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Western Canada in upbeat mood
Gary Park For Petroleum News
It’s nothing like the heady heights of 2008, but there’s a strong upward move in Western Canada’s upstream forecasts, buoyed by new incentives in Alberta and Saskatchewan, coupled with the well-established drawing power of British Columbia.
The pump priming moves with royalty regimes have caused the Canadian Association of Oilwell Drilling Contractors to boost its drilling and well-completion targets for 2010.
It now expects an average 400 rigs, or 50 percent of the available fleet, will be at work in Western Canada during the second half — double its previous target for the July-September period and 56 percent above its final-quarter projection.
CAODC predicts 11,587 well completions for the year, 3,064 higher than its original forecast last October and in line with a revised forecast by the Petroleum Services Association of Canada, which is targeting 11,250 completions, up 35 percent from 2009, and upbeat numbers issued by a number of analysts.
CAODC said its new numbers are oil-focused, bolstered by strong investor interest in opportunities available in the Cardium play of west-central Alberta and success in Saskatchewan’s Bakken play.
The trend is helping pull the sector out of its deepest hole since 1993, although 2008 remains a distant memory when a record 20,700 wells were drilled.
Analysts agree The industry-friendly royalty changes in Alberta and Saskatchewan are prompting independent observers to add their weight to the improving conditions.
Peters & Co. analyst Todd Garman expects 11,000 wells this year and 12,500 in 2011, while FirstEnergy Capital analyst Kevin Lo is taking the most optimistic view, forecasting 12,089 wells this year and 13,015 next year.
CAODC President Don Herring said that along with the royalty changes and the building excitement around the new resource plays, the “demand for crude oil is solid.”
Garman said that, despite the recent dip in crude prices, many conventional oil plays remain profitable.
He estimates the median breakeven price at Bakken, Lower Shaunavon, Viking and Cardium wells at $54 a barrel, which implies a median return of 41 percent based on the current New York Mercantile Exchange forward strip.
On the natural gas side, the consensus view of analysts and drillers is that $6 per million British thermal units is the minimum price needed to stimulate a rebound in drilling activity, well above the prevailing forward strip and $2 above the 2009 average.
Assumption of $82 WTI Herring said the major winners in his sector are likely to be directional drillers because the bulk of unconventional gas and all new-style oil plays are using deviated drilling technology.
On the heels of the Alberta government’s announcement on May 27 of its revised royalties to stimulate development of unconventional plays and advance horizontal drilling, Saskatchewan set a new maximum royalty rate of 2.5 percent on the first 882 million cubic feet of gas produced from every horizontal well drilled between June 1, 2010, and March 31, 2013.
Saskatchewan Energy Minister Bill Boyd said in a statement his province has “great potential” to utilize newer technologies to develop its gas resources and reverse a slide in gas drilling over the past seven years.
CAODC’s new drilling targets assume a WTI price of $82 per barrel and an AECO gas price of C$4.55 per thousand cubic feet as well as an average 10.3 days to drill a well.
For the first quarter of this year, rig utilization in Western Canada averaged 54 percent, 35 percent higher than CAODC’s original projection, with rig activity averaging 431, up from the anticipated 320, based partly on investor expectations of changes to Alberta’s royalties.
As of May 28, industry figures showed 4,120 wells were completed so far this year, compared with 3,281 over the same period of 2009.
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