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Canadian Production Forecast Cut

Canadian Production Forecast Cut

The National Energy Board has put out a new signal that natural gas supplies will remain tight by cutting in half its growth projections for western Canadian production capacity after a review of recent performance.

In the latest in its series of annual energy market assessment reports, the NEB predicts that "deliverability" will rise by 1.1 Bcf/d or 7% to 17.5 billion by 2002. A year ago, the board projected a 2.2 Bcf/d increase in production. "The previous report was based on the initial productivity data available at the time. Moreover, it was assumed that these rates would remain stable throughout the forecast period," the NEB said.

"In fact, recent production data show that there has been a substantial decrease in initial productivity rates for wells across the Western Canada Sedimentary Basin. The initial [productivity] for wells connected in 1999 [is] nearly 40% lower than for wells connected in 1996." The board's report is the most thorough documentation yet of a trend noted by a wide range of industry observers ranging from financial analysts to the Canadian Energy Research Institute. The lowered expectations result from a pattern caused by the 1977-99 oil slump, which in Canada affected drilling for all targets. On the gas front, the industry switched to maintaining production at the lowest possible costs by concentrating on shallow targets in prairie regions where wells can be drilled in less than a day.

The NEB estimates that if the cost-cutting pattern continues, it will take 8,100 western Canadian well completions in 2001 and 8,900 in 2002 even to achieve the projected 1.1 Bcf/d increase in deliverability. That forecast incorporates at least the beginnings of a shift back to costlier, deeper but much more prolific wells in the western part of the production basin along the foothills of the Rocky Mountains, in Alberta and northeastern British Columbia.

But the board adds that the pattern shows signs of changing and the consensus forecast confirmed by its latest data could be much too pessimistic. The NEB acknowledges that one of the leading industry forecasters, the Petroleum Services Association of Canada, expects high prices and expanded pipeline capacity to accelerate the drilling pace to 9,800 western gas well completions. The board says deliverability will increase by 2.4 Bcf/d or 15% to 18.8 Bcf/d if the PSAC turns out to be right. The organization rates the mention by the NEB because it is widely regarded as the most conservative, reliable forecaster of oilfield performance --- a reputation earned with thorough tracking of drilling because its members' livelihoods depend on it.

Gordon Jaremko, Calgary

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