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Western Canada takes crude turn Late winter rush pushes oil rig count to new record; permits slightly down from 07, but point to gas recovery; service sector benefits Gary Park For Petroleum News
A final burst of activity before spring thaw puts an end to winter drilling along with the latest surge in oil prices has pushed the oil sector to its highest level in Western Canada.
The hunt for crude in British Columbia, Alberta and Saskatchewan (mostly the latter two) involved 300 rigs in early March, according to CIBC World Markets.
That tops the previous record set a year ago by about 55 rigs and is more than double the working-rig count of two years ago.
Fortunes are also starting to turn upward for the natural gas sector and the long-suffering service firms, which have struggled to survive through the last two years.
The CIBC report estimated 657 rigs were active in the region from a fleet of 858, compared with 601 of 853 rigs at the same time in 2007.
CIBC oilfield services analyst Jeff Fetterly told the Calgary Herald that the level of rig utilization was a surprise, but likely reflected the $100-plus oil price and the slump in natural gas drilling.
Utilization of the rig fleet was at 74 percent, up slightly from 70 percent a year earlier a welcome development for drilling and service contractors who have struggled through 18 months of downturn in the gas industry.
Fetterly said 45 to 50 percent of the rigs at work in Alberta were targeting oil, compared with the more normal 25 percent of recent years.
The Canadian Association of Oilwell Drilling Contractors estimated an average 529 rigs were at work in February, compared with an expected 445.
Natural gas prices also a factor If gas prices last at US$9 per million British thermal units for an extended period, industry associations may be prepared to revise their 2008 forecasts.
And gas is showing signs of regaining its place in the sun.
Regulators in Western Canada issued 2,627 permits targeting gas prospects in the first two months of 2008, down a mere 50 from a year ago.
In Alberta permits edged up to 2,205 from 2,198 and rose to 210 from 201 in Saskatchewan. British Columbia, despite its red-hot land sales of recent months, dropped to 212 from 278.
Coalbed methane, despite a sharp scaling back of capital budgets for 2008, made a turnaround to 364 permits in Alberta from 301 a year ago.
Contrary to the latest rig numbers, oil well approvals for the two months dropped 5.4 percent across Western Canada to 1,273.
Alberta and B.C. both experienced a decline, but Saskatchewan rose to 486 from 455.
The February count of well licenses was off 4 percent at 2,149.
Saskatchewan, spurred on by its Bakken play, posted a solid overall gain of 13 percent for January and February to 796.
The leading five companies were EnCana, 947, including 132 coalbed methane permits; Husky Energy 331; Canadian Natural Resources 241; Enerplus Resources Fund 132; and Apache Canada 121.
Industry view of Alberta surly But the industry view of Alberta, shaped partly by the planned royalty hikes, remains surly, especially when it comes to conventional oil and gas.
Capital spending by 70 producers is expected to grow 6 percent this year from original 2007 budgets to C$46.7 billion (although final spending last year could be closer to C$50 billion), but the bulk of the increases among major companies are directed at the oil sands and the United States.
The turnaround in gas prices has seen shares of service companies regain some of their lost ground, with Precision Drilling Trust, Ensign Energy Services and Savanna Energy Services among those reaching their highest point of the winter.
FirstEnergy Capital analyst Kevin Lo is counting on decent results in the service sector for 2008 and 2009 a welcome turn of events given that the oil and gas equipment and services index dropped to its lowest level in three years only two months ago.
Shares of Precision, the largest land contractor in Canada, were below C$15 entering 2008, the lowest since mid-2004 and Ensign was nudging its mid-2005 low, but Precision has picked up almost C$6 this year and Ensign has recovered almost C$5.
Gas continues to hold the key to the fortunes of service companies, which depend on the rapid depletion of wells in Western Canada and the loss of about 1 billion cubic feet per day of production to keep them operating near capacity.
There is now gathering optimism that the summer could be one of the best on record, especially if there is a heat wave and air-conditioning units are cranked up, cutting into the volumes of gas available for injection into storage.
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