flow through pipelines. Roughly one barrel of condensate is added to three barrels of heavy crude/raw bitumen.

Since the startup of TMX, customer activity in heavy oil-targeted WCSB areas like Clearwater and Mannville have exceeded Precision's expectations, resulting in full utilization of its Super Single pad-capable rigs.

"Our Canadian fleet is in high demand and we expect customer demand for our Super Triple and Super Single pad capable fleets to exceed supply into 2025 as Canadian takeaway capacity further increases," CFO Carey Ford said on the same webcast.

The Shell-backed 14 million LNG Canada is being developed at Kitimat in British Columbia with steaming of the first train due to start in late fall/early winter and first LNG in early 2025.

LNG Canada is one of the five projects under development along the Canadian Pacific Coast. The 2.1 million mt/year Woodfibre, 3 million mt/year Cedar, 12 million mt/year Ksi Lisims, and 2.7 million mt/year Summit Lake PG projects all aim to start up before end-2030.

"All these facilities will push demand further, while the light/heavy price differentials will shrink and boost Western Canadian commodity prices," Vijay Muralidharan, director of R-Cube Economic Consulting said separately July 31. "Overall, the WCSB is on an upward trend with higher egress, production and pricing."

In the US, the next wave of LNG projects is expected to add approximately 12 Bcf/d of export capacity over the next three years, supporting additional natural gas drilling activity, Neveu said.

Western Canadian, US rig status

Precision has 77 rigs in Canada and expect this trend to continue through the third quarter due to activity in the Montney, driven by strong condensate demand and increased drilling for heavy oil targets, Ford said.

"In the US, we currently have 38 rigs operating as drilling activity continues to be constrained by weak natural gas prices and pending merger and acquisition transactions. We plan to hold this count into Q3, 2024 with a few additional rigs likely to be activated in Wyoming," Neveu said.

Precision views headwinds in the US as short term and expects stable Q3 demand with a likely increase in the fourth quarter as producers modestly increase drilling plans into 2025, Neveu said.

Internationally, the company expects to have eight rigs running through 2024 in Kuwait and Saudi Arabia, representing a 40% increase in activity compared to 2023, Ford said.

Trican, Source Energy to build new facility

Separately, fellow service provider Trican Well said July 30 it had entered into a partnership with Source Energy Services to construct a new sand transloading facility at Taylor, British Columbia, to support drilling and fracking activities.

The facility will be unit train capable, have 55,000 mt of storage capacity and 12,000 mt/d of throughput capacity, Trican said. The first phase is expected to be operational in late Q3 2024 with full completion anticipated in early 2025.