Drill, Baby, Drill! Drilling Activity Forecasted to Rise in 2011

On November 1st, the Petroleum Services Association of Canada (PSAC) released the 2011 Canadian drilling activity forecast. PSAC is forecasting a total of 12,250 wells drilled across Canada in 2011. That’s 900 more wells than the expected final tally of 11,350 for 2010 but very far from the 25,000 wells drilled back in 2005.

Based on strong oil price predictions for 2011, drilling in oil areas is forecasted to increase substantially. However, with the industry focusing on shale gas drilling and as a result of deteriorating natural gas prices with no turn around seen in sight for 2011, conventional shallow gas drilling is forecasted to drop by 11%.

PSAC Estimates on a provincial basis for 2011:

Province Wells Forecasted Increase from 2010
Alberta 7,915 +5%
British Columbia 700 +1%
Saskatchewan 3,050 +16%
Manitoba 550 +10%

Not long ago, investment brokerage UBS issued a higher forecast of 13,000 oil and gas wells which will be drilled in Canada in 2011. A sustained global economic recovery in 2011 would support strong oil prices which would increase the profitability of drilling activity and beat current drilling forecasts.

What’s in it for me?

The association is forecasting natural gas prices will average $4 per thousand cubic feet in 2011, with oil prices coming in at $80 US per barrel. Obviously, if you are looking to profit from the strength of oil prices you need to focus on light weighted producers and not natural gas weighted ones. There are plenty of solid Canadian junior oil producers with usually a number of them residing in my portfolio.

Energy Sector – Oil & Gas Drilling Industry

Another way to get exposed to the energy sector without carrying the drilling risk is to buy into drilling or equipment and services companies. The following list contains Canadian listed oil & gas drilling companies operating all over North America and particularly in Western Canada (closing price as of Nov 19 2010):

Company Industry Symbol Market Cap Price Dividend Yield
Precision Drilling Oil & Gas Drilling TSE:PD $2.3B $8.48 NA
Trinidad Drilling Oil & Gas Drilling TSE:TDG $0.610B $5.13 3.97%
Savanna Energy Services Oil & Gas Drilling TSE:SVY $0.456B $5.79 NA
Akita Drilling Oil & Gas Drilling TSE:AKT.A $0.152B $8.55 3.26%
Pure Energy Services Oil & Gas Drilling TSE:PSV $0.100B $4.20 NA
Stoneham Drilling Oil & Gas Drilling TSE:SDG.UN $0.075B $9.20 NA

Energy Sector – Oil & Gas Equipment & Services Industry

The Oil and Gas Equipment & Services companies provide a wide array of products, equipments and services used during the exploration and development of oil and gas reserves. The package of services includes fracturing, coiled tubing and cementing services, rental oilfield instrumentation systems that are designed and manufactured for use on land-based drilling and service rigs, data acquisition, wellsite reporting software and remote communications.

Company Industry Symbol Market Cap Price Dividend Yield
Trican Well Service Oil & Gas Equipment & Services TSE:TCW $2.9B $20.30 0.50%
Toromont Industries Industrial Distribution TSE:TIH $2.3B $29.87 2.13%
ShawCor Oil & Gas Equipment & Services TSE:SCL.A $2.2B $30.91 0.97%
Ensign Resource Services Oil & Gas Equipment & Services TSE:ESI $1.9B $12.55 3.035%
Calfrac Well Services Oil & Gas Equipment & Services TSE:CFW $1.3B $30.48 0.33%
Mullen Group Income Fund Oil & Gas Equipment & Services TSE:MTL $1.2B $15.46 3.20%
Pason Systems Inc. Oil & Gas Equipment & Services TSE:PSI $1.1B $13.57 2.59%
Flint Energy Services Oil & Gas Equipment & Services TSE:FES $0.725B $15.90 NA
Canyon Services Group Oil & Gas Equipment & Services TSE:FRC $0.574B $9.55 NA
Canadian Energy Services & Technolgy Oil & Gas Equipment & Services TSE:CEU $0.472B $25.84 4.64%
GASFRAC Energy Services Oil & Gas Equipment & Services TSE:GFS $0.375B $8.30 NA
Black Diamond Group Rental & Leasing Services TSE:BDI $0.312B $19.20 5.71%
Essential Energy Services Oil & Gas Equipment & Services TSE:ESN $0.111B $1.56 NA

The list might not be exhaustive but it should give you a base to start your due diligence. On a side note, another indirect and safer way of getting exposure to the energy sector is to invest in pipeline and midstream companies.

Good luck with your research!