Drilling permits are slipping, the anticipated well count has been trimmed, natural gas prices are still in the doldrums and there is a tight grip on capital budgets for 2007, but there is still a positive mood as Canada enters the final quarter and gears up for the traditional peak upstream season.
Trinidad Drilling Operations Vice President Brian Banks is in no doubt: “Winter’s going to be good,” particularly the switch to larger, deeper targets.
Even among the smaller E&P firms there is an expectation that commodity prices will rebound as colder temperatures arrive.
David Elgie, president and chief executive officer of Cordero Energy, told an energy conference in Toronto that his sector is “bullish and hopeful that things will turn around in the near term.”
Cordero, weighted 95 percent to gas, can afford to take a robust stance because of “our low operating cost structure,” he said.
Although Cordero has no intention of pumping gas at low prices “our rate of return is still strong,” Elgie said.
Storm Energy, headed for production of 6,000 barrels of oil equivalent per day (83 percent of it gas), is taking steps to protect itself against a further slump in gas prices, said President and Chief Executive Officer Brian Lavergne.
Its shield includes price hedging to ensure it can finance its winter program, with a cost collar that covers 13,000 gigajoules per day for the November-March period ranging from $8.60 to $10.85 per gigajoule.
Lavergne said Storm wanted to ensure that, given the current state of gas prices, it didn’t end up in a debt position.
Joining the optimists, Bob Steele, chairman of Berens Energy, is counting on gas prices firming up in the second half of 2006, coupled with an easing in service costs as new equipment arrives.
Crew Energy Chief Executive Officer Dale Shwed said his company suspended plans for deeper gas prospects and lower-productivity plays pending an improvement in prices or a leveling off in service costs.
He expects capital spending will remain unchanged in 2007 at C$100 million, but other companies have pulled back from so-called resource plays, which offer large reserves but need high-tech stimulation methods to hike output.
More interest in oilEven if gas fails to meet expectations, many companies that have postponed gas drilling plans in Alberta and British Columbia are finding a new outlet in oil.
Real Resources and NuVista Energy are among those who have crossed to oil, pushed by narrowing margins on high-cost gas projects and indications that oil will remain above $60 per barrel, their chief executive officers told the same Peters & Co. conference.
Real’s Lowell Jackson said his company needed $3.50 per gigajoule to justify pursuing shallow gas prospects, a threshold it viewed as risky. Instead it decided to chase the better returns offered by light crude.
Alex Verge of NuVista, which had output of 11,500 boe per day (80 percent weighted to gas) in the second quarter, said that although he is “very bullish on the price of gas,” low prices could impact the company’s spending plans.
However, he said that change would only be motivated by the need to “make sure that your debt stays in check.”
28% of August wells target oil, highest in six years
Meanwhile, the final complete months of summer posted some strong numbers, with 2,398 wells, the most for that month since 2003, pushing the eight-month tally to 15,856 wells, 4.2 percent ahead of last year’s record pace.
To the end of August, Alberta was largely unchanged from 2005 at 12,054 wells compared with 11,864, but Saskatchewan has easily outstripped 2005, recording 2,395 wells, a gain of 10.5 percent.
Of the wells completed, 2,294 or 28 percent are listed as oil targets, the highest percentage in six years.
Total drilling depth for the eight months was 18.1 million feet, beating last year by 18 percent, and the number of exploratory wells rose 9 percent to 3,787.