With all the talk of pipeline constraints and heavy oil pricing differentials, things don’t seem so bad in the field. According to statistics from the Canadian Association of Oilwell Drilling Contractors 67% of the drilling rig fleet was working this week. That’s down from 75% in the same week of 2012.
While 542 rigs out of a total of 812 do not seem like a high utilization rate, some companies are enjoying good business. It’s particularly true for deep well drillers like Western Energy Services that has the highest utilization rate of the group with 40 of its 44 rigs working. That’s a 91% utilization rate accord to FirstEnergy Capital.
Apart from a few exceptions in the sector, it remains out of favor and has not seen much of a seasonal rally yet. On the contrary we have seen some destruction for no apparent reason like Surge Energy.
Surge is currently at -31% for the year, the TOP LOSER in all categories of energy stocks above $1. That’s even after 2 news releases where the company reported it was not aware of any material change and the release of the 2013 guidance. I can’t decipher what the market is pricing here. (If it’s because they missed guidance, this is overkill!)
It is important to remember that the price differentials & pipeline constraints will not last forever. WCS discounts are expected to improve in the 2nd half of the year from new refinery demand coming online in the Midwest. The Southern Portion of the KeyStone XL will be operational in Q3. That of course is not the silver bullet that will fix a complicated infrastructure network. On the other hand, I think the market is finding ways to cope with these problems by using rail increasingly.
Finally, there’s still a chance for the price of natural gas to average above $3.00/mcf in 2013. The current storage level is 4% lower than last year’s and 11% higher than the 5 year average. General Winter will have the last word on this one!
We are still early in the year so a mild up-tick might still be possible before we enter the debt drama at the end of February.
What’s your take on the sector?
Goldman Sachs Strategist: Oil Price Could Reach $150/Bbl in Summer
Have a Great Weekend!