Where have all the rigs gone?
While the U.S. continues to add oil and natural gas drilling rigs despite the recent swoon in crude prices, Canada’s count in the past two weeks has dropped from 174 to just 70, the lowest since June 2016. Twelve years ago, it had as many as 727 rigs drilling for oil or natural gas, according to data provided by Baker Hughes Inc.
The retreat comes after Alberta Premier Rachel Notley announced at the start of December a mandatory production cut for her province, the largest producing area in Canada. The move has successfully stemmed a massive decline in the price of Western Canada Select crude, which was trading for as much as US$50 a barrel less than the U.S. benchmark earlier this year.
Though most of the country’s production comes from oil-sands mines, the plunge in the number of active rigs shows that producers in other areas such as the Duvernay and Montney shales must be pulling the breaks.
To be sure, Canadian drilling activity usually slows down during the holiday season as workers take time off with their families. But this year’s 65 per cent rig-count drop in December was the steepest-ever for the month in data going back to 1975.
The prospect of less crude production from Canada has helped the local benchmark price more than double from its historic low in mid-November, to US$29.34 a barrel on Friday, even after the recent oil rout pared part of its gains. The discount on Canadian heavy crude relative to West Texas Intermediate oil has narrowed to US$16 a barrel.