Gas prices shrink Canada’s well count

Weakened natural gas prices reflected in less drilling than projected; with count down, will be first drop in drilling since 2002

By Gary Park

For Petroleum News

Weakened natural gas prices seem to have put paid to another record year of oil and gas well completions in Canada.

In an updated report July 26, the Petroleum Services Association of Canada lowered its forecast for 2006 to 23,410, off 12.4 percent from its April target of 26,725 wells and 7.5 percent below its original prediction last October of 25,290, leaving intact the 2005 benchmark of 24,800 completions.

Association President Roger Soucy said the revised total points to the first decline in Canada’s year-to-year annual well count since 2002, when the tally dropped to 15,800 from 18,200 in 2001.

The revised count was based on second-quarter drilling when 2,930 wells were drilled, missing the association’s forecast of 4,430 by 34 percent, with shallow gas wells representing 72 percent of the reduction in this year’s forecast.

Soucy said that shallow wells have been hit by a drop in the AECO hub gas price to C$5-$6 per thousand cubic feet, far short of the association’s original forecast last October of C$8.60.

“We expect continued downward pressure on current gas prices until mid- to late-November,” he said.

FirstEnergy: shift to deeper, larger targets

Permits approved in May and June for deep gas wells reached a five-year high in May and June as producers take advantage of additional rig availability to drill some long-term targets, FirstEnergy said.

But Soucy said the outlook was not all bad as continued strong oil prices kept oil drilling ahead of last year’s pace, with the year-to-date count only 3.5 percent behind the 11,034 wells predicted last October.

The association’s revised regional breakdown for 2006 is: Alberta 17,935 completions, Saskatchewan 3,510, British Columbia 1,530, Manitoba 350 and central, eastern and northern Canada at 85.

Forecast commodity prices for 2006 are now US$68 per barrel for West Texas Intermediate and C$6.25 per thousand cubic feet for AECO gas.

The slowdown has no affect on Precision Drilling Trust, Canada’s largest drilling contractor, which boosted its second-quarter profit to C$88 million from C$9 million in the same period last year, while revenue climbed more than 40 percent to C$224 million.

Precision said that, unlike the usual downturn during spring thaw, the company’s rigs were busier, helped by favorable weather and the industry shift to deeper prospects.

Precision is confident about the longer-term prospects, planning to add 28 rigs to its current fleet of 235 over the next two years as it boosts its capital spending by 12 percent to C$480 million.