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Canada goes conservative Service sector ‘cautiously optimistic’ about 2013 drilling, based on technology impact on well count; capital spending could drop 10% Gary Park For Petroleum News
The Petroleum Services Association of Canada has unveiled what would normally be seen as a dismal drilling forecast for 2013, but not in the current upstream environment.
“We are cautiously optimistic about 2013’s drilling activity levels,” said PSAC President Mark Salkeld in targeting 11,400 well completions for next year, up a mere 150 from this year’s anticipated tally, partly reflecting the significant increase in drilling and completion spending on longer, more complex wellbores.
Mike Edmonds, chairman of PSAC’s board of directors, noted that the total measured depth of the 2013 wells will be 22 million meters, about the same as was drilled in 2008 by 17,000 wells.
He said current estimates point to horizontal wells accounting for 70 percent of next year’s wells, noting that technology advances allow for directional drilling at greater depths than ever before.
Salkeld said the first quarter of the new year will see a “typical ramp up of activity,” then a slowing down during the spring melt, shifting to a solid second half as larger producers continue with their plans and mid-sized companies gain access to the capital they need.
He said oil wells are expected to account for 87 percent of the completions, with gas wells only being drilled as needed.
Lucas Mezzano, PSAC’s first vice chairman, said “access to cash flow and capital depending programs of our customers will also contribute to drilling-activity trends in the new year.”
Based on WTI of US$95 PSAC is basing its forecast on average gas prices of C$3.25 per gigajoule at the AECO hub in Alberta and West Texas Intermediate prices of US$95 per barrel.
Salkeld said that “ongoing suppressed gas prices” will see well completions in gas-weighted British Columbia drop 11 percent from 2012 to 385, lagging far behind the other three Western Canadian provinces.
Alberta is forecast to drill 7,045 wells, up 3 percent from this year; Saskatchewan 3,199 wells, down 1 percent; and Manitoba 750 wells, an increase of 5 percent.
Roger Serin, managing director and head of energy research at TD Securities, said capital spending in Western Canada will likely “pull back a little” in 2013 despite a tight recovery in gas prices, but oil sands investment will increase, reflecting “both the economics and the long lead times” needed in that sector.
Serin is targeting a 10 percent rise in oil sands cap-ex, following this year’s anticipated 25 percent increase over 2011.
“On the conventional basis, we think spending will fall by 5 to 10 percent after about a 10-15 percent drop this year. If anything we’re probably conservative on that number,” he said.
Serin is targeting a New York Mercantile Exchange gas price in 2013 of US$4 per million British thermal units, noting the AECO price is usually 50 cents lower than Nymex.
Gas exports down He noted that Canadian gas exports will fall to 55 percent of Canadian production this year, down from the historic level of 65 percent and “over the next couple of years it’s going to fall even more because Marcellus production is not only g0ing to grow for the northeast U.S., but we recently started importing Marcellus gas into Canada to the tune of 500 million cubic feet per day and that will probably grow to 1 billion cubic feet per day.”
Serin said that trend underscores the urgent need for Canada to move ahead with LNG exports to Asia — a message that does not seem to be resonating, given a forecast by Wood Mackenzie that the first shipments from Western Canada are not likely to occur until 2019.
“LNG matters, even if you’re not with a company that’s exporting LNG,” he said. “The reason it matters is it will significantly drive activity in the Western Canada Sedimentary Basin and unless we get an export opportunity — whether to new markets in the U.S. or Japan, Korea and China in the form of LNG — we’re going to be awash in gas for some time.”
That will confine netbacks on long-term LNG contracts to US$4-US$5, Serin said.
But he welcomed the return of supermajors to Canada’s non-oil sands sector, especially ExxonMobil’s offer to take over Celtic Exploration and start drilling in the Duvernay formation, where wells cost C$10 million to C$15 million.
Serin also expects significant capital spending in the Montney liquids-rich play which straddles the northeastern British Columbia and west-central Alberta border, the Cardium tight oil play and the emerging Duvernay liquids-weighted shale play.
He said the industry has spent about C$4.5 billion acquiring Duvernay land in the last two years and expects capital sending in the formation to top C$1 billion in 2013.
Drilling days down The latest statistics for 2012 covering the first nine months show member companies of the Canadian Association of Oilwell Drilling Contractors logged 82,295 operating days, compared with 95,084 in the same period of 2011, with total meters drilled declining to 15.86 million meters from 16.19 million meters, although wells averaged 1,938 meters up from 1,753 meters a year earlier.
Operators across Canada drilled 8,163 wells during the January-September period, off 11 percent from 9,178 wells in the first three quarters of last year.
Manitoba was the only province to report a gain, drilling 463 wells, up almost 35 percent, while British Columbia was at the other end of the spectrum, down 27 percent at 347 wells.
Alberta logged 3,682 oil or bitumen wells, off 62 from a year earlier, while wells targeting gas or coalbed methane slumped to 813 from 1,507.
A similar pattern prevailed in Saskatchewan, where 2,218 oil wells were drilled compared with 2,350 in the same period of 201. Gas wells in that province dropped to nine from 32.
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