Sharpen those drill bits – because 2005 is going to be busy. So say the swamis at the Petroleum Services Association of Canada (PSAC), who last Thursday peered into their crystal ball and saw record drilling numbers of 24,035 wells in 2005. This represents a nine-per-cent increase over the 22,160 wells the association expected by the end of 2004.

PSAC also revised its 2004 drilling numbers. The 22,000-plus well forecast is 17 per cent higher than the 18,160 predicted a year ago.

The unforeseen driving force behind the 2005 jump is the emerging factor of coalbed methane (CBM), which is anticipated to entice explorers and producers to drill 3,000 wells next year from about 1,000 in 2004. While CBM remains an industry niche, the threefold increase is enough to push the overall number of wells to record levels.

“When you start to analyse numbers, you’ll see the major difference is the fact that we’re forecasting a significant increase in coalbed methane,” said PSAC president Roger Soucy.

File photo by Larry MacDougal, Business Edge
PSAC president Roger Soucy concerned about labour shortage.

Most of these CBM wells will be drilled in central and southern Alberta, and very few in British Columbia, even though that province has vast reserves.

Soucy said the difference comes from the nature of CBM in each province. While much of Alberta’s is dry and easy to develop and produce, development of CBM in B.C. produces large quantities of water, which is harder to deal with.

“(Wet CBM wells) are a bit more difficult to deal with environmentally and operationally, and so I think the oil companies are taking the easier opportunities finding out what that’s like, and then will finally move forward with time,” he said.

As is expected, Alberta will lead all provinces in 2005 with an anticipated 18,610 wells. Saskatchewan follows with 3,935 holes, while 1,300 are predicted for B.C.

While the future mostly looks bright, PSAC sees a few dark clouds on the horizon. Soucy revealed that drilling and related oilfield activity could slump in the fourth quarter of 2005.

Soucy blamed projected declines in oil and natural gas prices for this softening, largely caused by a weaker U.S. economy.

Even so, the association isn’t ringing any alarm bells yet and noted that its forecast is based on $35 US per-barrel oil – well below current prices – and $5.50 Cdn per thousand cubic feet (mcf), both conservative estimates.

The Canadian Association of Oilwell Drilling Contractors (CAODC) also released its own 2005 well forecast last week. The drillers’ organization is predicting the number of completed wells for 2005 will reach 24,205, a 13.5-per-cent increase, or almost 3,000 wells, over 2004.

The CAODC also revised its 2004 well count, now calling for 21,312 completed wells rather than the 20,412 forecasted in June.

The association’s 2005 forecast is based on oil prices of $40 US per barrel and $6.12 US per mcf. The organization says these price assumptions are conservative compared with current market prices.

Peter Linder, an energy analyst with DeltaOne Capital, agrees with the PSAC and CAODC drilling forecasts and predicts that the well count could even reach 25,000 if Mother Nature decides to bless the industry with favourable weather conditions.

Linder notes that whereas many senior producers locked in crude oil production at low prices 2004, none will be hedging their output in 2005.

“That means the cash flow that they and the rest of the industry will receive will be so significant that they’ll be scrambling to spend it,” Linder said. “And those expenditures will translate into record high drilling activity.”

With respect to 2005 prices, he disagrees with PSAC’s view that commodity prices will soften in the fourth quarter. He calls for solid demand throughout the coming year, with oil prices averaging between $45 and $50 US per barrel and an average natural gas price of around $7 US per mcf.

The oilfield service sector must overcome some challenges over the next few years, namely a lack of skilled workers.

Western Canada’s service industry employs as many as 100,000 people. Soucy said his industry could drill even more wells if it had the personnel.

“Skilled labour puts a cap on activities because it takes time . . . to train the people, about 18 months to two years to train an operator in any given service,” he said, adding that drilling contractors are particularly hard hit because of the seasonal nature of the business.

The drilling forecast capped off PSAC’s two-day annual fall conference. Among the topics discussed at this year’s event were aboriginal relations, labour relations, tax planning, and a look at income trusts and what impact they could have on industry activity.

Another hot topic covered during the conference was the need for more research and development in tapping remaining reserves. Soucy said that technological advances are needed if the explorers and producers hope to tap the almost 60 per cent of crude oil and 40 per cent of natural gas that still remain buried in the Western Canadian Sedimentary Basin.

Given the right tools, Soucy predicts Canada’s oil and gas industry can forge ahead for years to come, even if activity levels fail to match those of the past 10 years, which saw the 4,000 wells drilled in 1994 increase sixfold.

“I don’t think we can continue at the rate we’ve been going at for the last several years, but whether this is going to be the peak year or not, I can’t say,” he said.

(John Ludwick can be reached at jludwick@businessedge.ca)