Stateof the

Industry2020 report & 2021 forecast

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PRESS RELEASE

For Immediate Release: November 18, 2020

CAODC announces the release of its 2021 Drilling Forecast

• Projected 2021 wells drilled: 3,771 – an increase of 475 from 2020 (3,296*)• Projected 2021 operating days: 33,938 – an increase of 4,274 from 2020 (29,664*)• Rig fleet expected to decrease by 27 (505 drilling rigs to 478 drilling rigs)• Total jobs expected = 18,550, an increase of 2,349 year over year*forecast + actual

After a promising start, 2020 activity levels came to a crashing halt at the end of Q1 along with the global economy due to the COVID-19 pandemic. The industry faced historic lows in oil pricing, which drove historic lows in drilling activity, with CAODC drilling contractors averaging only 17 active rigs in June.

2020 was not only the worst year on record, it was an extension of the prolonged downturn in Canada’s oil and gas industry. CAODC members weathered the storm yet again by further reducing headcount and getting by on unprecedentedly low drilling and well service activity. However, the Association’s registered rig fleet numbers remained relatively stable throughout the year.

Meanwhile, some gains continue to be made for Canadian oil and gas in critical areas such as pipeline infrastructure. Although the U.S. election results may have increased uncertainty regarding the Keystone XL pipeline, other projects such as the Trans Mountain Expansion, Coastal GasLink, and Alberta’s NGTL pipelines have made considerable progress. These developments, combined with upward pricing forecasts for natural gas, the recovery in oil prices from 2020 lows, and the gradual introduction of the federal government’s $1.7 billion grant for well reclamation, suggest 2021 activity should modestly improve from the 2020 collapse. With that said, the forecasted increase of 475 wells and 4,274 operating days still means 2021 will be the second slowest year in the industry’s modern history.

“The market volatility and uncertainty will persist, and several factors hang in the balance,” says CAODC President and CEO, Mark A. Scholz. “The prospects for an effective COVID-19 vaccine are promising, but the impact of the pandemic on energy demand in 2021 and access to capital for our members and their customers remain a challenge. Moreover, it is critical OPEC+ maintains supply discipline throughout these unprecedented demand shocks. Although the industry’s short-term challenges endure, we continue to be bullish in the medium and long-term as the world continues to demand Canadian energy resources,” says Scholz. “We will deal with what comes, whatever it may be, but next year could finally be the start of a recovery.”

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The Canadian Association of Oilwell Drilling Contractors represents Canada’s drilling and service rig industry.

For more information, contact:

John Bayko – Vice President, CommunicationsCanadian Association of Oilwell Drilling ContractorsPhone: (403) 264-4311 ext. 120 Email: jbayko@caodc.ca

Table of ContentsPress Re lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

CEO’s Message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Dr i l l ing Out look . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Se rv i ce R ig Out look . . . . . . . . . . . . . . . . . . . . . . . . . 6

Ac t i v i t y 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Employment 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

We l l Counts 2018 -2020 . . . . . . . . . . . . . . . . . . . . 10

Forecas t 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1

Image courtesy of ProStar Well Servicing

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President & CEO, CAODC

By Mark A. Scholz

CEO’s MessageIf it Weren’t for Bad Luck...

When considering just how badly things have gone over the past half-decade, it’s hard to believe we are exiting another year of histor-ical lows in the Canadian energy services industry. After an uplifting start to 2020, who could have pre-dicted the world would come to a halt in the grips of a global pandem-ic, and push CAODC members to lows not seen in the 70 years we’ve been an association?

After a decent end to Q1, we watched as markets crashed, oil pricing plunged into negative territory for the first time ever, demand for our products dropped off dramatically, and our little ray of sunshine disappeared behind the storm clouds yet again. As the old saying goes: if it weren’t for bad luck, we’d have no luck at all.

If it’s true that a person’s charac-ter isn’t known until they come upon hard times, then surely the character of the women and men in our sector is no secret. Six years into this downturn and we contin-ue to see good people losing their livelihoods. Over the years some have lost a job, then found another, only to lose it again. We’ve seen many who just could not afford to remain in our industry, despite

their preference. We’ve lost talent and equipment, expertise and work ethic. We’ve watched as the bus-iest businesses in our sector have become the auction houses, selling off dreams at pennies on the dollar. But through it all, at CAODC, our members have done nothing but support our Association. Incredibly, our registered rig fleet numbers have remained relatively stable, and there has been no material reduc-tion in drilling and service rig com-panies in western Canada. Words cannot express how proud I am to represent such a resilient group of hard-working individuals. For all who have left, more have remained; we are still here and waiting for our turn. The depth of character in the Canadian oil and gas industry is known, and it’s exceptional.

So, with hard times in the rear-view mirror, it is with high hopes our industry sets its sights on 2021. Encouragingly, many signals indi-cate a better year ahead: Canada’s pipeline situation is improving in a big way. Although the U.S. election results may have negative long-term impacts on the Keystone XL pipeline, other projects such as the Trans Mountain Expansion, Coastal GasLink, and Alberta’s NGTL pipe-lines have made considerable prog-

ress. On the commodity side, nat-ural gas pricing is looking as strong as it has in several years, and as the world searches for cleaner sources of fuel, Canada’s natural gas and LNG have a strong value proposition across the board. On the demand side, according to the International Energy Administration (IEA) global demand has returned considerably from early Q2 lows, and didn’t ever reach dire lows predicted early on in the pandemic. And finally, several countries are having very success-ful vaccine trials advancing toward their end stages. With any luck a safe and effective COVID vaccine will be available soon, and econ-omies and livelihoods around the world will begin to stabilize.

Post-COVID, a huge opportunity for Canadian energy will present itself once again. We have the world’s premium energy brand—the most ethically sourced, responsibly pro-duced, cleanest hydrocarbon-based energy available in a world that will be needing our products for decades to come. Let’s hope we exit this pandemic with a renewed sense of what this opportunity means for all Canadians, and make 2021 the beginning of many great years to come.

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Drilling Outlook

Chair, CAODC Forecast Committee

By Brian Krausert

The COVID-19 Year

This year brought unprecedented challenges to all Canadians, and the Canadian energy services industry has been one of the most impacted. 2020 will have the dubious record of being the most challenging year for our sector in 70 years. With the collapse in oil prices from the global measures taken to address the pandemic, upstream companies were forced to make some of the most dras-tic reductions in capital spending in record-ed history. The Canadian rig count fell this summer to 17 rigs, a low not seen in Canada since before the commercial discovery of oil in the country at Leduc #1.

This dramatic change in Canadian activity will undoubtedly lead to the consolidation of both the upstream and services sector, of which we are beginning to see the first signs of. This sign from the market indicates that it believes the worst has come to pass. How the industry rebuilds will be another question, but the talent and perseverance of our indus-try gives reason for hope.

While the outlook for oil prices in 2021 remains challenged and below the necessary economics to promote drilling for many oper-ators, natural gas prices show some areas for optimism. This is why the CAODC is forecast-ing a slick uptick in rig activity next year.

The 2020 year will see approximately 30,000 operating days for a total of approximately 3,200 wells in Western Canada. Although these numbers are the lowest on record, they have improved in Q3 and Q4, and this uptick is in large part due to increasing natural gas prices which provide one of the few areas for optimism in 2021.

The CAODC is forecasting a slight increase in activity for 2021 with 34,000 rig days and a well count of nearly 3,770. The registered rig fleet will continue its decline; we anticipate entering 2021 with 505 rigs and exiting the year with 478 remaining in the fleet. Heavy mobile double rigs and triple rigs were the most active rig types through 2020, working predominately in the Montney formation on gas weighted and liquids rich programs. There was a corresponding decrease in activity in the Viking and southeast Saskatchewan and as a result, singles and super singles lost market share year over year. Singles represent ap-proximately 20 per cent of the active rig fleet this year, as opposed to 35 per cent in 2019.

Brian Krausert is Chair of the CAODC fore-casting committee. Mr. Krausert’s detailed drilling records date back to the 1970s, and his insight and analysis have informed CAODC forecasts for several decades.

6Image courtesy of DC Drilling

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structure in Alberta. In October, the federal government approved the NOVA Gas Transmission Limited (NGTL) System Expansion Proj-ect. NGTL, owned by TC Energy, is approved to begin construction on approximately 344 km of natural gas pipeline and associated facili-ties from Grande Prairie to north of Calgary, including three compres-sor station additions. The project

will further resolve some of the natural gas transportation bottle-necks in the province, and secure agreements for long-term pipeline contracts to move western Canadian gas to eastern Canada and the U.S. Midwest. From a fleet perspective, since 2014 we’ve seen a 26 percent reduction in registered rigs (1,069 to 790). Active rigs through Q3, (rigs that have registered at least one oper-ating hour in the past 12 months) sit at 674 which suggests additional service rig delists in 2021, further consolidating the registered fleet. Currently we are seeing approxi-mately 390 to 400 rigs registering hours on a monthly basis (working rigs) early in Q4, and estimate the

Much like the drilling sector, ser-vice rig activity started with a year-over-year increase in 2020. Operating hours through February were up slightly from 2019 levels (2,702 hours or 1.3 per cent), and then dropped significantly with the onset of COVID at the end of the first quarter. April was the low point for activity, with 15,249 operating hours, after which we began to see a slow and steady increase for the remainder of the year. While a modest uptick characterized the second half, overall, 2020 was an-other setback year and has delayed any meaningful recovery by at least 12 months. Spring and summer activity levels remained depressed on a year-over-year basis. The injection of federal funding in April, through a $1.7 billion grant for well reclama-tion, has yet to be fully felt through-out the industry. Although these funds will ultimately help stabilize activity, their introduction to the market led to an initial pull back in previously allocated capital spend-ing while operators determined what parts of their inventories were eligible under the program. As we settle into Q4, a number of market factors have been positive, and at this point we are anticipat-ing 2021 will be a recovery year for Service Rig Members. In addition to the federal grant for reclamation beginning to take hold, oil pricing has bounced back somewhat after its historic crash in April, and natural gas spot and futures pricing con-tinue to have a positive outlook. This coincides with improvements in natural gas transportation infra-

Service Rig Outlook

”“From a labour perspective, any sustained increase

in activity will expose a shortage

of skilled labour.

working rig count to rise only slightly in 2021. This will result in a larger share of hours per working rig than in previous years, and could also indicate a structural shortage in available rigs due to a lack of prior investment in the fleet and a lack of capital to re-activate idle rigs for some members. From a labour perspective, any sustained increase in activity will expose a shortage of skilled labour. Sporadic, short-term activity and depressed rates have eliminated wage premiums for rig hands, and workers have been leaving the energy services sector continuously since late 2014. As such, there is a major shortage of crews in Q4 2020, and industry players will have to work hard to attract workers back to our sector, which will likely result in increased labour costs in 2021. The industry’s supply response (available rigs and crews) will have an effect on the amount of work that can be performed in the busier months should we see even a slight recov-ery in exploration and development spending in Canada. Provided global factors such as COVID and supply/demand levels for oil and gas continue to improve, CAODC anticipates 2021 to be a re-covery year for Service Rig Members given the fundamentals outlined above. Any sustained growth has the potential to reveal major issues in fleet capacity and available crews which should lead to increased margins, and modest cash flows returning for members for the first time since 2016/17.

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Activity 2021

ACTIVITY STATISTICS OPERATING DAYSRIG RELEASE

WELLS DRILLED

2014 131,021 13,089

2015 64,893 6,199

2016 43,229 4,627

2017 66,524 7,091

2018 64,722 7,428

2019 45,428 5,545

2020 (Actual + Q4 Forecast) 29,664 3,296

2021 Forecast 33,938 3,771

2014 vs 2021–97,083 –9,318

(74%) (71%)

2020 vs 20214,274 475

14% 14%

2014 remains the benchmark for normal drilling activity for CAODC members. Over the past 6 years, save a modest improvement in 2017, we have seen drilling levels steadily decline to our record low of 437 operating days in June of 2020, an 86 per cent decrease year-over-year. In employment terms, June saw a loss of 19,600 jobs. For comparison, in June of 2014, total operating days were 7,348, and five CAODC members

had individual numbers greater than the entire industry had in June of this year. Overall job totals are down over 55,000 from 2014, a staggering amount. The loss of a skilled work force will be one of the major impediments in any sort of industry recovery in the years to come.CAODC estimates small gains in jobs in 2021, but perhaps more signifi-cant is the fact that our sector may be seeing growth for the first time

since 2017. We are seeing better pricing for natural gas, and increas-ing growth in the geothermal and hydrogen markets. Although oil and gas will continue to be in high demand for decades to come, the Canadian energy services industry is ultimately required to produce whatever energy source is in de-mand. CAODC members will play a large role in Canada’s energy future, whatever it may be.

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2020 EMPLOYMENT

YEAR-OVER-YEAR

2021 FORECAST 2021 FORECAST

15% 15%DIRECT JOBS TOTAL JOBS

YEAR OVER YEAR YEAR OVER YEAR

IMPACT ON EMPLOYMENT

AVERAGE ACTIVE

RIGS

DIRECTJOBS

INDIRECTJOBS

TOTAL JOBS

Jobs per Rig – 2o* 180* 200

2014 358 7,163 64,467 71,630

2015 178 3,561 32,045 35,606

2016 119 2,379 21,411 23,790

2017 184 3,687 33,179 36,865

2018 176 3,528 31,749 35,277

2019 122 2,442 21,979 24,421

2020 (A+F) 81 1,620 14,581 16,201

2021 (F) 93 1,855 16,695 18,550

2014 vs 2021-265 - 5 , 308 -47,772 - 5 3 ,080

(74%)

2020 vs 202112 235 2 ,1 14 2 , 349

15%

* Source: 20 Direct Jobs 180 Indirect Jobs (CAODC)

Employment 2021

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2018 Total Number of Wells: 7,428*

Quarter Active Rigs Fleet Operating Days

1st Quarter 253 623 22,844

2nd Quarter 105 617 9,603

3rd Quarter 184 609 17,040

4th Quarter 163 588 15,235

2018 Average 176 609 Total: 64,722

* Wells based on spud to rig release data. ** Projected.

2020 Total Number of Wells: 3,296**

Quarter Active Rigs Fleet Operating Days

1st Quarter 181 514 16,462

2nd Quarter 19 513 1,746

3rd Quarter 44 508 4,056

4th Quarter (F) 80 505 7,401

2020 Average** 81 510 Total: 29,664

2019 Total Number of Wells: 5,545*

Quarter Active Rigs Fleet Operating Days

1st Quarter 162 560 15,314

2nd Quarter 80 548 7,266

3rd Quarter 124 548 11,405

4th Quarter 123 532 11,443

2019 Average 122 547 Total: 45,428

Well Counts 2018-2020

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Forecast 20212021 TOTAL NUMBER OF WELLS: 3,771*

Quarter Active Rigs Fleet Operating Days

1st Quarter 136 498 12,335

2nd Quarter 40 488 3,612

3rd Quarter 75 483 6,890

4th Quarter 120 478 11,101

2021 Average 93 486 Total: 33,938

2021 Assumptions: $51.25/bbl WTI (USD) • $33.25/bbl WCS (CAN) • $2.27/mcf AECO (CDN) • 9 days/well * Wells based on spud to rig release data.

2021 FORECAST 2021 FORECAST

15% 14%ACTIVE RIGS OPERATING DAYSYEAR OVER YEAR YEAR OVER YEAR

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Canadian Association of Oilwell Drilling ContractorsSuite 2050, 717 – 7th Avenue SW • Calgary, AB T2P 0Z3Tel: 403-264-4311 • Fax: 403-263-3796communications@caodc.ca • www.caodc.ca

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