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Canadian S&S in trouble CAODC drops well completion forecast by 29%; rig utilization forecast at 25.5% Gary Park For Petroleum News
Canada’s upstream service sector is no longer mincing words about the outlook for the rest of 2009.
Don Herring, president of the Canadian Association of Oilwell Drilling Contractors, said the industry has found itself in “dire straits” and has now served notice to its members and others that the industry is in “real trouble.”
His grim message came as CAODC issued a second revision to its well-completion forecast, calling for 8,787 wells to be drilled, down 29 percent from its February adjustment and 39 percent below what it originally projected last October.
If that target is achieved, CAODC said an average 25.5 percent or 219 from an available fleet of 815 rigs will be kept busy through 2009, 60 percent below the record drilling years of 2005 and 2006 when 21,999 and 22,127 wells were completed. In 2006, rig utilization was 63 percent of 795 rigs.
For the opening quarter of 2009, utilization was 37 percent, or 320 rigs, dropping sharply to 11 percent or 92 rigs in the second quarter. The projection for the current quarter is a utilization rate of 25 percent, edging up to 29 percent in the final quarter.
When CAODC released its revised forecast in February, it anticipated some price recovery in the second half of 2009, but Herring said that is “just not going” to happen.
The new target is based on average commodity prices for the year of $75 per barrel for West Texas Intermediate crude and C$5 per thousand cubic feet for natural gas.
The gutting of the service sector is affirmed by CAODC’s new forecast of 78,455 operating days in 2009, down 17 percent from its February estimate of 95,000 and 40 percent from the 129,000 days expected when the initial forecast was released.
Herring said he expects some drilling contractors will idle parts of their fleet and others will either sell units or cut them apart.
Slump in new well permits The gloomy outlook has ample supporting evidence.
New well permits issued by regulators slumped to 1,769 in the second quarter, down from 3,689 in the same period of 2008, while the first half count was 5,285 wells compared with 8,725 to the midpoint of 2008. Operators licensed only 33 wells outside Western Canada, including 28 in Ontario, three in Newfoundland and two in Quebec.
The hardest hit areas in the latest quarter were southwestern Saskatchewan (down 335 permits to 90), southeastern Alberta (down 293 to 479), east-central Alberta (down 268 to 190) and a Foothills zone in the Canadian Rockies (down 262 to 183).
The two areas that fared best were northeastern Alberta (down 58 wells to 164) and northern British Columbia (down 64 at 122). Operators in Western Canada licensed a total of 1,653 oil-targeted wells in the first half and 2,495 targeting gas.
The total of 2,097 licensed gas wells in Alberta was just under half the 4,103 wells in the same period last year. Mirroring the slump in gas prices, Saskatchewan issued 60 permits to the end of June compared with 595 last year and, despite the strong interest in British Columbia’s Montney shale gas play that region saw permits drop to 338 from 448.
For all of Canada operators licensed 641 exploratory wells, or 14.65 percent of the total, down from 1,516 exploration wells accounting for 17.38 percent of all licenses in the first half of 2008.
Alberta land auctions down Alberta continues to stumble at government land auctions, collecting a minuscule C$17.5 million in the first July sale, barely 10 percent of the comparable 2008 sale, raising the year-to-date total to C$115 million, compared with C$460 million a year earlier.
So far this year, land prices in Alberta have averaged C$136.64 per hectare (2.471 acres), a slump of 5.5 percent from the first half of 2008, while British Columbia, spurred on by interest in its Montney and Horn River areas, is averaging C$1,505.71, second only to last year’s scorching C$3,535.15.
Gary Leach, executive director of the Small Explorers and Producers Association of Canada, said it “looks like we’re on track for a pretty dismal year on the land front,” indicating that “investment levels are going to stay low for some time to come.”
He said the Alberta government can only rebuild confidence by taking a hard look at its regulatory and fiscal regime, including royalties and environmental approvals.
Alberta Treasury Board President Lloyd Snelgrove told an oil sands developers’ conference in Calgary his government is attempting to reduce the regulatory burden facing the industry and is committed to “once again making Alberta the most competitive place” for investors and businesses.
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