People, gear limiting energy activity

This year should be a good one for the oilpatch. And were it not for labour and equipment constraints, the outlook would be even better, says the president of the Petroleum Services Association of Canada.

This year should be a good one for the oilpatch. And were it not for labour and equipment constraints, the outlook would be even better, says the president of the Petroleum Services Association of Canada.

“People and equipment are definitely still the bottleneck as technology changes and as work ramps up and more wells are getting drilled,” said Mark Salkeld.

Two months ago, PSAC was forecasting that 15,100 wells would be drilled in Canada this year. That figure, which includes a projected 9,255 wells in Alberta, would represent a 10 per cent jump over 2011.

“I’m still comfortable with that number,” Salkeld said on Wednesday.

This, despite the fact crude oil was trading at US$103.22 yesterday — as compared with the $85 that PSAC predicated its 2012 forecast on. And sales of petroleum and natural gas mineral leases and licences — a leading indicator of future drilling activity — hit a record C$3.54 billion in Alberta last year, eclipsing the previous high by 48 per cent.

The equipment and manpower crunch has been exacerbated by increasingly complex drilling and production techniques, most notably long horizontal wells and multi-stage fracking. Drilling and service companies have had to upgrade equipment and train operators to a higher level.

“It’s not just hiring hard hats and heartbeats and throwing them in a pickup,” said Salkeld. “There’s a lot more to it.”

Fortunately, many companies managed to keep their workers during the traditionally slow warm-weather months and are better prepared now that crunch time has arrived.

“They’ve had consistent crews, for the most part, through the spring and summer.”

Although PSAC’s anticipated well count for 2012 is well short of the nearly 25,000 drilled in 2005, direct comparisons between the two years are misleading.

“The wells are longer,” said Salkeld. “There’s more drilling days and metreage on that well.”

As recently as 2007, only nine per cent of the wells drilled were horizontal. This year, PSAC expects the percentage to hit 55.

“I wouldn’t be surprised if we’re a little bit conservative on that number,” said Salkeld.

And the 18,700 wells that were drilled five years ago covered about the same distance as will the 15,100 projected for 2012. Operating days per well have increased from 7.7 to 10.3 during this period.

Salkeld described how rigs are now being set up on multi-pad sites, where they can be easily moved short distances to better access underground reservoirs. In 1970, he said, 20 acres of surface area was needed for 0.8 acres of activity beneath the surface. Today, only two acres are required above ground for 80 acres of activity below.

Another trend has been a decisive shift toward oil and liquids-rich gas plays, and away from natural gas. This year, PSAC expects the split to be 80-20, based on an average gas price of $3.50 per thousand cubic feet.

With oil prices strong and producers seemingly content with Alberta’s revised royalty regime, the only thing holding them back are people and equipment. But that might actually be a blessings in disguise, ventured Salkeld.

“This is a good ‘busy’ for the oilpatch.

“I don’t know if anyone really wants to go back to that ‘05 craziness.”

PSAC is a trade association that represents more than 250 companies in the service, supply and manufacturing sectors of the upstream petroleum industry.

hrichards@bprda.wpengine.com

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