Canada: ‘Significant downturn’ seen for West’s rigs

CALGARY — Drilling in Western Canada’s oil patch appears unlikely ever to return to its 2005 peak, according to an industry association, and that raises concern that the region’s boom in conventional oil and gas may be over.

The Petroleum Services Association of Canada said yesterday 17,650 wells are expected to be drilled in 2007, a figure that will drop 17 per cent to 14,500 in 2008 as low natural gas prices, a strong Canadian dollar and the effects of Alberta’s royalty changes discourage exploration.
The numbers are a far cry from the 24,751 wells drilled in 2005, and the chances are “50-50 at best” that the conditions that spurred so much drilling then will be seen again, said PSAC president Roger Soucy. At that time, already low levels of natural gas held in storage were driven down by the impact of hurricanes Katrina and Rita on production in the Gulf of Mexico, boosting gas prices to unprecedented highs.

“My gut tells me the odds are just as good that we aren’t going to see that many wells again [as that we are going to],” he said.

North American natural gas prices have fallen since 2005 because of moderate weather, while liquefied natural gas imports from outside of the continent are increasingly seen as providing a price ceiling for the commodity.

As well as price pressures, Western Canada has also faced high costs and a strong Canadian dollar that has forced companies to scale back their exploration plans. Rig utilization rates in Canada are already at their lowest since at least 2002, and uncertainty over the impact of last week’s royalty rate increases in Alberta looks set to decrease the amount of drilling in that province even further.

Consequently, it appears that the “more than 10-year upward run” of the service industry is coming to a halt, likely causing significant layoffs, Mr. Soucy said. “We have a whole generation in this industry that don’t know what a significant downturn is all about, but they’re going to find out what that means in the next few months,” he said.

The Globe and Mail (Canada)