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Canadian Oil, NatGas Drillers Signal Further Retreat in 2016, Barring Higher Oil Prices

Canadian natural gas and oil drilling will continue to retreat next year unless energy prices stage a surprise comeback, field equipment operators are predicting.

The national well count is forecast to plunge to 4,728 in 2016 – down by 58% from 11,226 during 2014, the last industry fat year, according to the Canadian Association of Oilwell Drilling Contractors (CAODC).

"The oil and gas services industry is facing one of the most difficult economic times in a generation," CAODC President Mark Scholz said. "The active rig count for the western Canadian rig fleet is at the same level as experienced in 1983, one of the worst periods in our history."

The size of the fleet also is expected to shrink in 2016, down to 696 rigs from the current 758, the CAODC predicted. Job losses among Canadian drilling contractors are expected to hit 28,485 by next year in a 57% employment slump since 2014.

Scholz, echoing exploration and production companies, said effects of poor gas and oil prices are amplified in Canada by "uncertainty" because of election defeats of Conservative Alberta and national governments this year. The new regimes -- the New Democratic Party in Alberta and federally by the Liberals -- are regarded in industry and finance circles as left leaning and unpredictable. The regime changes have led to reviews of royalties, taxes and carbon emissions policies.

A survey this fall of active drilling rigs around the world by the National Energy Board (NEB) confirmed that the oilfield slump has been exceptionally severe in Canada -- even worse, when viewed in proportion, than in the United States.

"Although the drop in U.S. rig activity was the most significant in absolute terms, from 1,862 to 1,052 or a decrease of 44%, Canada was the hardest hit region in the world on a percentage basis from 380-200 or a decrease of 47%," the NEB reported. "This is likely because many Canadian oil and gas resources tend to be the highest cost production and their development was amongst the first to be halted as oil prices fell."

As measured by production, the energy price slump effect on Canada has been to slow down anticipated growth rather than to cut current output.

Alberta oilsands projects begun before the price cycle turned down are continuing, with even the gloomiest forecasts still predicting bitumen output increases of about 800,000 b/d over the next two years. Gas drilling and pipeline development is continuing in northern Alberta and British Columbia, supported by heavy gas use at oilsands plants and international consortiums still advancing liquefied natural gas export projects.

The Conference Board of Canada, in a report examining corporate finance aspects of lean energy prices, is predicting Canadian producers will suffer a collective pre-tax loss of C$1.5 billion ($1.1 billion) on natural gas for 2015. Much of the pain is from falling prices for liquid byproducts that track oil markets.

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