The plunge in natural gas prices this year shows no signs of dragging down Canada’s drilling sector.
The Canadian Association of Oilwell Drilling Contractors reported that rig utilization reached 71 percent in the first quarter; FirstEnergy Capital claims a record 81 percent.
Either way, the industry at large is likely to agree with FirstEnergy analyst Kevin Lo’s description of the performance over the three months by Precision Drilling, Canada’s largest oilfield contractor, as “fantastic.”
Precision’s drilling days and service rig operating hours were both up 19 percent over a year earlier, profits climbed to C$224 million from C$138 million, sales rose 40 percent to C$536 million and the trust hiked its monthly cash distributions by 15 percent.
Bolstering this outlook, the Petroleum Services Association of Canada set a well-completion target for 2006 of 26,725, up 6 percent from its October forecast and 8 percent better than last year’s benchmark.
Services association President Roger Soucy said the industry’s expectation of lower activity in response to lower gas prices has been set aside as producers chase coalbed methane and shallow gas prospects, saying “it’s not worthwhile to slow down.”
Capital spending on drilling expected to hit C$12BSoucy said capital spending on drilling should grow to C$12 billion in 2006 from C$11 billion last year, putting spending in just the oil and gas service sector (not the petroleum industry as a whole) on a competitive footing with any industry in Canada.
The latest drilling forecasts were also based on changes in the association’s price forecasts. It now estimates AECO gas prices will drop to C$7.75 per thousand cubic feet from the C$9.50 it targeted in October, while WTI oil prices have been lifted to US$65 per barrel from US$60.
The breakdown in the well predictions includes 3,500 coalbed methane completions, 500 more than last year, while average well depths in the first quarter added about 33 feet to last year’s average 3,850 feet.
By province, Alberta is expected to log 20,935 wells and Saskatchewan 3,800, each up 1 percent from 2005, while British Columbia is on track for a 17 percent gain to 1,600.
The oil well drilling contractors group reported that its member companies completed almost 30 million cubic feet of hole in the January-March period, helped by a cold March which saw total operating days rise 24 percent to 50,271.
The fleet of 792 rigs completed 7,880 wells, beating the same period last year by 26 percent.
The leading contractors were Precision (9 million feet), Ensign Energy Services (6.26 million feet), Savanna Energy (2.9 million feet), Nabors Drilling (2.19 million feet) and Trinidad Drilling (2.04 million feet).
Precision, which recently switched to the trust ranks, accounted for 27.6 percent of all wells, compared with 30.7 percent a year earlier, while Savanna climbed to 14 percent from 10.7 percent.
Analyst: pressure on oil pricesOn a broader front, Martin Molyneaux, FirstEnergy’s managing director of institutional research, told a petroleum services luncheon that the loss of 3.5 million bpd of refinery capacity during global turnarounds this summer will put upward pressure on oil prices in the short- and medium-term and a lack of success with the drill bit in non-OPEC countries will drive prices over the longer term.
He said one of the surprises has been the lack of demand destruction as oil prices have locked in above US$50.
Molyneaux said oil prices are unlikely to stabilize until the global supply cushion climbs to 5-7 percent — an unlikely outcome until there is a world economic slowdown.
Regardless of a mild North American winter and current high storage, he is bullish on the outlook for natural gas prices, but noted that a growing chunk of production is uneconomic at less than US$6 per million British thermal units.