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Canadian upstream on upswing Oil, bitumen development sets the drilling pace, but gas acts as a drag on the industry along with a shortage of skilled rig hands Gary Park For Petroleum News
The Canadian upstream sector is continuing on its steady recovery path, despite the slump in natural gas prices and a shortage of rig hands.
In its second update since February, the Petroleum Services Association of Canada has raised the 2011 well completion target to 12,950, 200 more than three months ago and 700 higher than its initial prediction last November.
The revised goal is bolstered by the latest industry numbers for well completions and new well permits in the first quarter.
PSAC President Mark Salkeld said the outlook is a “good sign” of recovery from the economic downturn, although progress is being hampered by his sector’s inability to fill jobs.
He said the emergence of horizontal drilling has also lowered the well count, but contributed to a rebound in productivity.
Salkeld said PSAC estimates horizontal wells will account for 44 percent of all wells by the end of 2011, noting that the number of rig operating days has doubled in only three years because of the technology shift in unconventional formations which has increased the average time taken to drill a well to 11.5 days this year from 5.7 days in 2008, the highest level since statistics were first tracked in 1990.
“Well depth and reach is 33 percent more than it was five years ago,” he said, adding that well depths on average are almost 2,000 feet deeper than in 2008.
Substantial horizontal costs ARC Financial estimates a typical horizontal well in the Pembina region of central Alberta was C$2.7 million in 2010 compared with C$325,000 for a vertical well, with completions and testing accounting for 54 percent of the total well cost compared with 17 percent in 2000.
PSAC’s revised forecast is based on average commodity prices for 2011 of $100 per barrel WTI for crude and C$3.85 per thousand cubic feet for gas at the AECO hub.
PSAC noted that the time and cost commitments associated with deeper drilling and complex completions are rising, although the sluggish state of gas prices means a continuing decline in the number of productive gas wells.
Salkeld and Scott Treadwell, an analyst with Macquarie Equities Research, said labor shortages are becoming even more severe than in 2007, posing challenges for the industry regardless of activity levels.
Treadwell said the ability to access labor that meets safety and operational standards will be a greater decider than capital in whether the industry will grow or not.
Macquarie set an even higher well count for 2011 than PSAC, predicting 13,400 wells based on average prices of US$110 per barrel WTI and US$4 per thousand cubic feet for gas at the New York Mercantile Exchange.
Increases expected in Alberta, Saskatchewan On a provincial basis, Alberta is expected to post an increase over 2010 of 7.5 percent to 8,732 wells, with Saskatchewan headed for an 11 percent rise to 3,043 wells, but gas-prone British Columbia faces a downturn of 15 percent to 649 wells.
Industry figures for the first quarter show 3,893 wells were completed across Canada, up 8 percent or 292 wells from the same period last year, with March totaling 1,226 wells, the highest level for the month since 2006.
Alberta increased 4 percent to 2,691 wells, Saskatchewan rose 26 percent to 809, Manitoba jumped 54 percent to 193, but British Columbia was down 20 percent to 244 wells.
Preliminary data indicates less than 30 percent of the wells were targeting gas, compared with 43 percent a year earlier and 69 percent in the opening quarter of 2009.
Regulators across Canada approved 5,479 wells in the first quarter, up 30 percent from last year and the highest level for the January-March period — the traditional peak drilling season in Canada — since 2008.
In Western Canada, operators licensed 3,242 wells targeting oil or bitumen development, the highest count since 2000 and a 67 percent surge from last year, while gas and coalbed methane permits continued their rapid decline to 903 from 1,224 a year ago and a peak 5,548 in 2006.
Alberta issued 3,440 licenses, 19 percent above the same period of 2010, including 1,689 for oil or bitumen deposits, and Saskatchewan set a new record of 1,501 licenses, 62 percent above last year.
Excluding oil sands evaluation and experimental permits, the top operators securing licenses in the quarter were Canadian Natural Resources 494, Husky Energy 356, Encana 288, Crescent Point Energy 160 and Penn West Exploration 152.
The industry drilled 22.49 million feet in the first three months, up 16.5 percent from last year and the most for the peak drilling season since 2007, while the average depth/length per well increased 8 percent to 5,360 feet, 48 percent more than 2006, mirroring the swing to horizontal drilling. The biggest percentage increases in activity occurred in the heavy oil regions of east-central Alberta and central Saskatchewan.
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