Driven largely by the hunger of royalty trusts to acquire oil and natural gas reserves, Canada now leads the world in one unwelcome category: It is the most expensive region to buy or develop resources.
The latest global upstream review by John S. Herold Inc. shows finding and development costs in Canada have climbed 38 percent last year to US$11.80 per barrel of oil equivalent.
However, the trend is not all gloomy, according to the 12th annual study of oil and gas fields in Western Canada by Ziff Energy Group, which found that some producers — ranging from majors to trusts — lowered their operating costs in 2004.
The consulting firm will make awards to two firms who implemented cost-cutting measures at its North American gas strategies conference Oct. 24-25 in Calgary.
Trust buying half of Canada’s deals
The Herold report disclosed that the buying-binge by trusts in 2004 accounted for half of Canada’s deals, with the number of transactions rising by 40 percent to a five-year high.
The value of transactions soared by more than 100 percent to over US$10 billion.
Among the findings, Herold said:
• Upstream capital spending jumped 23 percent to US$26.1 billion, drill-bit spending was up 21 percent to US$20.4 billion and development costs rose 28 percent to US$15.8 billion, while exploration spending posted a 2 percent gain to US$4.3 billion.
• EnCana led the upstream spenders at US$3.5 billion, trailed by Canadian Natural Resources at US$3.1 billion.
• Canada’s oil reserves increased by 2.7 percent to 10 billion barrels, but gas slipped by 0.4 percent to 33.8 trillion cubic feet. Oil extensions and discoveries dropped 10 percent to 606 million barrels, but gas climbed 25 percent to a record 5.3 tcf.
• Proved acquisition costs rocketed up by almost 150 percent to US$14.41 per boe, driving reserve replacement rates to a five-year low at 147 percent of production.
• Finding and development efforts replaced only 120 percent of production.
• Oil and gas revenues grew by 22 percent to a record US$44.2 billion and production costs gained 26 percent to US$11.5 billion, contributing to pretax income of US$19.2 billion, about 30 percent ahead of 2003.
Study based on 200 fields
The Ziff study is based on 200 fields from 10 producers covering a full spectrum from juniors to trusts and majors.
It found that gas operating costs in seven areas were as high as C$1.40 per thousand cubic feet in a shallow-gas area, while oil operating costs ranged from C$5.70 to more than C$10 a barrel in four strategy areas identified by Ziff.
In one key area of energy management, producers raised their labor productivity to an average 15 wells per person from 11 wells, using advances in communication, automation and well reliability.
