Precision Drilling expects rig demand growth with LNG Canada startup

Precision Drilling Corp. said it will be closely watching the startup of this country’s first liquefied natural gas export facility after being caught off guard by the dramatic increase in drilling following the opening of the Trans Mountain pipeline expansion.

The company is Canada’s largest drilling rig contractor, and as such, serves as a barometer for the overall health of the country’s energy sector.

But CEO Kevin Neveu said even Precision itself was surprised by what he called the “near instantaneous” uptick in drilling in Western Canada that took place following the opening six months ago of the Trans Mountain oil pipeline expansion.

“We were surprised by how quickly customers responded to (new export) capacity with the Trans Mountain pipeline. I’d say the demand (for Precision’s drilling rigs) was 10 to 15 per cent higher than we expected resulting from that pipeline expansion,” Neveu said on a conference call Wednesday to discuss the company’s third-quarter financial results.

“So we’re watching anxiously to see how LNG Canada fires up.”

The massive LNG Canada facility nearing completion near Kitimat, B.C., is expected to start operations by mid-2025. Industry insiders hope the facility — which will allow Canadian liquefied natural gas to be shipped to Asian markets for the first time — will provide the same boost to natural gas drillers in Alberta and B.C. that the Trans Mountain pipeline expansion gave to oil drillers.

By opening up additional export capacity for Canadian crude, the Trans Mountain pipeline expansion has served to boost prices for Canadian heavy oil. Neveu said as a result, demand for Precision’s rigs in this country is at “historic highs.”

“Today we have 75 rigs operating in Canada and we expect this pace to continue,” he said, adding in the third quarter, Precision’s customers’ drilling activity in Canada increased 25 per cent year-over-year, averaging 72 active drilling rigs.

Neveu said the uptick in demand is coming both from customers drilling heavy oil, as well as those drilling natural gas condensate, which is added by producers to heavy oil to make it less viscous and easier to transport.

He said any additional drilling activity spurred by the startup of LNG Canada will take place in the Montney natural gas-producing region of northwest Alberta and northeast B.C.

“It feels like (we could see) demand in that two-to-five rig range to balance out the demand from LNG Canada,” he said.

All of the new demand means that Neveu expects to see Western Canada’s winter drilling season ramp up quickly this year, with peak seasonal drilling activity likely exceeding last year’s.

He also said industry-wide drilling rig service crew shortages could be a possibility this winter.

Precision Drilling Corp. said Tuesday after the close of markets that it earned $39 million in the third quarter of 2024, nearly double what it earned in the same period last year.

It said the profit works out to $2.77 per share, compared to the $20 million profit, or $1.45 per share, it earned in the third quarter of 2023.

The company’s revenue was $477 million, up from $447 million in the prior year’s quarter, as the increased drilling activity in Canada and internationally more than offset lower activity in the U.S.

This report by The Canadian Press was first published Oct. 30, 2024.

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