Canadian upstream hit with early thaw

All the barometers had been pointing to another buoyant year in Canada’s upstream sector as land sales, rig activity and new well permits nudge into record territory.

But there is a blotch on the horizon, with the early arrival of spring in Alberta, where the winter drilling season is coming to an abrupt end, raising concerns about first-quarter production numbers.

The Canadian Association of Oilwell Drilling Contractors reported 590 rigs were active on March 8, down almost 100 from a week earlier when about 93 percent of the total fleet was at work. With normally frozen roads turning into mud, support vehicles are unable to reach rig sites in northern Alberta.

Don Gray, president and chief executive officer of Peyto Energy Trust, told a conference call that he expects many competitors will use the weather as an excuse for falling short of production goals.

Otherwise the trends were all heading for record territory.

Average land prices have surged ahead of a year ago, with Alberta sales tallying C$287 million, fueled by C$105 million in the first March auction, surpassing the comparable 2004 figure by almost C$102 million.

Operators have acquired 1.44 million acres at an average C$493.39 per hectare (one hectare equals 2.471 acres), up from 1.4 million acres at a per-hectare average of C$328 in the same period of last year.

British Columbia’s average prices have rebounded C$43.42 million from almost 175,000 acres, compared with C$38 million from 219,338 acres a year earlier.

Regulators across Canada have also been busy issuing 4,806 well licenses in the first two months, down from 5,211 to the end of February 2004, although February posted a gain to 2,188 permits from 2,072.

Northern Canada slipped to six well authorizations from eight last year and 18 in the first two months of 2003. Of the total, gas-targeted wells totaled 3,249, while oil licenses were 961, with the balance made up of service wells and dry holes.

—Gary Park