The word “record” hasn’t been used in connection with Alberta’s oilpatch for some time. But the provincial government was able to dust off the word and insert it into a recent news release reporting on the status of this year’s oil and gas land sales.
As of last Wednesday, it had collected $1.86 billion in revenues from lease and licence sales — surpassing the previous high of $1.83 billion earned in 2005. And with five more sales scheduled before year end, the tally will grow.
“That’s a great sign,” said Brad Rowbotham, general manager of Red Deer’s Roll’n Oilfield Industries Ltd.
“It gives all of us reason to have some optimism that a lot of people could be going back to work.”
Don Herring, president of the Canadian Association of Oilwell Drilling Contractors, said his organization noted improved land sales early this year but hadn’t anticipated that they would be this high after just nine months.
“I think it took us by surprise that they were as good as they are.”
Herring said drilling activity in the third quarter of 2010 — with an average active rig count of 322 — is up more than 80 per cent from the same period last year. The increase would have been greater, he said, if rigs hadn’t been bogged down in wet weather.
“As we go into the fourth quarter, our forecast is calling for a significant increase again over what we saw last year,” he said, predicting an average active rig count of about 400.
“I would think in 2011 we’ll see additional activity, beyond what we’re seeing now, but we haven’t got there yet.”
CAODC members are much more optimistic than they were a year ago, said Herring.
“Their frame of mind is much improved.”
Rick Doré, Nabors Production Services district manager for Sylvan Lake, is among those with a more bullish outlook.
“This year, from probably late spring to early summer, has definitely picked up and been busier than last year.
“As long as oil prices stay where they’re at and gas prices creep up a little bit, I think it’s pretty positive.”
Rowbotham has also observed increased activity and is hopeful more money will be invested in production in 2011.
“You’ve got to figure with those land sales that there are going to be a group of customers who are going to have better budgets next year than this year.”
He thinks the big reason for the improved health of the energy sector is the price of oil. Herring believes production incentives and a more favourable royalty structure announced by the province this spring were also factors.
“Had we not seen those changes, in spite of the fact we have high commodity prices, we wouldn’t see so much activity in Alberta.”
Although much of the drilling fleet remains inactive, many of those rigs were designed for natural gas production, particularly in shallow fields, said Herring.
“The part of the fleet that’s running almost at capacity is that that’s directed at oil and some of these natural gas plays that have horizontal drilling with multi-stage fracs.”
Whereas natural gas accounted for about two thirds of the wells drilled in Canada a few years ago, the low-priced commodity now makes up about 40 per cent of the total, noted Herring.
Rowbotham thinks a spike in natural gas prices several years ago probably attracted more capital to this energy source than Western Canada’s geology warranted.
“They forgot that it’s called the oilpatch for a reason — not the gaspatch.”
He added that the limiting factor if the energy sector continues to prosper will not be drilling and service rigs, but the people to operate them.
“A lot of companies in the industry are really going to have a tough time,” he said, pointing to the loss of manpower during the recent downturn and the considerable training required to prepare new people for the field.
hrichards@www.reddeeradvocate.com