Soft natural gas prices and a soggy spring and summer are taking a toll on drilling in Western Canada, with the industry bracing for even worse to come over the balance of 2012.
The downturn has forced the Petroleum Services Association of Canada to lower its expected well count for the year by 3 percent to 12,500, just three months after raising its target to 12,150 prior to an extended spring melt, followed by heavy rain that has kept utilization of the rig fleet under 40 percent.
“Commodity prices on the natural gas side have had a big impact on activity levels so far this year,” said Mark Salkeld, president of PSAC.
“As well, activity has been impacted by key shifts in the global economy, including the European debt crisis.
“But we’re cautiously optimistic about activity levels staying at or around the 2011 well count, with activity more weighted towards liquids-rich gas and oil,” he said.
Salkeld said the revised forecast includes “positive numbers with regard to efficiency in the patch,” with the average well exceeding 6,600 feet in depth while the average operating days per well are expected to drop by 7 percent.
PSAC is basing its latest predict on average natural gas prices of C$2.50 per thousand cubic feet and US$90 per barrel for West Texas Intermediate.
Drillers stick with May numbers
The Canadian Association of Oilwell Drilling Contractors is sticking with its May forecast of 11,834 wells, which was trimmed by 7 percent from its initial forecast of 12,672 wells made last November.
CAODC President Mark Scholz said his member companies are troubled by the latest analyst predictions of continued depressed commodity prices extending into 2013.
“There is a tremendous amount of uncertainty in the market right now and that may or may not affect projects coming into the fourth quarter,” normally the start of Canada’s peak drilling season, he said.
“We have reports of up to a 20 percent reduction in capital expenditures in the final quarter,” Scholz said.
Gary Leach, executive director of the Small Explorers and Producers Association of Canada, agreed there could be an overall pullback in drilling for the balance of 2012.
“The larger trend to watch will be the extent to which the usual recovery in drilling activity over the summer is moderated due to producers cutting spending.
“A number of junior and intermediate producers have already cut their previously announced capital spending for this year and if the uncertainty persists, and if larger operators follow suit, then drilling activity will be negatively impacted,” Leach said.
However, Salkeld noted that some producers are less affected as they embark on multi-well pads, especially to target liquids-rich gas.
Institute: no gas price recovery
Peter Howard, president of the Canadian Energy Research Institute, told a conference in July that with no sign of a gas price recovery in the foreseeable future, the emphasis is all on “efficiency, efficiency, efficiency,” especially the deployment of multi-well pads.
He estimated that a single well off a pad would have a supply cost of C$5 per thousand cubic feet, “which is not going to market too soon,” but operators who drill upwards of five wells per pad could achieve a supply cost saving of up to 30 percent.
Howard said companies such as Encana, Birchcliff Energy and Advantage Oil & Gas are moving towards multi-well pads, but 75 percent of the horizontal wells licensed in Alberta remain listed as single holes.
Howard said CERI has also calculated that, at a gas price of C$2 per thousand cubic feet, a well yielding 60 barrels of oil for every 1 million cubic feet of gas “makes economic sense” and at 120 barrels per 1 million cubic feet the gas would actually be free.
