The push to net zero, regulations smothering the energy sector, and shareholders’ desire for returns are minimizing drilling growth, say industry experts..ARC Energy Research Institute estimates that for the Edmonton Par oil benchmark, the average price of a barrel will be $122.64 this year — almost double the $62.42 average in 2017. Over 7,000 wells were drilled that year, yet this year only 6,000 are expected to be drilled..Kevin Birn, a North America crude oil market analyst for S&P Global Commodity Insights, says in past times such high prices would have the oil patch buzzing. This time, it’s more subdued..“Everybody feels like they're waiting for something. People are doing the work, and bringing the rigs out to catch up with what they lost, but no one is responding [with more],” Birn said in an interview with the Western Standard..“They're using what they have available to them.”.Birn believes the industry is looking for maximum returns with minimal output..“In the years preceding COVID, the sector generally invested more than it made. … So if you do that for a long enough period of time, eventually your investors are getting skeptical about what the value is to them giving you more money,” Birn said..“Shareholders are looking for greater returns on capital and to capital from the upstream companies. And we've seen a general shift in mentality away from volume metrics to value metrics. What you're seeing is the money go back to the investors.”.Although growth might not be what’s expected with gas prices hovering around $2 per litre, it’s not zero either..“That doesn't mean upstream activity isn't going up. It is significantly better than the year before. There's a lot more confidence in your job security and people are going to spend money. But it does mean, though, there is no boom going on,” Birn said..“I don't know if it won't happen. I think it's just going to be different and more moderated.”.The worldwide push to net zero carbon emissions has investors doubtful about the long-term future of oil. Birn says if anything, they’ll turn to shale deposits before oil sands because they’ll start making money sooner..“There is a multitude of targets right now in North America, and I don't think it's a target deficit that's holding the industry back. It's the willingness to put money back into the stream. And I think there's concern that the equity markets and the investors would not reward them for that,” Birn said..“There's a lot more confidence, there's a lot more sense that perhaps this conversation about energy security is overdue. And that gives the sector a lot of comfort in terms of its important role in the world. But trying to push hard to get the rig count up beyond — I'm just not seeing it.”.Birn says the collapse in oil prices, the cancellation of pipelines, and then the pandemic have lessened the oil sector’s infrastructure. People left the industry and so did equipment..“The sector contracted and rationalized. And some of the equipment matured, and they moved some equipment across the border. And so that whole sector is smaller today than yesterday. And that's true with our fabrication capacity. We lost a lot of that.”.Normal investments in equipment didn’t make sense during the pandemic. Playing catch-up now is harder due to inflation..“You think about any new high spec rigs--why would you buy those when there's no demand for them? So the natural turnover of the fleet itself didn't happen, or it has been delayed. .“And now you'd go, 'oh, well, we should build those.’ Look at the steel price, boys. I don't think so.”
The push to net zero, regulations smothering the energy sector, and shareholders’ desire for returns are minimizing drilling growth, say industry experts..ARC Energy Research Institute estimates that for the Edmonton Par oil benchmark, the average price of a barrel will be $122.64 this year — almost double the $62.42 average in 2017. Over 7,000 wells were drilled that year, yet this year only 6,000 are expected to be drilled..Kevin Birn, a North America crude oil market analyst for S&P Global Commodity Insights, says in past times such high prices would have the oil patch buzzing. This time, it’s more subdued..“Everybody feels like they're waiting for something. People are doing the work, and bringing the rigs out to catch up with what they lost, but no one is responding [with more],” Birn said in an interview with the Western Standard..“They're using what they have available to them.”.Birn believes the industry is looking for maximum returns with minimal output..“In the years preceding COVID, the sector generally invested more than it made. … So if you do that for a long enough period of time, eventually your investors are getting skeptical about what the value is to them giving you more money,” Birn said..“Shareholders are looking for greater returns on capital and to capital from the upstream companies. And we've seen a general shift in mentality away from volume metrics to value metrics. What you're seeing is the money go back to the investors.”.Although growth might not be what’s expected with gas prices hovering around $2 per litre, it’s not zero either..“That doesn't mean upstream activity isn't going up. It is significantly better than the year before. There's a lot more confidence in your job security and people are going to spend money. But it does mean, though, there is no boom going on,” Birn said..“I don't know if it won't happen. I think it's just going to be different and more moderated.”.The worldwide push to net zero carbon emissions has investors doubtful about the long-term future of oil. Birn says if anything, they’ll turn to shale deposits before oil sands because they’ll start making money sooner..“There is a multitude of targets right now in North America, and I don't think it's a target deficit that's holding the industry back. It's the willingness to put money back into the stream. And I think there's concern that the equity markets and the investors would not reward them for that,” Birn said..“There's a lot more confidence, there's a lot more sense that perhaps this conversation about energy security is overdue. And that gives the sector a lot of comfort in terms of its important role in the world. But trying to push hard to get the rig count up beyond — I'm just not seeing it.”.Birn says the collapse in oil prices, the cancellation of pipelines, and then the pandemic have lessened the oil sector’s infrastructure. People left the industry and so did equipment..“The sector contracted and rationalized. And some of the equipment matured, and they moved some equipment across the border. And so that whole sector is smaller today than yesterday. And that's true with our fabrication capacity. We lost a lot of that.”.Normal investments in equipment didn’t make sense during the pandemic. Playing catch-up now is harder due to inflation..“You think about any new high spec rigs--why would you buy those when there's no demand for them? So the natural turnover of the fleet itself didn't happen, or it has been delayed. .“And now you'd go, 'oh, well, we should build those.’ Look at the steel price, boys. I don't think so.”
