Drilling rig in Saskatchewan
The rush to tap new crude plays in western Canada is driving renewed optimism in the oil patch, which is now predicting near-record activity levels this year.
After a strong winter season, the industry is now boosting by 20 per cent its prediction of the number of drilling operating days this year, a key industry metric that shows how much work is being done.
It's possible those numbers may prove optimistic, especially amid flooding, forest fires and an exceedingly tight market for labour.
But in a forecast published Wednesday, the Canadian Association of Oilwell Drilling Contractors (CAODC) said a confluence of commodity prices, low royalties and lucrative new drilling prospects are driving a resurgence that is likely to swell in the latter parts of the year.
"It's about a 24-per-cent increase in the last three quarters over the [previous]projection," said Don Herring, president of the CAODC. "We're getting back within about 5 per cent of where we were in '05 and '06. So this is getting to be a very strong year."
Those two years saw industry post records. CAODC now predicts 13,128 wells will be drilled in western Canada this year, up from 11,587 in 2010 and 8,278 in 2009. That forecast is, however, higher than some private predictions. BMO Nesbitt Burns analyst Michael Mazar, for example, foresees 12,300 wells this year.
The first quarter of 2011 saw activity levels surge 11 per cent ahead of industry projections, as companies flocked to crude plays. For the first time in about a decade, more than half of wells this year - about 60 per cent - are expected to drill for oil. That's a major switch for an industry that has long focused on natural gas, but is in the midst of a profound shift driven both by persistently low gas prices and technological advances that have opened access to major new crude reserves.
Better still, many of those crude reserves lie in known reservoirs - new techniques are simply allowing the retrieval of existing resources that were previously impossible to extract. That has lowered the risk profile of drilling activity, a factor that has also served to loosen purse strings as companies and investors drive after more assured returns.
Yet for companies, the drilling rush has begun to raise some concerns, especially as an unusually wet year creates flooding in some of the southern Prairie areas that have seen a major drilling revival.
"In Saskatchewan, we're about three to four weeks behind already from typical activity levels. A week or so ago, there were six rigs running in southeast Saskatchewan, where there normally is about 60," said Trent Yanko, chief executive officer of Legacy Oil + Gas Inc.
Half of those were working for Legacy. In total, Saskatchewan now has 48 rigs running and 103 waiting on the sidelines.
But as summer progresses "you will see the industry come back in eagerness, and all of us trying to cram four months of activity into two - and there will be limitations on that."
In particular, Mr. Yanko expects pressure on both price and availability of the sophisticated rigs capable of drilling the long, horizontal wells now in demand.
"It's going to be a challenge to catch up and it's going to put access to services and an ability to execute on programs that much more into the spotlight," he said.
Nathan VanderKlippe