Canadian oilfield services firms earn more from US operations

CALGARY — Large Canadian oilfield services companies with operations in the US are now earning more of their revenue south of the border than they are in Canada, according to a study by AltaCorp Capital.

That trend is expected to continue as ongoing oil and gas spending weakness in Canada is balanced against comparatively steady activity in the US, said analyst Tim Monachello in an interview.

The report found that 12 of the largest Canadian energy services companies with US operations earned 54% of their revenue in the US in 2018, up from 46% in 2017.

It’s the highest percentage since at least 2013, when it was at 41%, the report notes.

“We see growing US revenue but we also see shrinking Canadian revenue a lot of times because we have Canadian rig activity levels coming down,” said Monachello.

“And we’ve seen pricing coming down as well in some service lines (in Canada).”

He is forecasting a 16% decline in Canadian drilling rig activity this year to an average of about 160 active rigs, while the US average rig count will be just over 1,000, largely flat versus 2017.

The survey includes large Calgary-based drilling companies like Precision Drilling Corp. and Ensign Energy Services Ltd., in addition to well completion firms such as Calfrac Well Services Ltd.

The industry relocated 16 Canadian rigs to the US in 2018, up from six in 2017, and has sent at least four rigs south of the border this year, according to the Canadian Association of Oilwell Drilling Contractors.

Canadian oilpatch activity normally peaks in mid-winter when frozen ground allows access to backcountry drilling sites, but CEO Mark Scholz of the CAODC said that’s not the case this year.

He said oil and gas producers are spending less in view of Alberta government production cutbacks, fear of the return of last fall’s steep price discounts due to a lack of pipeline export capacity, and fewer investment dollars to spend.

The provincial election called last week for April 16 may also be a factor as producers wait to see whether the opposition United Conservatives are elected and can roll back NDP moves including the carbon tax.

“It’s the government curtailment, pipeline capacity, lack of confidence in the Canadian market …” he said. “What I’ve heard from a few operators is they are also waiting for certainty in terms of politics.”

He said about 60% per cent of Canada’s drilling rigs were working in January 2018 but in the same month this year the rate fell to just 34%. In February, the rate was 35%, down from 58%in the year-earlier period.

Precision Drilling reported last month that drilling rig working days jumped 36% in the US in the last three months of 2018 compared with the same period of 2017, but fell 9% in Canada.