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Cash-rich Canadian companies fuel stronger drilling forecast
Gary Park, PNA Canadian correspondent
Canada’s oil and gas exploration is moving increasingly to deeper prospects in northern regions as forecasts for the 2002 well count are raised on the strength of improved commodity prices.
The Petroleum Services Association of Canada now predicts 14,700 well completions for the year — up 700 from its most recent projection and the highest of its four attempts in the last nine months.
PSAC president Roger Soucy told industry executives July 30 that companies have built up some cash flow and cash reserves and “now have to do something with them ... we expect they’ll be spending it on drilling.”
He said the industry became a “little bearish” towards the end of 2001 and into 2002 when commodity prices dipped.
“It looked like they were going to be there for a while,” he said. “In fact, they rebounded fairly quickly.”
The revised count includes 9,030 gas wells, 4,131 oil wells, 1,361 dry holes and 178 service wells, with Alberta accounting for 11,180 wells, Saskatchewan 2,650, British Columbia 660 and the balance spread across other regions.
The forecast is based on average oil prices of US$24.75 per barrel, $1.75 higher than the April estimate, and average natural gas prices of C$3.75 per thousand cubic feet.
Shift to north, deeper wells The biggest shift is to northern Alberta and British Columbia from the shallow, high-depletion fields in southern region, as E&P companies step up their efforts to replace supplies from the over-worked Western Canada Sedimentary Basin.
PSAC manager of corporate development Zane Reiter said the average well depth has increased between 10 percent and 15 percent in northwest Alberta and northeastern British Columbia and by 30 percent in the Alberta foothills of the Canadian Rockies.
In a presentation to PSAC members, Peter Tertzakian, chief energy economist with investment firm ARC Financial Corp., warned service companies to be ready for extremes in 2003. “There is high volatility potential, with a wide range of possible outcomes,” he said.
Russians have taken up slack Although optimistic about the supply/demand outlook towards 2005, he said oil prices could swing from US$17 a barrel next year if a price war breaks out to US$28 a barrel should the global economy recover. He said OPEC has cut production to levels not seen through the 1990s and is unlikely to survive much deeper cuts.
“OPEC’s strategy is to restrain output until such time as the global economy recovers,” Tertzakian said. “What’s at risk here is that the global economy stays lukewarm and OPEC can’t hold these levels.”
He said that although OPEC has lowered production by 5 million barrels per day, global demand has not fallen by that level, opening the door for “opportunists such as the Russians, who have taken their production up” by about 8.5 percent to 9 percent over the last two years.
In the meantime, Saudi Arabia has seen its market share drop by about 17 percent over the past five years, roughly equivalent to Russia’s gains.
His base case prediction for conventional oil and gas wells in Canada this year is 13,069 and 17,409 wells in Canada.
Among he concerns, he noted that the surge of new royalty trusts has seen up to C$3 billion distributed back to unit holders rather than directed into exploration, while oil sands spending is expected to peak at C$8.3 billion this year.
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