Is relief in sight for Western Canada’s pressure pumpers?
Investment bank sees encouraging trends for a struggling sector
It’s been an interesting year for companies in the pressure pumping business.
Firms like Trican Well Service Ltd. who pump fluids down wells to improve their production, had been making a mint in 2011 as the oil and gas industry rushed to frack more and more wells across North America.
Of course, this demand caused oilfield services companies to add more pressure pumping capacity. And life was good – until producing companies started curtailing drilling plans and shutting in wells, as they responded to low natural gas prices and volatile oil prices.
As Calgary investment bank Peters & Co. noted today in a research note to clients, that’s led to a supply/demand imbalance (too much supply, not enough demand) in both the Western Canadian Sedimentary Basin (WCSB) and the United States for pressure pumping services.
This situation is reducing the prices pressure pumpers can charge and it’s hurting their bottom lines. Such is the cyclical nature of the oil and gas business.
But Peters & Co. writes that it sees some encouraging trends on the horizon that will result in more spending by producers, which will mean more drilling, and more need for pressure pumping services.
We believe strengthening natural gas prices, improving access to capital for producers, accelerating foreign investment and joint venture activity, and clarity around long-term natural gas export solutions could all have positive implications in H2/13 and 2014.
However, the key word in that paragraph is “could”.
On the subject of natural gas prices, rival investment bank FirstEnergy Capital is in agreement with Peters that the fundamentals say prices will go up in the near future.
But more foreign investment and joint ventures, which will improve access to capital for producers active in the WCSB, probably hinges on the federal government approving Cnooc Ltd.’s $15.1 billion takeover of Nexen Inc.
A federal thumbs down to the deal (not out of the realm of possibility) will put a chill on further foreign investment in the Canadian oil patch, and the feds are dragging their feet on this issue.
As for clarity surrounding natural gas export solutions, the best way for that to happen is if liquefied natural gas export terminals are up and running along British Columbia’s west coast.
But as potential Asian customers make noise about doing away with oil-indexed pricing for LNG, the economics of B.C. export terminals are looking extremely shaky.
All in all, pressure pumpers in Western Canada can’t be sure when the good times will roll again.