Drilling activity cresting high on oil prices

The number of drilling rigs active in Western Canada has reached a five-year high on producers chasing after lucrative oil and liquids rich natural gas targets in fairly established plays.

Approximately 62 per cent of the basin's 806-rig fleet were in the ground last week, with the month of December trending toward the mid-to upper-50s, according to the latest data from the Canadian Oilwell Drilling Contractors.

December historically has been a ramp-up month for drilling in Western Canada as contractors position themselves to take advantage of hardened earth and winter roads to start winter programs.

Activity is expected to slow down a week or two prior to Christmas but not shut down as in previous years, and be focused on oil, said Nancy Malone, association's vice-president of operations.

"If you look back at the split of what kinds of wells were being explored and drilled, in 2005-06 the split probably would have been 70 per cent gas and 30 per cent oil," Malone said. "You're seeing a reversal of that split, now it's closer to 60-70 per cent oil."

The last time rig utilization for December surpassed 50 per cent was in 2006, and that was a steep decline from the fervid pace seen the year prior when 90 per cent of the drilling fleet was active, with most searching for natural gas.

Strong oil prices have driven the recent shift in focus, with crude averaging $95 US per barrel this year compared to an average $4 US per million British thermal unit for natural gas.

Things are so bright, the Petroleum Services Association of Canada forecast a 10 per cent increase in activity next year, predicting 15,100 wells will be drilled.

"There's a real confidence in the air right now," said chief executive Mark Salkeld. "Everything from land sales to seismic activity is all on the rise and oil is driving it. And it's known plays and the technology is letting us get in and be a lot more efficient."

Alberta land sales for non-oilsands leases will exit 2011 at a record $3.54 billion total, according to the last auction results Wednesday. The largest bids through the year have been on known oil plays such as the Bakken, the Duvernay and the Cardium where the use of horizontal drilling and multi-stage fracturing have allowed more efficient and effective production from reservoirs.

Oil closed at $94.95 US Wednesday in New York, but warmer than expected weather and lower demand drove gas prices down to close at $3.136 per mmBTU, the lowest since early September 2009.

Drillers in Western Canada for the most part are surviving the slump as the bulk of the rigs can work both oil and gas, with the exception of the lighter single rigs built during the last gas boom of five years ago, Malone said.

domeara@calgaryherald.com