Back from the depths

W. Canada makes strong drilling comeback; Alberta closes in on record

Gary Park

For Petroleum News

It’s a case of the glass being slightly more than half full and the level is rising.

Government land sales in Alberta are rapidly closing in on a record year and the use of drilling rigs is making a strong comeback in Western Canada.

But there are two smudges on an otherwise positive picture — whether the current pursuit of oil prospects has staying power and the need to put the current revival in the context of the dismal performance in 2009, when the entire industry took a precipitous nosedive.

Statistics Canada, a federal government agency, reports that capital spending by the conventional oil and natural gas extraction sector in 2009 fell by 38.5 percent from 2008 to C$21.9 billion, while the nonconventional sector posted a 38 percent decline to C$11.2 billion.

The agency said combined spending plunged to C$33.13 billion from C$53.7 billion in 2008, leaving a lot of scope for recovery, which the Canadian Association of Petroleum Producers forecasts will reach a combined C$42 billion this year.

Reinforcing the dismal performance in 2009, operating expenditures dropped 28 percent to C$23.7 billion in the conventional sector and 5.2 percent among unconventional operators to C$13.9 billion; production decreased 0.5 percent for crude oil and equivalent, 6.8 percent for marketable production of natural gas and 4.4 percent for natural gas byproducts.

The value of crude oil and equivalent hydroca bons produced in 2009 totaled C$61.6 billion, off 32.9 percent from the C$91.8 billion in 2008, reflecting the shrinkage in wellhead prices, while the value of marketable gas production was down 53.1 percent to C$20.9 billion.

Alberta overhaul a factor

Operators shelled out almost C$187 million at Alberta’s Sept. 1 sale, raising its year-to-date total to C$1.71 billion.

It needs to raise only another C$120 million at the remaining eight sales to surpass the 2005 record of C$1.83 billion.

Over the same period of 2009, the province collected only C$207.5 million on 1.19 million hectares (2.94 million acres) at an average C$175 per hectare compared with this year’s 2.4 million hectares at an average C$713.55 per hectare.

The key target area at the latest auction was Grande Prairie, in northwestern Alberta, where five licenses fetched a total of C$76 million.

The largest successful bid in the region was C$23.5 million, or C$2,874 per hectare, for an 8,192 hectare parcel in La Glace, where Capio Exploration has licensed a new pool wildcat directional oil well. Terra Energy has also licensed a nearby directional Montney natural gas well. The successful bid was made by land broker Scott Land & Lease for an unnamed buyer.

Orleans Energy posted the highest per-hectare average of C$8,341 in laying claim to two parcels in the Waskahigan area of west-central Alberta. The company said it has now assembled more than 8,500 hectares of contiguous land in the emerging exploration area.

Gregg Scott, owner of Scott Land & Lease, said the largest bids were made over a wide geographical area, targeting both oil and natural gas prospects, despite weak gas prices.

The Canadian Association of Oilwell Drilling Contractors added to the buoyant mood by reporting that 357 of an available 795 rigs were working across Western Canada at the end of August, compared with 183 of 852 rigs at the same time last year, even though heavy summer rains have prevented some wells from being drilled.

Association President Don Herring said in a statement the recovery is a result of improved oil prices and a positive response to the Alberta government’s royalty adjustments.

He said the amended fiscal regime has helped the industry leave behind the uncertainty of 2009.

Herring predicted an average 400 rigs will be at work in the current quarter, followed by a “fairly strong” final quarter.

The Alberta government said it expects to issue C$1.4 billion in royalty drilling incentives in the 2010-11 fiscal year, almost double what it budgeted, as a result of the unexpected well count by smaller companies.

But the current numbers are somewhat tempered by the fact that Western Canada’s rig fleet is at its lowest level since 2006.

Setting the pace are the oil-weighted provinces of Alberta, Saskatchewan and Manitoba, with Alberta’s active rig count for the first eight months averaging 214 units, up 73 percent from last year, but still below other years since 2000.

Saskatchewan has recorded its highest active rig count since 1997, with an average 64 rigs employed to the end of August, double 2009. Manitoba has had a record nine rigs at work.

British Columbia, heavily tilted to natural gas, has logged an average 61 rigs at work, a 22 percent increase from 2009 and better than all years over the past decade except for the 2004-06 period.