In The News / Oilfield Services
Oilfield services to lead growth. BMO report says industry on rebound
Lisa Schmidt
Calgary Herald
Thursday, February 27, 2003
The oilfield services sector will lead the country in terms of economic growth over the next two years, as high commodity prices spur a rebound in drilling and exploration activity, the Bank of Montreal said Wednesday.
In its outlook for the country's major industries, the bank predicts the oilfield service sector will average 11.4 per cent growth this year and next.
Drilling and exploration have started to rise in response to higher energy prices, particularly for natural gas.
"There's going to have to be a huge ramping up of activity out West to meet the growing demand of natural gas, and also, the oilsands will continue to have a fairly fast pace of development," said Earl Sweet, the bank's assistant chief economist.
"To us, (oilfield services) looks like one of the fastest- growing areas."
The oil and gas services sector takes over as the country's economic growth leader over the next couple of years, while a traditional engine of the economy, the auto sector, will fall to the back of the pack.
The growth spurt in the oilfield services industry will be in sharp contrast to oil and gas production, which is forecast to rise a meagre 1.8 per cent over the next two years, according to the report.
Oil and gas producers have been slow to replace declining production at existing wells, and will be hard pressed to raise output over the next couple of years, the bank said.
"In addition, Alberta is experiencing falling production of conventional light oil as a result of declining resources in the Western Canada Sedimentary Basin," the report said.
As a result, natural gas producers are also expected to drill deeper -- and more expensive -- wells in an effort to make up for falling production.
Industry observers say the bank's outlook fits with other recent forecasts for drilling activity.
"That call makes sense," said Jason Konzuk, an analyst with FirstEnergy Capital, who predicts a record 18,300 wells drilled this year.
"Even though you are going to have record number of gas wells drilled in 2003, overall western Canadian production is going to be down," Konzuk said.
"Producers are having to run harder and drill more to offset declines on the existing production base."
There are some signs oil and gas companies are gearing up for a stronger year.
On Wednesday, Canadian Natural Resources Ltd. said it would drill almost 600 wells this year, about three times as many as in 2002.
The Petroleum Services Association of Canada, which represents the oilfield service companies, is forecasting near record drilling activity at 17,500 wells.
But the sector faces significant challenges before it can capitalize on the upsurge in drilling activity, especially on the natural gas side, said Roger Soucy, association president.
"The potential for finding new gas discoveries is much more difficult," he said. "The fields tend to be smaller, more difficult to find . . . the opportunities are less than they were."
A bigger problem is that the sector has been hamstrung by a chronic shortage of trained workers to operate drilling rigs and other equipment.
"From the oilfields service standpoint, our biggest challenge is people," Soucy said, adding that some drilling rigs have been forced to shut down some days because of a shortage of labourers. About 150 rigs are working with two crews instead of three, he said.
"That's a situation that's only going to get worse in time," Soucy said.
The association is working on several programs to attract more workers to the industry, but Soucy said it takes time to train people. |
