Cambrex Corp. (CBM)

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More well drilling expected to shift to deeper foothills gas zones

Gordon Jaremko
The Edmonton Journal

Saturday, October 28, 2006

EDMONTON - Drilling is down but natural gas production is up as activity shifts in response to changing energy prices, supply sources and technology, industry and government agencies said Friday

Wells completed will drop by 15 per cent to 19,023 in 2007 from a record 21,927 expected this year, the Canadian Association of Oilwell Drilling Contractors predicted. The new forecast echoed an earlier lowering of expectations by the Petroleum Services Association of Canada.

Employment will taper off next spring and summer after the annual winter work rush, CAODC president Don Herring said. Workers will use the time for newly mandatory rig-technician apprenticeship courses and contractor companies will keep many hands busy on maintenance, he said.

But gas production, which accounts for about 70 per cent of new wells and Alberta royalty revenues, will keep on growing by an annual average rate of one per cent through 2008, the National Energy Board predicted in an annual supply report. The drilling drop is concentrated in southeastern Alberta where shallow wells into small geological reservoirs are being made uneconomic by erosion of gas prices since last winter, the CAODC and NEB agreed.

The number of targets is shrinking in the plains region after years of intense activity in the industry's easiest operating area, the NEB added.

Deep drilling for big gas deposits along the foothills of the Rocky Mountains west and north of Edmonton is on the rise due to improving geological knowledge, equipment and operating methods, the industry and government agencies also agreed.

Gas production from coal seams will triple to about one billion cubic feet per day by 2008 even though weakened prices slowed the growth pace, the board predicted.

Alberta coalbed methane drilling is currently expected to run at 3,100 to 3,900 wells per year, down from previous expectations of up to 5,400 wells.

Unlike oilsands plants that take years to build, drilling forecasts are open to revision in response to energy price fluctuations. Quarterly average gas prices dropped about 50 per cent from a record $9.27 per thousand cubic feet in the first three months of this year into the $6 range during the summer. But fall prices are rebounding, with daily trading jumping as high as $8.

"The softening of North American gas prices is expected to be temporary," the NEB said. "Assuming a return to relatively normal winter weather, the generally tight balance between supply and demand that has prevailed in recent years is likely to reassert itself."