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Wanted: 3,000 Field Hands for Canadian Winter Drilling
Canadian production is expected to fall short of filling its expanded export pipeline capacity by 1.5 Bcf/d in 2001 and 1 Bcf/d in 2002, according to the Canadian Energy Research Institute's (CERI) annual deliverability survey.
Those results were revealed at the same time the Canadian Association of Oilwell Drilling Contractors launched a nation-wide personnel recruitment drive to fill what it described as an "immediate need" for 3,000 field hands. CAODC president Don Herring said "our 90 member companies, which run more than 1,500 (drilling and well-servicing) rigs, are facing a severe shortage. . . ..the demand for oil and gas is high enough that most of the fleet will be in the field this winter and we need to recruit people right away."
The one thing that is not short is demand. Cold snaps and forecasts of a nasty winter sent spot prices in Alberta, source of 80% of Canadian production, up to a record C$8.02 (US$5.50) per MCf. Canadian analysts predicted spikes to C$10 (US$6.70) if a return to normal winter weather makes heating-season realities sink in on the markets.
ERI made the predictions of export shortfalls despite producers' declared investment intentions to fill up the space resulting from expansions of the TransCanada and Foothills-Northern Border systems plus Alliance Pipeline, which expects to go into full commercial operation Nov. 30. While western Canadian pipeline capacity will hit 19 Bcf/d, CERI's models anticipate production will average 16.8 Bcf/d this year, 17.5 Bcf/d in 2001 and 18 Bcf/d in 2002. Deliveries to the U.S. are already approaching nine Bcf/d, and most of Alliance's 1.5-Bcf-daily capacity is dedicated to exports.
"The existence of excess pipeline capacity through 2002 means that western Canada producers can expect to remain connected to overall North American pricing trends for at least several years. With these trends generally supporting strong prices, producer cash flow is likely to remain well above what the industry can efficiently invest in exploration and development drilling in western Canada," CERI said.
And, there is more to the lag than shortages of labor, the report suggested. The institute pointed to continued reliance on shallow drilling for low-cost but rapidly-depleted wells in southern Alberta and Saskatchewan, as well as lengthy periods of time and substantially higher spending to generate bigger prospects along the foothills of the Rocky Mountains in western Alberta and northeastern British Columbia.
High prices have also revived investment in oil. Of a collective C$5.7-billion (US$4-billion), 54% increase in Canadian producer capital spending this year, CERI calculates that 69% went into oil projects. While the institute says corporate budget announcements since its survey was done indicate collective spending is going up another 18%, it projects that oil will continue to increase its share so long as its prices remain high.
Unless markets change again, the gas share of Canadian producer investment is projected to fall to 54% in 2002 from about 70% during the 1997-99 period of poor oil prices. Barring faster acceleration of deeper, more remote drilling than has happened to date, CERI projected a continued focus on shallow drilling will require more than 10,000 Canadian gas well completions by 2002 in order to keep up with the market. "It may very well exceed the capabilities of the industry to identify enough prospects, mobilize enough equipment and skilled personnel to drill the targets, and even to obtain the land and regulatory approvals necessary to undertake the work." The flood of activity "may also exacerbate tensions between landowners and industry," which are already running high because a 30% and growing portion of Canadian output is "sour" or laced with hazardous hydrogen-sulphide.
CERI suggested those intent on tapping Alaska gas are on the right track in acting as if the Arctic's turn has finally come. "The availability of additional capital may encourage more of the industry to undertake activities involving higher risks and rewards as well as longer-term payback." Watch for "projects in the north, offshore as well as exploration of untried areas or formations in western Canada," the institute suggested.
Gordon Jaremko, Calgary
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