Canadian drilling has picked up due to an increase in liquids-directed activity and has been stronger than anticipated for 2010. According to a recent investment research report by Canaccord Genuity, activity is up 63% year-on-year due to resurgence in oil-directed activity. But the news is not all good. Poor weather in September could negatively influence 3Q 2010 earnings results.
Western Canada has been experiencing heavy rainfall causing poor drilling conditions. The rig count has fallen 12% to 46 rigs since its peak at 378 rigs in mid-August. Some producers might add additional rigs for the remainder of the year to catch up on delayed drilling plans, the report says, although contractors still might not achieve forecasted levels for the quarter. Canaccord initially assumed Canadian rig use would average 50% for 3Q 2010, but that number now appears closer to 46%.
According to the report, the healthy state of the Canadian oil patch is due to the result of sustained high oil prices, the application of new completion techniques, and from the positive impact of the new royalty system. As in the U.S., Canada has geared most of its growth to horizontal-directed drilling and is focusing on use and pricing for pressure pumping equipment; deeper, higher performance rigs; and directional drilling services.
According to Canaccord, other investment risks that could negatively impact oilfield service use and pricing include declines in energy prices that could prompt E&P companies to limit their capital programs and competition over customers and inputs such as labor.
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