Drilling to improve in challenging time

The forecast has improved but the outlook remains somewhat gloomy.

The forecast has improved but the outlook remains somewhat gloomy.

The Petroleum Services Association of Canada has revised upward its prediction of the number of wells that will be drilled in Canada this year.

The trade association, which represents companies in the upstream petroleum sector, said on Thursday that it now expects rigs to be released from 11,250 completed well sites in 2010, with 7,590 of these in Alberta.

In its previous forecast, which was issued in January, PSAC projected a 2010 well count of 9,000, of which 6,095 were expected to be in Alberta.

Last year, 8,350 wells were drilled in Canada.

A news release issued by PSAC cited three factors for its rosier outlook: the current high price of crude oil, anticipated changes to Alberta’s royalty structure and the stronger global economy.

“At worst, downsizing has flattened out for petroleum service and supply companies,” said PSAC president Roger Soucy.

“And in pockets, companies are hiring people; pockets like pumping services and services related to shale development.”

However, in a subsequent telephone interview, Soucy acknowledged that natural gas producers continue to face challenges. Prices have averaged C$4.64 per thousand cubic feet so far this year, with PSAC’s latest forecast assuming a year-long average of $4.25.

“We need $6 gas at least, and probably north of $6, to make a difference,” said Soucy.

Even if prices recover to that level, that would likely prompt drilling rigs to move to the lower-cost shale gas deposits in the United States, he said.

“Then you get another wave of production coming at you and the price falls again.”

PSAC anticipates that 58 per cent of the wells drilled in Canada this year will be oil-focused, despite a Western Canadian geology that’s balanced heavily in favour of natural gas production.

Last year, noted Soucy, half of the wells were for oil. In 2008 the percentage was 62, and in 2006 it was 70.

“The limiting factor on oil drilling right now is opportunity.”

PSAC’s forecast does anticipate an increase in the number of gas wells in some areas, based on activity in the first quarter of this year. Soucy attributes this to some companies having pre-sold their 2010 production at a much higher price, or being required to drill to retain lease rights.

In a wide swath of Central Alberta running from south of Red Deer to north of Edmonton, for instance, PSAC is projecting that 1,005 wells will be drilled in 2010 — based on a tally of 260 in first quarter. That compares favourably to the 775 drilled in the same area last year, but is down sharply from the 1,800 in 2008.

“In 2006 they drilled almost 3,000 wells there,” observed Soucy, adding that the economics do not suggest a return to those kinds of levels anytime soon.

“For easily the next 18 months to two years, we just don’t see anything that’s going to do much for gas prices.”

hrichards@bprda.wpengine.com