Oilfield drilling hits fever pitch - Service firms the big winners
Calgary Herald, Friday, October 24
By Michelle Lang
Canadian drilling activity will reach new heights in 2003 as strong commodity prices drive energy companies to boost their search for new oil and gas reserves.
A Petroleum Services Association of Canada (PSAC) forecast released Thursday predicts 20,400 wells will be drilled this year in the three western provinces, exceeding earlier estimates by 25 per cent. That is up significantly from 2002 when the industry drilled 15,818 wells.
Healthy drilling figures are an indication of strong earnings in the petroleum-service sector.
"Any time you have record activity and record employment the whole economy is the beneficiary," said Roger Soucy, president of the association that represents 250 oilfield services firms.
Analysts attributed the record drilling to the high commodity prices that have left energy companies with substantial amounts of cash. So far this year, gas prices have averaged about $6.50 per thousand cubic feet, while oil has averaged about $30.50 US a barrel.
"That's what generates all the extra cash and the companies spend it on drilling and other related activities," said Miles Lich, an oilfield service analyst at Peters & Co. Ltd.
About two-thirds of the wells drilled were hunting gas, while about 25 per cent targeted oil. Alberta is home to most of the wells. More than 15,000 of the wells were drilled in this province, up from about 11,500 last year. Some 4,000 wells were in Saskatchewan and another 1,000 were in British Columbia.
High natural gas prices also encouraged companies to drill a large number of shallow gas wells -- about 76 per cent of the total gas wells were shallow, up from 64 per cent last year.
Lich said the shallow wells produce gas easily, allowing companies to sell the commodity while prices are high. He predicts the sector will begin drilling deeper wells in the coming months.
The record demand should also allow petroleum services companies to boost the rates they charge customers.
"In the first quarter of 2004, I expect to see the strongest pricing we've ever seen," said Lich.
But analysts told a PSAC conference Thursday they expect commodity prices -- and drilling activity -- to slip slightly next year. FirstEnergy Capital Corp. analyst Martin Molyneaux said crude oil will likely average $27 US a barrel in 2004. Natural gas will average about $4.75 US per million British thermal units, he said.
As a result, PSAC predicts the total gas and oil well count for 2004 will be 18,965 wells -- a decrease in drilling activity of eight per cent for Alberta.
"In 2004, mostly we don't think commodity prices will be quite as high," said Soucy.
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Factbox: Drilling Forecast
- A record 20,400 oil and gas wells are expected to be drilled in 2003 in Western Canada.
- In 2002, only 15,818 wells were drilled in Western Canada.
- In 2004, the industry expects to drill 18,965 wells.
- This year, 67 per cent of the wells are expected to be gas, while 25 per cent are likely to be oil.
Source: Petroleum Services Association of Canada
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