Canada trims drilling forecast

While the Alberta government mulls higher royalties, the oil and gas industry is sending its own clear signals about the fragile state of the upstream.

Drilling activity is back where it was in 2000 and there could be worse to come as uncertainty builds on several fronts — tougher environmental regulations and the prospect of higher royalties in Alberta — despite some glimmers of hope with natural gas prices and an easing in service costs.

For now, the Canadian Association of Oilwell Drilling Contractors has responded to a bleak opening half by slashing its well completion forecast for Western Canada to 16,339 wells, 27 percent below the 2006 total and down 14 percent from its original prediction last fall.

CAODC President Don Herring said the difficulties of the first quarter and continued weakness in the current quarter suggest an average of only 376 rigs from a fleet of 857 will be active this year — a 44 percent utilization rate, the first time since 2002 that the rate has fallen below 50 percent.

The first quarter, normally the peak time for the year, the utilization rate was 61 percent, compared with rates of 80 percent and better in recent years, yielding 45,406 operating days. CAODC expects the second-quarter rate will be a mere 16 percent or 29,700 operating days, followed by 44 percent or 29,700 operating days in the third quarter and 53 percent or 36,300 operating days for the final three months.

John Tasdemir, an analyst at Tristone Capital, said producers might be willing to hike their spending if service costs come down and gas prices rise and stabilize, but it will take time to “get moving again.”

—Gary Park