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Canada’s drilling, land sales, well licenses all lag behind 2001 Analysts see no sign that E&P companies are ready to convert last year’s cash flows into field work, regardless of outlook for natural gas storage levels, supplies Gary Park PNA Canadian Correspondent
Predictions of strengthening oil and natural gas prices by this winter — notably by the U.S. Department of Energy — have failed to shake Canadian E&P companies out of their 2002 lethargy.
Even with first-half values delivering mostly strong returns, and despite both gas storage levels and supplies shrinking, Canada’s exploration barometers remained stubbornly low for the six months to June 30.
Drilling, government land auctions and well licensing all indicated that E&P companies are reluctant to let go of whatever cash flows they built up last year.
Figures supplied by regulators and industry analysts for Western Canada showed well completions dropped 27 percent from a year earlier to 6,843; sales of government-owned land fell 24 percent in volume and 59 percent in value; and new well permits were off 27 percent.
Drillers most upbeat The most upbeat assessment came from Don Herring, president of the Canadian Association of Oilwell Drilling Contractors, who said his sector reached the midway point with “little more strength” and is actually ahead of projections for the third quarter, but The association has made no move to revise its 2002 forecast of 14,323 well completions, compared with a record 17,933 in 2001 and 16,485 in 2000.
Miles Lich, an analyst with Calgary-based investment dealer Peters & Co., said the healthy cash positions of E&P companies puts them under no pressure to ramp up drilling.
Among drilling contractors, the best hope is for a continuation of heavy crude prices, which averaged C$31.40 (US $20.72) a barrel for Koch-Lloyd blend over the second quarter, 25 percent better than a year ago, while light oil refinery prices posted by Imperial Oil Ltd., Petro-Canada, Shell Canada Ltd. and Suncor Energy Inc. were down only about C$2 (US$1.32) a barrel for the same period to C$40.37 (US$26.64).
The narrowing of the heavy-light price differential and falling gas production across North America should give a lift to exploration over the second half, said Dale Tremblay, chief financial officer of Precision Drilling, Canada’s leading oilfield service provider.
The oilwell drilling contractors reported that 310 of 658 rigs are currently active, up from 274 at the end of June and the low of 110 in early spring when field activities were hit by a prolonged spring thaw.
Western permits down Regulators in Western Canada authorized 1,467 new well permits in June, a 16 percent decline from June 2001. The six-month total was 8,122 — including 2,233 permits for oil targets and 5,301 aimed at gas prospects — trailing last year by 27 percent, but still the fourth busiest year since 1984. Exploratory licenses totaled 2,061, off 30 percent.
Shallow gas drilling in Saskatchewan gave the biggest lift to the numbers, accounting for 364 of the province’s 538 new wells in June.
The first-half leaders in obtaining new licenses were EnCana Corp. 1,299, EOG Resources Canada Inc. 543 and Apache Canada Ltd. 522, including 241 permits in June alone.
Land sales fetched C$395 million (US$261 million) to the end of June, a precipitous decline from last year’s first half take of C$957 million ($632 million) for a statistic widely viewed as the strongest pointer to industry confidence and drilling intentions.
Overall volumes were 1.91 million hectares (4.72 million acres) against 2.5 million hectares (6.18 million acres last year, with the average per hectare bid sliding to C$207 (US$137) from the heady C$379 (US $250) attained during last year’s buying spree.
Alberta, still easily the pacesetting province, pumped C$244 million (US$161 million) into its coffers from the sale of 1.41 million hectares (3.48 million acres), compared with last year’s C$630 million(US$416 million)) and 1.82 million hectares (4.5 million acres).
Best deals in oil sands In a buyers’ market, the best deals were available in the oil sands where average per hectare prices spiraled down to C$130 (US$86) from C$397 (US$262) in the first six months of 2001.
British Columbia raised C$126 million (US$83 million), lagging 57 percent behind last year, with average per hectare values falling 28 percent to C$414 (US$273), despite a high level of interest in the province’s northeast gas prospects.
Saskatchewan, which has seen rig counts rebounding recently, collected C$24.5 million (US $16.2 million) compared with C$32.4 million (US$21.4 million) a year ago.
In addition to the cash bonus bids for land rights a further 87,302 hectares (215,723 acres) were sold under work commitments bids in northern Canada, with the Northwest Territories netting C14.3 million (US$9.4 million) and the Yukon collecting C$1.16 million (US$766,000).
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