Despite a late surge of drilling activity, the total number of wells drilled in Canada in 2009 fell to 8,360, the lowest mark since 1992 and about half the 16,844 in 2008.


The 2009 numbers slightly beat the latest revised forecast by the Canadian Association of Oilwell Drilling Contractors, but president Don Herring said Friday there is little reason to cheer.

"The numbers are very poor," he said. "We're half the '08 levels and, more importantly, we're at a third of where we were in '05 and '06."

The organization, which figures its members employed 7,500 fewer workers in late 2009 than in the same period of 2008, has predicted a slight increase to 8,523 wells this year.

"We're hopeful that we've seen the worst of it and it can only get better," said Herring. "We're seeing some hopeful signs. We're seeing interest in the big Cardium play here in Alberta, continued interest in B.C. and Saskatchewan, and people are looking forward to the results of the (Alberta government's) competitiveness review."

Research analyst Chris Theal of Macquarie Securities said low commodity prices in the first part of 2009 slowed even the hot Saskatchewan Bakken oil play, leaving activity only in low-cost unconventional gas plays in Western Canada.

Oil prices came back, but the recovery in natural gas prices has been much slower.

"(The well count) is a function of several things," Theal said.

"Pricing is No. 1. Costs were stickier coming down. And the (Alberta) royalty framework is another contributing factor."

He said producers were hesitant to invest in long-term resources in Alberta because of uncertainty about the future effects of royalties, which are lower when prices are lower but significantly more expensive as prices recover.

There is reason for optimism in 2010, he said.

"Prices are a little better and we've seen a lot of hedging by producers, so you have cash flow certainty at a higher base," said Theal. "The cost structure has come down and, I think, with the extension of royalty incentives in Alberta and what I think is very strong language on dramatic change on the royalty framework, the sooner that comes, the more confidence industry has in investing in multi-year plays."

Jerry Bellikka, spokesman for recently appointed Energy Minister Ron Liepert, said the minister is catching up on the energy file and expects to receive the competitiveness review report in a couple of weeks.

Some 10,000 to 15,000 jobs are estimated to have been lost last year by the members of the Petroleum Services Association of Canada.

"It was a very challenging year full of layoffs and various cutbacks in work allocation time for those fortunate enough to keep their jobs," association president Roger Soucy said Friday.

"And it wasn't until the very end of the year that we saw an uptick in activity, which has continued so far this month."

He said the association's October forecast of 8,000 wells in 2010 will be revised "slightly" higher at its quarterly update next week.

Investment bank Peters & Co. recently updated its 2010 forecast to 11,000 wells in Western Canada and this week estimated the 2011 well count will reach 12,500.

In a report, it said that higher forward strip commodity prices point to a modest increase in wells, a trend that began late last year.

"These higher activity levels have now spilled over into early 2010," it states in a report. "Additionally, a significant improvement in investor sentiment, demonstrated by the number of equity issuances over the past quarter, has helped to increase 2010 operator capital spending levels."

The bank said it has increased its total 2010 Western Canadian Sedimentary Basin drill, case and complete expenditures estimate to $15.8 billion this year, with an average well cost of $1.43 million. In 2011, it forecasts $18.5 billion total and an average well cost of $1.48 million.

The association gets its well count number from the Calgary-based publication Daily Oil Bulletin, which reported this week that oil drilling accounted for some 3,800 wells (about 35 per cent below 2008 levels) in 2009, while gas drilling plunged 61 per cent to about 3,900 wells.

In December, 967 wells were drilled, a 23 per cent decline from the previous year when 1,255 wells were rig-released.

Record average depths per well (1,517 metres) resulted in metres drilled falling only 13 per cent from last year to 1.48 million metres (still the lowest since 2001).

Alberta's 2009 well count fell 50.4 per cent to 5,802 wells from 11,687 a year earlier, while Saskatchewan operators rig-released 1,761 wells, 56 per cent lower, and B.C. was down nearly 34 per cent to 563 wells.

The Bulletin said the Alberta area that suffered the least in 2009 was the northeast, where metres drilled fell only 4.6 per cent.

Well completions (reported when the well is connected to the gathering system) from operators and governments totalled 9,392 in 2009 compared with 20,791 in 2008.

A little over 56 per cent of the reported completions, which include wells drilled in prior years, were gas wells. Oil completions amounted to 3,190 wells, while 756 wells were listed as dry holes.

In its report, Peters said it expects the number of multi-stage horizontal wells drilled in Western Canada to grow to about 16 per cent of all gas wells this year, compared with seven per cent in 2009.

As a result, the average time to drill a well will rise from 10.8 days in 2010 to 11.2 in 2011, it says.

Peters assumes an average 2010 Edmonton Par oil price of $83.14 per barrel and an average AECO-C natural gas price of $5.68 per thousand cubic feet, rising to $88.55 and $6.10 in 2011.

The western Canadian drilling fleet utilization rate is expected to grow from 40 per cent this year to 45 per cent in 2011, Peters said.

The association figures fleet utilization this year will come in at about 27 per cent, a slight increase from 25 per cent in 2009 and a big drop-off from 40 per cent in 2008.

Source: The Calgary Herald

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