Like many of their U.S. counterparts, Canadian producers are switching exploration and development targets from natural gas to oil. However, natural gas supplies remain strong, a byproduct of increased drilling and improved technology that has raised the output of both commodities.

By the end of 2010 new wells, many of them directed at oil targets in the western provinces, are expected to reach 11,587, up 40% from 8,278 in 2009, says a new forecast by the Canadian Association of Oilwell Drilling Contractors (CAODC). The group predicts a repeat performance of the elevated activity in 2011, when 11,811 wells are projected.

"There has been a significant shift toward oil-focused investment," reports CAODC, which includes virtually all Canadian drilling contractors and routinely generates accurate predictions based on service orders disclosed in member surveys. In 2011 the association forecasts "a continuation of oil-directed drilling," with a focus on "tight" formations employing the new system of horizontal bores and rock-shattering fracturing (fracking) fluid injections that originally developed in the United States for shale gas development.

A scorecard kept by Peters & Co., the Calgary energy boutique that closely tracks publicly traded contractors, shows that 37% of Canadian drilling so far this year has been horizontal wells. Only five years ago the technology was still considered an experimental science useful only in highly specialized formations such as deep oilsands deposits and it accounted for about 6% of field activity.

Horizontal drilling continues to be widespread on the gas side of the industry, where the technology greatly increases output per well and enables producers to withstand tepid prices by spreading costs thin over increased volumes.

The new oil targets are pie-like thin but have wide oil-bearing layers, often in well-known formations previously regarded as too embedded in dense rock to be within economic reach of conventional vertical drilling methods. An older variation on the new technology theme, directional drilling, is also on the rise, currently accounting for 30% of Canadian wells.

This year to date CAODC reports that a 53% majority of new wells taken all the way through completion into production have been targeted oil. The proportion is a sharp about-face for the Canadian industry, which previously put up to 75% of its exploration and development efforts into gas.

In the final week of October, 426 of 803 rigs available for work across western Canada were working -- a 63% increase from the 262 that were active at the same time a year ago. The declared target for 53% of the active units continues to be oil.

However, FirstEnergy Capital Corp., a Calgary investment house that makes a specialty of tracking natural gas markets in depth, reports that the shift in targets is making little difference to Canadian supplies and prices.

Canadian storage facilities are 92% filled up, weekly totals of injections into them have been about 23% higher this fall than a year ago, and benchmark Alberta gas prices remain stuck in a lean range of C$3-4/Mcf, with no sustained increases in sight, says FirstEnergy's scorecard. The investment house, formerly a prominent gas bull, has turned sharply bearish by forecasting robust supplies, a continuation of low prices and possibly production shut-ins in 2011.

An emerging Canadian industry pattern -- of producing more gas whether or not it's wanted -- shows in field activity visible within a one-hour drive northwest of the Alberta gas capital of downtown Calgary. About a dozen rigs -- working for prominent independent producers such as TriOil Resources and NAL Resources -- are in hot pursuit of an oil-rich geological formation known as the Lochend using horizontal wells and fracking fluid injections. Detailed Lochend results remain confidential, but the high level of activity appears to indicate success.

Industry plans, being discussed with residents of the area under mandatory community consultation rules, include a new gas pipeline connecting the primarily oil wells to processing plants that strip out liquids and contaminants such as hydrogen-sulphide. Venting or flaring gas has long been restricted by Alberta regulation as a resource conservation matter, and ever tighter environmental additions to the old rules virtually prohibit burning off even fugitive traces of unwanted oil well byproducts.

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