According to a forecast by the Petroleum Services Association of Canada for the first time in 39 years more oil wells will be drilled then natural gas wells with the association forecasting 4,100 oil wells will be drilled next year, compared to 3,200 natural gas wells. However, according to the Canadian Association of Petroleum Producers 500 more natural gas wells ill be drilled than oil wells in 2010. Both groups do agree that less natural gas wells are being drilled.
First it’s important to understand that the change is not because there is more oil drilling. Its because there is less conventional natural gas drilling which has yielded to shale gas as the primary target for natural gas producers. Conventional natural gas drilling has a higher break even point and higher risk consideration to shale gas. Conventional gas plays have lower life cycles, and lower production rates requiring ongoing new vertical drilling activity to maintain overall production numbers. Shale gas drills vertically once, and then horizontally into the shale formation in different directions. Shale gas wells are showing long life cycles with higher production rates after the initial production decline. The bottom line is shale gas has changed the drilling process and requirements.
Natural gas drilling is king in British Columbia. The decline in conventional drilling is primarily in Alberta and having a major negative impact on that province’s economy, while shale gas has been a boom for British Columbia due to the prolific shale gas plays in the Horn River and Montney basins.
Calgary Herald: Oil to Top Gas for 2010 Drilling
The Houston-based Exterran Holdings has shut down it’s Calgary gas compression facitilites, laying off 116 employees due to the downturn in the natural gas market. The Company stopped production last month and will have an auction of certain equipment later this month.
The Petroleum Services Association of Canada has estimated over 10,000 people have been laid off on the services side of the business. Cuts in drilling activity and production cuts is having a serious impact on businesses that support and service the energy market – especially in the natural gas. The Horn River basin remains the only active basin for natural gas in Canada, and one of only three in North America.
Calgary Herald: Gas compression firm closes shop in Calgary
While activity declines in other western provinces, British Columbia, will see an increase in drilling activity according to the Petroleum Services Association of Canada (“PSAC”).
Advancements in horizontal drilling and mutli-frac technology, has attracted numeous major players to the shale gas opportunities in British Columbia, and is expected to boost activity by an estimated 7% to 905 wells this year.
The number of new wells in Alberta is expected to drop to 8,455 wells, a 27% decline from last year and a 46% decline off its peak drilling of 25,000 wells drilled in 2005.
Saskatchewan, is expected to decline by 5% to 3,805 wells. While Manitoba, will slide 13% to 250 wells.
Calgary Herald Article.
Drilling for natural gas and oil in British Columbia is expected to reach record levels of activity in 2009, in the wake of frenzied bidding for new gas exploration leases in 2008.
Two organizations that track the Canadian gas and oil drilling industry predict a drop in exploration and well development in Alberta, but forecast a major jump in activity in B.C.
Vancouver Sun: “BC gas patch poised for another boom” by Scott Simpson.
In Pennsylvania they are trying to keep up with the drilling rush. Like British Columbia, Pennsylvania has sold over $2.0 Billion in land lease sales to exploration companies eager to start drilling for Shale gas. But while the rush seems to just be getting started in northern BC, many are seeing a slow down due to the lack or price appreciation.
Martin King, analyst at FirstEnergy Capital Corp, predicted Canadian production could fall another four per cent in 2009 as the price remains low on a combination of mild weather, which has kept demand at bay, and fast-rising inventory levels in Canada and the United States.
These lower prices take some of the excitement off the Shale gas play because there is a higher cost of extraction associated with fracturing the ground. However, many players have already completed much of the upfront capital investments and are in position to extract the resource.
As for prices… natural gas is a major energy source for heating. And no one can predict the weather – especially these days as we experience more extreme storms every year. A cold winter would certainly increase demand for natural gas and in turn increase prices.
Canadian natural gas output, set to drop.