Manitoba oil industry slows but won’t cease

Despite dwindling production in other parts of the country, Manitoba will still see 350 wells drilled in 2015

The current oil price slump will not have a major effect on activity in Manitoba’s oil industry, and it’s good news if you’re a buyer rather than a seller, said speakers at a recent oil industry conference here.

“Low oil prices do have a positive effect for other parts of the economy. A lot of the country’s producers are going to save tons on diesel and these low energy inputs are very welcomed,” said Bill Whitelaw, CEO of JuneWarren Nickel’s Energy Group, a publisher of several industry magazine. It is also part of Glacier Media, which publishes the Manitoba Co-operator.

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Whitelaw spoke at the Bakken 2.0 business development conference, which focused on the Manitoba oil industry and how Brandon businesses could capitalize on the nearby Bakken oil region.

Speakers explained that despite plummeting prices and mass layoffs in the Alberta oilfields, the sky isn’t falling.

“The important thing to note is that what we are experiencing right now is the eighth deep down cycle in about 30 years. It is a natural part of how the industry works,” said Whitelaw. “The slide began in July of last year and it went fast.”

Whitelaw said the previous price of $110 a barrel wasn’t sustainable and wasn’t supported by market fundamentals.

“The ramp-up in U.S. supply over the past few years was a huge contributing factor. The U.S. was producing so much good oil, so quickly that it was offsetting some of the global geopolitical risks and so the supply-and-demand balance was holding and allowing this high price to stay in place.”

Other speakers said the enormous increase in the U.S. production that started in 2000 added millions of barrels into production, causing stored amounts to increase and eventually put pressure on prices.

Slowed but continuing

Manitoba’s oil production is mainly in the Williston Basin, located in the southwest corner of the province and stretching throughout southeast Saskatchewan, North Dakota, the northwest region of South Dakota and northeast Montana.

Since the drop in price, oil production in these regions has slowed but industry representatives say there is no concern over production ceasing entirely.

North Dakota currently has 127 active drilling rigs, down from the 186 active at this time last year. It has been speculated that active rigs in this region could drop to as low as 50.

“In Manitoba we have close to 5,000 wells that are producing right now,” said Keith Lowdon, director of the petroleum branch with the Province of Manitoba. “In cumulative production, we have reached 352 million barrels as of the production last year and that has been a substantial growth for us.”

Lowdon explained that the Bakken oilfields are somewhat isolated from the industry cycles, as the cost of production is much lower compared to other areas in the country.

“We knew prices were falling and we thought we would see a corresponding drop in the drilling that would occur in the province, but we didn’t see that initially. Up until now we have seen about a 10 per cent drop in production,” said Lowdon. “For 2015, we are still looking at somewhere around 350 wells to be drilled in the province.”

The good news for consumers is that due to the high number of wells waiting to come online, there are forecasts that oil prices will fall further before rebounding.

In the Bakken region, in previous years there have been 350 unfinished wells. Currently the number of unfinished wells in the region is reaching 800.

Once the supply-and-demand equation levels out, these wells will come online, keeping the price of oil low or driving it down further.

“The Economist is forecasting an increase in demand this year, which would call for an increase in production and the pricing forecast is saying that at the end of this year Brent (crude oil) will be at $80, which is a nice profitable price for both sides of the equation. By 2016, Brent has been forecasted to rise to $86,” said Whitelaw.

Brent is a type of sweet crude oil that is used as a benchmark for the prices of other crude oils. Last week Brent crude was about $59 per barrel.

About the author

Reporter

Jennifer Paige

Jennifer Paige is a reporter centred in southwestern Manitoba. She previously wrote for the agriculture-based magazine publisher, Issues Ink and was the sole-reporter at the Minnedosa Tribune for two years prior to joining the Manitoba Co-operator.

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