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Producers, time to stop pouting Petroleum services sector tells industry to get on with job in Alberta or risk losing public support; ups well-completion forecast Gary Park For Petroleum News
One Canadian oil and gas leader has rebuked the industry, telling it to stop “pouting,” accept that the Alberta government will make no more changes to the royalty regime that takes effect in 2009 and get on with the job.
Roger Soucy, president of the Petroleum Services Association of Canada, told a spring activity update meeting “we must move ahead,” or risk losing public support and a “social license to operate” in the province.
Others share his sentiment, as higher commodity prices ease the burden of a 20 percent average hike in royalties.
Soucy said some companies are already pumping some of the tidal wave of cash they have collected in the first quarter into their capital budgets, after previously slashing their 2008 capital programs.
He said rising oil and gas prices are softening the blow of royalty increases and could make the second half the busiest part of the year as uncertainty over royalty proposals fades.
The commodity price trend has prompted PSAC to hike its Western Canada well completion forecast for the year to 16,500 wells (56 percent targeting gas prospects, reflecting a strong price surge), up 2,000 from its original production, although trailing last year’s total by 2,557 wells.
Natural gas price the driver “While all the talk of late is centered around the rising price of oil, it’s actually the price of natural gas that really impacts the industry in Canada, especially in Alberta,” Soucy said.
He said the price of gas, which bottomed out last August at C$4.25 per thousand cubic feet, edged up to C$6-$7 in early fall and has recently closed above C$10, has rebounded from an uneconomical threshold.
“Cautious optimism regarding a sustained increase in the price of gas is leading to increased drilling activity,” Soucy said.
PSAC has hiked its own price assumptions for 2008 to C$8.50 for AECO gas and $95 for West Texas Intermediate crude from its estimate last October of C$6.50 for gas and $75 for crude.
Alberta alone is now expected to post 11,748 well completions in 2008, up 2,173 from PSAC’s original goal, but 15 percent short of the 2007 count. It expects British Columbia to fall by 9 percent from 2007 to 800 wells, but forecasts Saskatchewan will grow by 4 percent to 3,526 and Manitoba to post a 9 percent increase to 350 wells.
Soucy said that while much of the Alberta focus is on the oil sands, the conventional gas sector accounts for 80 percent of the province’s activity and generates the bulk of royalties and government revenues.
Alberta plans no further adjustments Precision Drilling Trust CEO Kevin Neveu told analysts April 23 that a full recovery in Canadian drilling is unlikely before 2009. He said “there are a lot of really neat, positive anecdotal indicators around,” but it may take another four months to see hard evidence of a revival.
Chris Gindl, an oilfield services analyst with Dundee Capital Markets, which expects average oil prices of $95 and gas prices of C$7.75 in 2008, told the PSAC meeting he expects 19,000 wells this year and 23,000 in 2009 as the pressure of Alberta’s royalty increases starts to ease.
He said service company shares have risen 20 percent-40 percent in the past two months in anticipation of a recovery, but natural gas prices during the summer hold the key to major drilling programs.
David Pryce, vice president of operations at the Canadian Association of Petroleum Producers, said any attempt to force another review of Alberta royalties would only refuel industry uncertainty when it is more important to understand the implications of a new regime.
A spokesman for the Alberta government said Energy Minister Mel Knight has no intention of making any further adjustments to the royalty framework, and that includes sticking with the oil price cap of $120 per barrel on royalties.
Although the rates will remain unchanged if oil moves above that price level, the government will collect higher royalties on each $1 per barrel rise in prices.
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