After 6 years of market retractions and downturns, the oil patch turned back to growth mode in 2021-2022. Many industry players, operators and service companies alike, folded during the prolonged downturn. Companies that weathered the storm are poised for remarkable growth in the short and medium term.
The charts and considerations listed below are based mostly on Chinook’s activity records.
Looking at a year-over-year change in activity levels, we see a typical rollercoaster of boom/bust cycles starting in the early 2010s:
- 2011-2014 riding the boom wave: activity levels were high, sustained and steady (beyond the seasonal changes).
- 2014 oil price crash was due to oversupply and the crunch lasted until 2016. Declines of up to 70% in oil price stunned oil patch activity.
- Year-over-year improvements were seen starting July 2016 and there was a steady recovery over 2017 and 2018.
- The differential crisis was triggered in November of 2018. Due to shrinking pipeline capacity and the cancellation of several pipeline projects after Trudeau’s 2018 election win, Canadian crude was being sold at deep discounts to US prices. Winter is usually the busiest drilling season in Canada (due to improved access in the frozen North), however, in 2019, activity levels were lower in the winter compared to the preceding fall.
- While the world was recording steady oil prices and the US was in the midst of its shale revolution, with record outputs, the Canadian oil patch suffered another blow that stretched for one more year.
- This Canadian made crisis showed signs of improvement in the winter of 2020, with activity levels returning close to normal.
- In March of 2020, world demand for energy plummeted as a result of the Covid-19 pandemic. An attempt by Saudi Arabia to crash oil prices around the same time aggravated the drop in activity levels. It would take more than a year for demand to return.
- 2021, over a background of successive pandemic infection waves, saw a steep increase in oil prices, followed by a more subdued increase in drilling activity. Many operators, hurt badly in the downturn, prioritized debt repayment and buy-back of shares over increased capital expenditures. At the same time, significant mergers and acquisitions were seen in the oil patch.
- While 2021 was a year of recovery, drilling activity was below expectations. Significant increase will most probably be recorded in 2022, a reflection of growing financial capability of oil and gas companies and confidence in the energy market demand.
Many International Oil Companies (IOCs) sold assets in Canada over the past 7 years. Among the sellers we count Conoco, Shell, Total, Equinor, BP and others. Reasons for asset sales range from environmental pressure, increased acrimony from the Federal Government, increased regulatory pressure from provincial governments and most critically, lack of access to tidewater for their product. A lot of smaller operators, especially those with large debt, were forced to sell or went under. Mergers and acquisitions saw Canadian oil giants grow bigger, looking at CNRL, Suncor, Cenovus. A few operators are emerging as new leaders: Whitecap, Tourmaline, Stathcona, Arc, Tamarack Valley.
On the service side of the oil patch, the dynamics were different, with a shrinking market being divided between fewer companies, as many of the smaller outfits closed their doors. The companies that proved to be more resilient face a wider field of activity in the immediate future, due to decreased competition and increasing activity levels.
Services for the new boom cycle
Chinook Consulting is one of these resilient service companies, well positioned to be a leader in providing geological wellsite supervision and geosteering services.
- Large experience in the Western Canadian Sedimentary Basin: over 10,000 wells supervised in over 500 strike areas, targeting more than 100 plays and reservoirs, from conventional clastic and carbonate, to unconventional shale, thermal oil sands, helium, geothermal, potash and every other resource that can be extracted by drilling wells.
- Exposure to international markets, with active projects in USA, South America, Middle East and Europe.
- In addition to their disciplined approach to project management, Chinook embraced new technologies and workflows.
- Chinook promoted and pushed geosteering technology (software solutions for correlation, geomodel, resistivity and hybrid reservoir navigation) since 2009.
- Chinook has been a significant provider of wellsite geology tailored to thermal development (SAGD and CSS) since 2010, taking part in development and delineation projects for 24 operators in 50+ strike areas spread over more than 200 townships in Eastern Alberta and Western Saskatchewan.
- While being a preferred vendor for a few major oil and gas operators, Chinook’s client base remained very wide through the years, consisting of a balanced mix of small, medium and major oil and gas companies, as well as startups in the geothermal, helium and alternative resources industries. No client accounts for more than 15% of Chinook’s activity, and projects range in size from multi-year, multi-rig development campaigns to one-off exploratory wells.
- Exposure to such a diverse client base is what makes our standard service suitable for the highest of expectations, yet flexible enough to meet any particular deliverables requested by any operator.
Predictions for 2022
Going into 2022, we see a few trends materializing:
- Continued activity growth in Alberta and Saskatchewan, stagnation in British Columbia. With provincial governments favorable to resource development, the prairie provinces will be well positioned to take advantage of the high energy prices. The same rapid upward trend in activity will become apparent in the United States, especially Texas. Many international free markets, however, will be slow to react to boom conditions, just as they were slow to react to the onset of the downturn.
- More multilateral wells in plays such as the Clearwater in North-Central Alberta, Bluesky in the Peace River oil sands area and stacked channels of the Lower Manville straddling the Alberta/Saskatchewan border. The wells are produced with open-hole completions, making them very cost effective on a per-meter-drilled or per-barrel-produced basis. Chinook offers a hybrid service for development with multilateral wells: wellsite geology combined with software-based geosteering, deployed in the field, along with optional WITSML data transmission solutions and real-time data and interpretation sharing.
- More remote geosteering: after most major players in the Montney and Duvernay adopted centralized remote geosteering as a go-to approach to real-time reservoir navigation, many smaller operators are adopting the workflow. Chinook assists scalable projects in unconventional shale gas and oil with well-trained geosteering teams, established workflows and geosteering stations, deployed from our Operations Space.
- Hybrid geosteering: with geosteering technology becoming widely accepted, we see applications outside the unconventional shale adopting the technology. Thermal oil sands producer wells will use more resistivity forward modeling in conjunction with geomodel based geosteering. Such workflows are currently implemented in drilling McMurray, Grand Rapids and Clearwater thermal wells. Channel and shoreface plays will use a combination of correlation based geosteering with geomodel approach, with or without petrographic observations. Reservoirs where this approach is implemented include the Cardium in West-Central Alberta, cold-flow Clearwater in Northern Alberta, Viking in South-Western Saskatchewan and some Mannville channel plays.
- Rising service prices, spurred not only by inflation, but also by shortage of qualified personnel and competition for the best services.
Challenges in the new year will be related to:
- General availability of services
- Availability of competent rigs and rig crews, as well as cementing, casing, moving, completion teams
- Covid outbreaks and shortage of personnel due to infections and quarantine
- Shortage of personnel at E&P companies after operating for years on skeleton teams and ramping up in short order.
(c) Chinook Consulting Services, 2021 (*Updated May-2022)