CALGARY — Canada's largest drilling rig contracting company has seen such surprising growth in customer demand after the opening of the Trans Mountain pipeline expansion that its CEO believes a rig shortage could be possible by next year.
Precision Drilling Corp. CEO Kevin Neveu said on a conference call Wednesday the company saw its Canadian activity increase 18 per cent in the second quarter, even as drilling activity in the U.S. slowed.
Neveu said he attributes the growth to Canadian heavy oil producers feeling more confident thanks to the Trans Mountain pipeline expansion project, which started up in the spring.
"We've been somewhat surprised by surging customer demand in heavy oil following the TMX opening," Neveu said, adding he underestimated how much drilling demand in Western Canada would be unlocked by the new pipeline.
"Our Canadian businesses — both drilling and well servicing — are performing at the highest level in over a decade."
The opening of the Trans Mountain pipeline expansion has given Canadian oil companies additional export access to international markets and has helped boost the price of Western Canadian heavy oil.
Neveu said many of Precision's customers are generating the highest returns on their oil that they've seen in many years, and are feeling bullish enough to sign long-term rig contracts for new drilling programs.
"The Canadian industry has been really cautious over the past decade. They've been through heck and back with commodity prices and pipeline constraints, and they're finally getting a bit of room to run right now," he said.
Currently, Precision Drilling has 74 rigs operating in Canada, which is more than 25 per cent higher than last year at this time.
In the second quarter of 2024, the company earned revenue of $429.2 million — up from $425.6 million during the same quarter last year — thanks to higher activity levels and pricing in both Canada and internationally, which helped offset lower results in the U.S.
The company saw its U.S. rig count average 36 drilling rigs in the second quarter compared with 51 for the second quarter of 2023. It attributed the decline south of the border to weak natural gas prices and pending merger and acquisition transactions in the U.S. industry.
Looking ahead to 2025, Neveu said he expects Canadian drilling activity to continue to increase. Canada's first liquefied natural gas export terminal — the Shell-led LNG Canada facility currently nearing completion in Kitimat, B.C. — is expected to begin operations next year and Neveu said that will likely drive a fresh boom in natural gas drilling in the Montney region of northeast B.C. and northwest Alberta.
"We could see our rig activity trend further upwards in September and through the fall as our customers prepare for what looks like a very busy 2025," he said.
"It's conceivable that the market may be several rigs short. Recent customer contracting activity, and particularly the contract duration customers are seeking, seems to support the notion of a prospective rig shortage."
Precision Drilling's earnings for the second quarter declined 23 per cent year-over-year to $20.7 million, down from $26.9 million.
Earnings per diluted share were $1.44, down from $1.63 last year.
This report by The Canadian Press was first published July 31, 2024.
Companies in this story: (TSX:PD)
Amanda Stephenson, The Canadian Press
