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Canada's Drillers Predict 10% Drop in Activity Next Year

Soft prices and slow progress on export projects will undermine Canadian drilling next year, according to oil and natural gas field service providers.

An annual fall forecast from the Canadian Association of Oilwell Drilling Contractors (CAODC) predicts a 10% drop in activity for 2015 but adds that erosion will be deeper if recent lows in oil prices turn out to be lasting.

The projection was calculated midway through the fall price decline into the mid-US$70s/bbl, using a lowered but still high expectation that the North American market will average US$85/bbl in 2015.

The natural gas outlook underpinning the drilling forecast anticipates a 2015 average of C$4.00/Mcf (US$3.60/Mcf) at the AECO storage and trading hub in Alberta, a low expectation rooted in tepid performance since 2009.

Barring a prolonged spell of current lean oil prices CAODC predicts that 10,354 Canadian wells will be completed in 2015 compared to 11,534 this year, 10,847 in 2013 and 11,651 in 2012.

Canadian government economists and financial analysts are leaning toward forecasts of a year or more of oil at US$70s/bbl or less. Alberta Premier Jim Prentice is warning his province to brace for budget cuts and possibly tax or service fee hikes, saying his Conservative cabinet is receiving advice that current bearish energy prices are not just a blip on the market cycle.

CAODC, echoing consensus among Canadian economists and analysts, said pipeline construction and successes by liquefied natural gas (LNG) projects will be essential to sustain high levels of field activity.

Apart from the stalled Keystone XL plan for an express pipeline south across the United States to the Gulf of Mexico, Canadian producers are awaiting progress on a logjam of export projects: two oil lines to the Pacific Coast of British Columbia, an oil route to the Atlantic Coast of New Brunswick, 21 LNG terminals proposed for both coasts, and three jumbo gas pipelines to fill them up.

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