Western Canada oil and gas drilling to drop 18 per cent in 07

Oil and gas drilling in Western Canada is forecast to drop 18 per cent in 2007, pressured by lower commodity prices and slashed drilling budgets, an industry group said Thursday.

The number of natural gas wells drilled will fall for the first time since 1998, while crude oilwell drilling is expected to jump 11 per cent, the Petroleum Services Association of Canada said in its activity update.

The discrepancies between oil and gas aren’t based on current pricing, which has gained strength, Roger Soucy, the association’s president told an audience in Calgary.

“What happened was operators lost confidence in gas pricing sometime late spring, early summer of last year,” Soucy said. “And they decided to stay with their budgets of last fall until they get confidence that gas prices will in fact stay before considering activity increases.”

Companies cut approximately $3 billion from their capital budgets for the 2006-2007 drilling season after natural gas prices plummeted last summer.

Since then, natural gas rebounded to $7.45 per thousand cubic feet, and is forecast to average $7.71 per mcf.

The association revised upward its price assumption, tagging the average Canadian natural gas price at $7 per thousand cubic feet, from $6.25 forecast in November.

The expected 2007 average crude oil price target was raised to US$62 per barrel, from US$60 per barrel.

The service association forecasts approximately 19,200 wells will be drilled over the year, compared with 23,307 in 2006.

Natural gas wells, which represented 70 per cent of all wells drilled last year, will drop to 59 per cent of the total, with crude oil drilling jumping to 41 per cent, from 30 per cent.

British Columbia will be hardest hit, seeing a 41 per cent cut in drilling activity, followed by a 10 per cent drop in Alberta, and a 17 per cent increase in Saskatchewan.

Taken against a maturing oil and gas basin with depleting fields, and rising demand for natural gas, the cut in drilling activity could see up to three per cent of Canadian production drop, or one billion cubic feet per day, by the end of the year.

Major variables include volatile commodity prices, unpredictable weather, and changing provincial and federal legislation around emissions, Soucy said.

Information from: www.canadianbusiness.com