Flicker of optimism in Canada’s updated drilling forecasts for 2002

Petroleum services sector raises target by 4 percent, but concern is E&P companies sitting tight on spending until gas price outlook clearer

Gary Park

PNA Canadian Correspondent

Sturdier commodity prices and a drop in drilling costs have produced the first glimmer of a turnaround in Canada’s exploration sector in many months.

The Petroleum Services Association of Canada has raised the bar for this year, forecasting 14,000 well completions, 614 wells higher than its start-of-the-year prediction.

Although still 4,174 wells short of last year’s record tally, the new target is 11 percent above Canada’s 10-year average.

The new breakdown calls for 8,614 gas wells, 3,918 oil wells, 1,290 dry holes and 178 service wells, with Alberta expected to claim 10.,430 of the total. A total of 4,402 wells were drilled in the first quarter.

“If prices were to stay where they are or even go up a little more, we could see a very busy winter drilling season ahead and that would put our 2003 drilling forecast substantially higher,” said PSAC president Roger Soucy.

“We are seeing more E&P capital expenditures due to increased cash flow, which is the result of higher commodity prices and lower service sector costs,” he said. But he said many companies still seem “content to sit on their cash flows for about (three months) until they’re comfortable that the gas price rebound is for real.”

The forecast is based on assumptions of average oil prices for 2002 of US$23 a barrel and average AECO-C hub gas prices of C$3.75 (US$2.40) per thousand cubic feet.

FirstEnergy Capital Corp. has also lifted its forecast for 2002 to 14,800 wells, 8 percent above its original target, but it expected the number of gas wells drilled will drop by 23 percent from 2001 to 8,139.

Its 2003 prediction is for 18,000 wells, an increase of 1,000 from its earlier estimate.

Regardless of the emphasis on gas, Paul Beique, vice-president of Dundee Securities Corp., told a PSAC meeting he does not believe gas drilling levels will be anywhere close to adequate over coming years.

Supply crunch

“Certainly for the winter of 2003-04 you could have that exact same experience,” said Beique, whose prediction for 2002 is 13,100 well completions, rising to 15,700 in 2003. Beique noted that U.S. gas production slid below 51 billion cubic feet per day in January from 54 billion a year earlier and ended March at 50.2 billion.

The result, he said, is that price shifts will squeeze incremental demand out of the system and supply won’t be able to meet demand over the next three or four years.

The Canadian Association of Oilwell Drilling Contractors pointed in the direction of that trend by reporting that Canada’s rig fleet drilled an average of seven wells per unit in the first three months of 2002, down 18 percent from 8.5 wells per rig for the same period of 2001.

Other industry figures report that barely more than 100 rigs have been at work in the past two weeks, leaving 84 per cent of rigs idle.

Year-to-date statistics put rig utilization at 54 percent, the second lowest level since 1996 when only 43 percent of the fleet was active. Last year’s comparative level was 77 percent.