​Canadian rig activity above expectations in first quarter: GMP FirstEnergy

Image: Joey Podlubny/JWN

Recent Canadian drilling activity has been higher than expected, but even with an improved outlook for oil pricing, analysts aren’t anticipating a surge.

During the first quarter the Canadian rig count averaged 268 rigs, which is five percent below the first-quarter 2017 average but “well above” the forecast of 220, according to analysts with GMP FirstEnergy.

The trend is directionally consistent with the expectation that Canadian activity levels will be modestly down year over year due to weak AECO natural gas prices and a lack of pipeline availability for crude in the Western Canada Sedimentary Basin, the energy investment firm said in a research note on Wednesday.

The outlook for WTI and Edmonton Light oil has been increased by 14 and 18 percent, respectively this year, analysts noted, based on a more balanced view of the commodity market.

“However, these positive revisions are offset by significant decreases to our AECO forecasts in 2018,” analysts wrote.

“Our view is that conventional exploration and production spending will be limited by pipeline egress concerns, weak AECO prices and wide heavy oil differentials, despite pricing improvements driving notable increases in WCSB cash flow.

“The uncertainty around dry gas and conventional heavy oil spending mutes the impact of stronger oil price forecasts. As a result, our Canadian well count forecast is up 5% to 6,800 in 2018 and 3% to 7,500 in 2019.”