Canada tallying wins and losses

Shallow gas, coalbed methane take chunk out of well licenses; oil posts highest completions in almost a decade, most finds in 21 years

Gary Park

For Petroleum News

Largely reflecting uncertainty over the fate of the Mackenzie Gas Project, drilling in Northern Canada is on the skids, with regulators issuing a meager five well permits in 2006, continuing a successive decline that started at an impressive 32 in 2003 and tumbled to 15 in 2004 and 12 in 2006.

The retreat has been accompanied by a series of court challenges and regulatory delays that have pushed the possible start-up date for the Mackenzie development from 2009 to 2012, creating doubt over whether the project will actually proceed to construction.

For the rest of Canada, it was a troubling year on the permit front, mostly because of back-pedaling by operators in the shallow natural gas plays of southern Alberta and Saskatchewan and rapidly shrinking popularity in the coalbed methane sector.

Regulatory agencies issued 29,901 licenses in 2006, off 3.2 percent from the 2005 record of 30,917 and, although still the second highest 12-month count on record (the 2004 count was 28,631), the trends contained disturbing elements.

On the upside, sturdy oil prices saw the industry log the most oil completions since 1987 and the most finds since 1985.

There was also a hint of hope for long-range gas prices, with exploration wells rising 7 percent to 3,997, although gas development wells continued their steady slide to 11,289 from 11,609 in 2005 and 11,941 in 2004.

Industry statistics showed 926 oil discoveries, the best since the 1,258 finds in 1985, including 434 in Alberta and 383 in Saskatchewan. Development oil wells gained 15 percent at 4,673.

The shift from shallow to deep gas drilling was clearly evident, with 667 deeper gas holes completed, up about 50 percent from 2005, while shallow wells declined 8 percent to 8,551.

Across the industry, well completions tallied 22,171, beating 2005 by 191 wells, although that number is distorted because of a delay in releasing well results from 2004.

Other data points to actual completions last year of 23,184, off 6 percent from the 2005 benchmark of 24,746.

A persistent drag on gas prices combined with an announced change in the tax status of income trusts did most of the damage to the well permit count through the second half of 2006 after the industry reached the year’s mid-point with 15,576 well approvals, 12.6 percent ahead of the pace set in 2005.

By then, many companies had already started trimming their drilling programs and were pointing to further cuts in 2007, which are mirrored in the permit applications.

Had it not been for a rush to drill oil sands evaluation wells in northeastern Alberta there would have been little to cheer about last year.

Alberta has 3.5 percent decline

The coalbed methane tally brought coalbed methane optimism to an abrupt halt after permit numbers surged from 577 in 2003 to 1,598 in 2004 and 3,106 in 2005, with forecasters aiming for 5,000 in 2006.

The turnaround places a cloud over coalbed methane predictions, notably a new study by the Canadian Energy Research Institute forecasting a rise in coalbed methane production from the current 500 million cubic feet per day to 1.4 billion -1.9 billion cubic feet per day from 2011 to 2017, backed by capital spending of C$9 billion over the 2006-2026 period.

Entering 2007, there have been some sharp revisions to that thinking. Don Herring, president of the Petroleum Services Association of Canada said anticipated gas prices of US$6 per thousands cubic feet for this year will not stimulate much activity in shallow gas and coalbed methane plays, while Greg Stringham, vice president of the Canadian Association of Petroleum Producers, said prices above $5 are needed to achieve a break-even point.

Many permits lapse or are cancelled

In 2004, 2,212 licenses lapsed, while 2,249 were cancelled in 2005 and, so far, of last year’s permits 494 have been cancelled.

The industry obtained 3,892 authorizations for oil sands test/evaluation wells last year, a gain of 84 percent from the previous year’s 2,113, further evidence of the sizzling pace of activity in the region.

Topping the list of oil sands test holes were Suncor Energy at 384, Synenco Energy (60 percent operator with China’s Sinopec as the minority partner in the Northern Light project) at 384, Deer Creek Energy (wholly owned by France’s Total in the Joslyn project) at 1,763, Shell Canada (operator of the Athabasca project) at 245 and newcomer North American Oil Sands at 244.

Of the few areas to post permit increases, northeastern Alberta (center of the oil sands play) was up 48 percent to 5,054 and eastern Saskatchewan was up 35 percent at 1,285.

Those hardest hit were southeastern Alberta (the focus of shallow gas and coalbed methane drilling), off 15 percent to 7,236, central Alberta down 29 percent at 3,217 and southwestern Saskatchewan, off 22 percent at 1,813.

Overall, Saskatchewan posted only a slight decline of 139 permits to 4,522, despite a 23 percent drop in gas approvals to 1,656. Offsetting that, oil-targeted permits jumped 16 percent to 2,609.

British Columbia’s gas-weighted industry reflected the commodity markets, sliding 10 percent to 1,673 new licenses, halting four successive years of gains.

Manitoba, bolstered by a new play, recorded a gain of 62 permits to 446, while Eastern Canada, led by offshore Newfoundland, had an impressive 81 percent increase to 184 wells.

Excluding oil sands test/evaluation approvals, EnCana retained its top spot in the list of operators at 3,637 licenses, despite a decline of 1,008 permits after heavy cuts to its 2006 and 2007 capital budgets.

It was trailed by Canadian Natural Resources at 1,763, Husky Energy at 1,470, EOG Resources at 1,177 and ConocoPhillips at 1,046.