Copyright of the Daily Oil Bulletin 2018
Ensign Forecasts ‘Fairly Flat’ Canadian Activity In 2018
Overall industry activity in Canada is expected to remain fairly flat with similar or fewer days than in 2017, a senior executive with Ensign Energy Services Inc. said Monday.
“While the demand for deeper higher spec rig types remains relatively healthy, the average price of the overall fleet is expected to remain relatively flat with somewhat potentially modest growth to the upside as some rigs roll over onto new contracts,” Tom Connors, executive vice-president, Canada/International East, said in a conference call to discuss 2017 results.
However, the market for Ensign’s 1500 rigs currently is running at about 80 per cent utilization, he noted. “It [pricing] does have a little more traction, particularly when you start throwing in things like Edge [Ensign’s new operating system and controls platform] technology.” he said. Ensign will be able to charge for the technology over and above the day rates, providing a source of incremental income, analysts heard.
“As those rigs roll off contracts, we have been signing them at higher rates and expect to see some movement.” That’s especially the case for high spec rigs in deeper classes, said Connors.
Ensign currently has its Edge system on 24 rigs in North America and Argentina and plans to install it on most of its other rigs around the world in the next few years, said Bob Geddes, president and chief operating officer.
The overall Canadian fleet, though, still has a lot of singles and doubles which are moving as well but the increase looks more modest, according to Connors.
Late in November and in early December 2017, he noted, the effect of a deteriorating gas market and higher differentials began to delay the start of winter drilling programs or cause reductions in levels of activity that were previously anticipated.
As a result, activity in the first quarter of 2018 is similar to that in Q1 of 2017 with perhaps slightly lower activity in March on a year-over-year basis, according to Connors.
Although attracting crews remains a challenge, “rates have been improving slowly and steadily which is a trend we expect to continue through the remainder of 2018,” he said.
Ensign also expects to see increased activity in its Canadian well testing business which began in the fourth quarter of 2017 and continue this year. In the rental business, the company expects relatively flat to modest growth in 2018.
In the United States, as of the end of 2017, Ensign had 19 rigs running in the Permian Basin, 11 in California and 10 in the Rockies, said Mike Nuss, executive vice-president, U.S. and Latin America. Of these, more than half are on longer-term contracts.
The company currently has a fleet of 20 “super spec” rigs operating in the Permian and all are contracted. Pricing increases in the Permian for high spec walking rigs are putting spot rates in the plus or minus $23,000 per day to $25,000 per day range with the Ensign Edge controls products suite.
In the United States, Ensign would need to see rates of close to $30,000 per day before it would consider a new build of a $28 million to $30 million ADR become attractive again and “there’s a little bit of space between those two numbers today,” Geddessaid in response to a question.
After a flat 2017 in Australia where Ensign has 50 per cent of the market share with 30 per cent of the rigs, the company expects a slight improvement in drilling days, said Connors. The company is forecasting a 10 per cent to 15 per cent increase in activity due to demand related to domestic natural gas supply.
Pricing also has stabilized in the country and is beginning to improve, particularly for equipment and personnel with demonstrated performance ability, he said. However, the overall increase to the fleet average will be modest due to the long-term nature of most contracts in the area.
“There’s no question the worst is behind the sector as all our year-over-year metrics reflected the strengthening drilling and well servicing business climate world wide supported by a more solid $60 WTI environment,” said Geddes. “But that said, we started to see some bifurcation in certain markets driven mostly by geopolitical issues.”
In the U.S. where Ensign does more than half of its business, Ensign saw regulatory obstacles reduced through 2017, according to Geddes. “In our over-regulated Canadian market we saw companies trim budgets, reflecting their reduced cash flows, the result of necessary product discounts caused by infrastructure and tax issues.”
Geddes also announced that Ed Kautz, president of U.S. operations, would be retiring July 1, 2018 after nearly 25 years with the company.
Nuss will be assuming responsibility for all U.S. operations in addition to Latin and South America.