Bullish forecast for Western Canada

Gary Park

For Petroleum News

A late surge in oilfield service activity last year has prompted Calgary-based investment banker Peters & Co. to raise its 2010 target for Western Canadian drilling by 22 percent to 11,000 wells, far outstripping the leading industry forecasts.

It also hiked its total spending estimate for the basin by 28 percent to C$15.8 billion, up C$3.5 billion from its original prediction.

The end result would be a 40 percent utilization rate for the rig fleet, compared with a 34 percent target in the original forecast.

In the absence of any revisions, the other major well-count estimates for 2010 were: Canadian Association of Petroleum Producers 9,500, Canadian Association of Oilwell Drilling Contractors 8,278 and Petroleum Services Association of Canada 8,000.

Peters has tied its estimates to indications of an Edmonton par price of C$85.17 per barrel this year compared with C$77.19 last September when it released the initial target. Its gas price forecast for the AECO-C trading hub has also been boosted to C$5.72 per thousand cubic feet compared with C$4.60.

The stronger outlook for oil will be reflected in heavy oil drilling, which is expected to tally 2,300 wells in east-central Alberta and west-central Saskatchewan. Higher activity is also anticipated in the Bakken play of southeastern Saskatchewan.

But Peters holds out little hope of a rebound in conventional gas activity, which it believes will remain “challenged” through 2010, especially in shallow gas plays and coalbed methane in the southern region of Alberta.

Peters analyst Todd Garman said “companies with shallow drilling rig fleets and equipment rental entities will lag, as well as companies with equipment focused primarily towards conventional and mid-depth operations.”

The report expects wells targeting gas will shrink to 55 percent this year from 60 percent in 2009 and 66 percent in 2008, but horizontal drilling, which dominates in shale plays, is forecast to account for 16 percent of all gas wells, up from 7 percent last year.

For the United States, Peters has boosted its forecast average number of working rigs to 1,350 from the September target of 1,200, but has lowered the average active gas rig count to 850 from 960, while hiking the number of oil rigs to 500 from 240.

Although many oilfield companies struggled to keep their heads above water in 2009, Peters’ unweighted PE100 Oilfield Services Index of 25 companies rose by 37 percent, ending the year at 11,400, a significant gain from the 2008 level of 8,322 when the index dropped 41 percent.