The Petroleum Services Association of Canada (PSAC) has revised its annual oil and gas-drilling forecast upward in wake of rising commodity prices.

PSAC now forecasts 16,500 wells will be drilled across the country this year, up 13.7 per cent from the 14,500 predicted in October - but still down 11 per cent from the 18,557 actually drilled last year.

The revised forecast is based on an average gas price of $8.50, which is $2 higher than last fall's expectation of $6.50. The average oil price is pegged 26 per cent higher at $95, compared to $75 originally.

"There's no question the mood is much more positive now than it was last October," says PSAC president Roger Soucy.

Alberta's well-count estimate is 22 per cent higher than the 9,575 anticipated in October - but 15 per cent lower than the 2007 level.

But PSAC lowered its October prediction for B.C. by nine per cent to 800 wells from 900. Due to increased oil activity, Saskatchewan's total is expected to rise four per cent to 3,525 this year while Manitoba's well-count jumps nine per cent to 350.

Soucy says service firms still have to wait out the second quarter as producers contemplate major changes in their plans, with increases in well-counts more likely than decreases.

The PSAC boss blamed the original low forecast on the Alberta government's revised royalty regime, which is designed to siphon off about $1.4 billion more in royalties from the province's energy producers by the end of the decade.

But he is singing a different tune these days after public-opinion polls favoured the government's decision to require producers to pay more for their oil and gas proceeds.

"It's time to get over the pout," says Soucy. "Everybody recognizes that, certainly from an oil industry's leadership standpoint, we felt blindsided by the government."

The province, he says, took a very different approach to the industry after the two sides had worked closely on royalties and other issues for decades. Industry leaders felt betrayed by the royalty-review process. But the government, he adds, apparently had the public and many oil and gas workers on its side.

"When you have polls that show 88-per-cent support for the royalty increases, you can't have 88 per cent of the Alberta population without a whole bunch of people that work in the industry - one way or the other - included," says Soucy. "The time has come for us to find out from the public why they feel the way that they do and then start working toward addressing their issues - because what's at stake is our long-term ability to work in the province.

"We have a lot at stake and we need to find out where the public thinks we've gone offside."

Soucy also believes the royalty-review process became a focal point for public discontent that had fermented over various local issues and a fivefold drilling increase to 25,000 wells in 2006 from 5,000 in 2002.

In October, he encouraged service companies to shift as many operations as possible to B.C. and Saskatchewan to offset sharp declines in Alberta.

PSAC expected more activity to leak into B.C. from Alberta because of the revised royalties, but Soucy says B.C. was hurt by low gas prices in the fourth quarter of 2007 and the first quarter of this year.

"We're seeing that the commitment from the producers was down," he says. "We don't think that they're going to make some huge changes in commitments (to B.C.) to change things around for the balance of the year."

Although PSAC has tacitly conceded defeat on the issue of royalties, Soucy says Alberta Premier Ed Stelmach's government and the industry must still work together to resolve public complaints.

"The government, in a lot of ways, is in the same boat that we are in, because government relies a lot, certainly in Alberta, on royalties to fund its budget," says Soucy.

PSAC is the national trade association representing the service, supply and manufacturing sectors within the upstream petroleum industry. It represents more than 270 member companies, employing more than 62,000 people and contracting almost exclusively to oil and gas exploration and production companies.

(Monte Stewart can be reached at monte@businessedge.ca)