While debate rages as to whether Opec’s decision not to defend the oil price is aimed at the fast growing US shale-derived gas and oil industries, two North American companies, both headquartered in Calgary, have put the brakes on further land-rig construction.
Ensign Energy Services is “pausing” plans to build 17 new high-tech drilling rigs, despite the fact that winter is traditionally the busiest season for exploration and development in Canada.
Precision Drilling now plans to “idle” rig-building activity once it has completed delivery of 16 previously announced rigs.
Together, they suggest that onshore production in North America (Canada plus US) will, in fact, be hit by the oil price slide and that other companies will similarly cut back on land rig orders.
Before its draconian decision, Calgary-based Ensign had 34 new automated drill rigs or ADRs to build at about $25million apiece.
Nonetheless, it still intends to deliver 17 new rigs covered by customer contracts this year.
Analyst Kevin Lo, of FirstEnergy Capital, said in a report that he would be reducing estimates for companies in the (North American) energy services sector for the third time in two months because producers are expected to cut spending.
“Our current forecast has cash flows decreasing 26% year-over-year and conventional capex decreasing 18% into 2015. We are also forecasting a 2015 estimated well count of 9,500, the lowest (North American) well count since 2009.”
For Ensign, the decision to cut comes just weeks after the company signed contracts for two of its new state-of-the-art ADR 1500S pad drill rigs for a major oil and gas operator in the Montney area of north-east British Columbia.
The ADR (Automated Drill Rig) 1500S is Ensign’s most powerful next-generation of automated full-sized walking rigs. Ensign had planned 24 of these new units over the next 18 months.
At Precision Drilling, CEO Kevin Neveu made it clear that no more rigs would be built until the market starts to recover.
“Following delivery of the 16 rigs, I expect our rig building activity will be idled until we see an improved commodity price environment,” he said.