Projected well count boosted

Robust drilling activity during the first half of 2014 has prompted the Petroleum Services Association of Canada to boost its projected well count for the year.

Robust drilling activity during the first half of 2014 has prompted the Petroleum Services Association of Canada to boost its projected well count for the year.

The upstream petroleum industry trade association said Wednesday that it’s now anticipating that 11,460 wells will be drilled in Canada during 2014. That figure is six per cent higher than the 10,800 wells that PSAC was predicting in its original forecast last October. It bumped those expectations to 10,930 in January and then to 11,170 as of April.

“PSAC has revised its figures based on a stronger-than-anticipated performance during the first two quarters, with 245 more wells drilled during that period,” PSAC president and CEO Mark Salkeld said in a release.

“We are confident this performance trend will continue and we are forecasting an additional 415 wells to be drilled in Q3 and Q4.”

PSAC said its latest well count, which is based on rig releases, assumes average prices of C$4.75 per thousand cubic feet for natural gas and US$100 per barrel for West Texas intermediate crude oil, and a Canadian dollar averaging US$0.90.

“There are a variety of factors driving the better-than-expected activity this year,” said Salkeld.

“A key factor is the increase in natural gas prices, which is partially being driven by low gas reserves, which are at the lowest they have been in more than 10 years, so there is a corresponding increase in demand.

“Beyond that, well completions continue to gain efficiencies and that is speeding up activity levels in key formations.”

On a regional basis, PSAC now expects 6,762 wells to be drilled in Alberta this year, three per cent more than the 6,555 it had forecast for the province as of October.

Saskatchewan is expected to add 3,544, up 11 per cent from PSAC’s original estimate of 3,196; and drilling in British Columbia is now anticipated to produce 707 wells, a 28 per cent jump from the 550 wells PSAC initially called for.

The association has scaled back its expectations for Manitoba to 430 wells, which are 10 per cent fewer than the 480 first forecast.

PSAC said oil continues to be the primary play for energy companies, with 2,862 oil wells and 509 gas wells drilled during the first six months of 2014. It added that 84 per cent of those wells were horizontal and directional, as compared with 16 per cent that were vertical.

Todd Hirsch, chief economist with ATB Financial, noted in his daily comment on Wednesday that the “capacity utilization” rate for the oil and gas extraction industry is at its highest level in a decade. He cited Statistics Canada figures for the first quarter of 2014 that indicated the sector’s capacity utilization was 88.7 on a scale of 100 — as compared with the 82.5 average for all industries.

If the rate moves too high, cautioned Hirsch, the cost of the increasingly scarce equipment will climb.

“For Canada’s oil and gas industry — much of which is located in Alberta — that means higher costs for drilling rigs, boilers, steel pipe and specialized equipment for oilsand mining,” he wrote. “

Even if the market prices for oil and gas are decent, soaring production costs can quickly render some projects economically unfeasible.”

PSAC represents service, supply and manufacturing companies, and has more than 250 members.

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