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Canada raises ’03 drilling targets; operators remain cautious FirstEnergy Capital sets most ambitious target of 18,300 well completions, including 11,300 gas targets, but finds capital spending lags behind commodity prices Gary Park PNA Canadian Correspondent
The stars are rarely better aligned to support record drilling for oil and natural gas in Canada, but a mood of industry caution prevails, despite sky-high commodity prices, soaring profit levels and the tightening gas supply outlook.
Updated forecasts in the last week have raised well-completion targets for 2003 without removing a feeling that upstream companies are keeping a tight hold on their purse strings and without any indication that tight gas supplies will be eased.
The Petroleum Services Association of Canada, which represents 260 member companies, boosted its forecast 2003 well count to 17,500, 11 percent higher than last year’s total and 6 percent above its initial forecast last October.
The breakdown, which covers all of Canada except the East Coast, includes 10,944 gas wells, a gain of 3 percent from 2002, 4,783 oil wells, 1,575 dry holes and 198 service wells, with gas representing 62.5 percent of the total vs. 59.8 percent last year. PSAC’s upgraded forecast brings into more closely into line with the Canadian Association of Oilwell Drilling Contractors prediction of 17,532 wells and Calgary-based investment dealer Peters & Co. at 17,200 wells.
Producers forecast C$2 billion growth The Canadian Association of Petroleum Producers has forecast 16,500 wells, which would translate into spending of about C$25 billion (US$16.3 billion), or a C$2 billion improvement over 2002.
Even more bullish was Calgary-based investment dealer FirstEnergy Capital Corp., which is now predicting 18,300 wells, up 200 wells from its earlier estimate and beating the benchmark 18,024 in 2001. That tally includes about 11,300 gas wells.
Petroleum Services Association of Canada President Roger Soucy said in a statement Jan. 23 that, assuming strong gas prices through 2003, a trend towards shallow gas wells that surfaced in the fourth quarter of 2002 is likely to continue.
He said there should also be an increase in drilling the Foothills of the Canadian Rockies, northern Alberta and northeastern British Columbia, where the deeper gas plays are rated among the best prospects for sustaining production levels in the maturing Western Canada Sedimentary Basin.
WTI of $23.50 base of budgets Jason Konzuk, a First Energy analyst, told briefing that most E&P companies are still basing their budgets on West Texas Intermediate prices of $23.50 per barrel and Henry Hub gas prices of $3.50 per million British thermal units.
FirstEnergy is forecasting New York Mercantile Exchange WTI prices of $25.75 per barrel and $4.50 per million Btus.
Peters & Co. has raised its Nymex WTI price to $25 per barrel from $23 and raised its gas price to $3.75 from $3.50 per million Btus. FirstEnergy’s project cash flow for the year is C$32.7 billion (US$21.3 billion), up C$8 billion (US$5.2 billion) from last year, with Martin Molyneaux, the firm’s managing director of institutional research, predicting that 2003 could be Canada’s best year yet for cash flow, earnings and return on capital employed.
He said earnings for this year could jump 40 percent from 2002 to C$13.4 billion (US$8.7 billion).
FirstEnergy analyst Jason Konzuk said the pace of capital spending does not match the anticipated growth in cash flow, with this year’s exploration and development budgets lagging behind the surge in commodity prices during the second half of 2002.
He said the economics of Canadian gas production are a “challenge” at NYMEX prices of $3.60 per thousand cubic feet and suggested that Canadian producers will continue to keep the lid on their spending until they are more confident that long-term prices will average above $3.75.
Gas supply expected to fall On the gas front, FirstEnergy believes U.S. demand will slide by 3.2 percent or 2 billion cubic feet per day this year, recording the third successive annual decline, before resuming growth at 2.4 percent in 2004 and 2.1 percent in 2005.
For Canada, gas demand will be flat this year and make small gains in 2004 and 2005. FirstEnergy expects Canadian gas supply will fall by 100 million to 200 million cubic feet per day this year, largely because of contraction in British Columbia’s Ladyfern field.
With enough frost in the ground to carry the weight of drilling equipment, rig utilization is now estimated at 88 percent of the 666 rigs available in Western Canada, although FirstEnergy is expecting only 49 percent utilization this year vs. 40 percent in 2002.
Improved drilling efficiency helped pull the average well time in Alberta to 6.8 days in 2002, breaking the seven-day threshold for the first time, while Saskatchewan contractors averaged 3.76 days per well and British Columbia logged 19.3 days.
Reflecting the pursuit of shallow targets, the Canadian Association of Oilwell Drilling Contractors reported that the average well depth for 2002 was 3,510 feet, compared with 3,582 feet in 2001 and 3,621 feet in 2000.
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