Canadian natural gas drilling is forecast to heat up again in the coming winter field work season as producers and contractors alike anticipate the next surge in prices and vow to be ready to take advantage of it with increased productive capacity.

“Winter’s going to be good,” said Trinidad Drilling vice-president Brian Banks, a director of the Canadian Association of Oilwell Drilling Contractors (CAODC). He made the prediction as his company, one of the top Canadian field service houses, completed three of 14 new rigs it will field by December in Canada and the United States.

Trinidad highlighted Canadian expectations that 2006 gas price setbacks will prove to be temporary. The industry’s own performance, in scaling back shallow and coal seam drilling during spring and summer, is expected to contribute to the next price rebound by at least temporarily curbing productive capacity.

A conservative among Canadian forecasters, the Calgary oil and gas investment boutique of Peters & Co., now expects Canadian gas prices to bounce back to an annual average C$8.25 per thousand cubic feet (US$7.40 per MMBtu) in 2007 after losing seven% this year to C$6.90 (US$6.20).

Shorter term price movements will continue to be driven largely by weather, but the strength of underlying supply and demand conditions continues to show in the commodity market’s leading indicator, gas in storage, Peters analysts suggest. It only took a July heat wave to cut a huge spring and early summer surplus bubble down to “slightly above average levels” or 12% greater than usual late summer inventories, the investment house observed.

Trinidad would not be building new rigs if it feared contributing to a potential equipment glut liable to depress drilling contract fees, said company business development Vice President Adrian Lachance. All 14 new additions to Trinidad’s fleet have “take-or-pay” service contracts, he said.

The contracts, becoming widespread in Canada, commit exploration and production companies to pay full daily contractor fees whether or not rigs are actually drilling. The deals effectively signal that producers have not cut long-range supply development programs.

Trinidad also highlights an emerging Canadian trend, especially among larger producers, of switching to deeper and bigger drilling targets.

The firm specializes in jumbo rigs, worth up to C$14.5 million (US$13 million) each and capable of drilling as deep as 5,500 meters (5.5 kilometers or 3.5 miles). Trinidad also set out to control rising costs and shorten waiting times for new equipment earlier this year by buying the largest Canadian land rig manufacturer, Edmonton’s Mastco Derrick Service Ltd., for C$61.8 million (US$55 million).

This year’s 50% drop in gas prices prompted the Petroleum Services Association of Canada to reduce its expectations for the 2006 number of wells in the western provinces by seven% to 23,410 from the record 25,290 set in 2005. The number of rigs currently working has dipped to 500 compared to 578 a year ago.

But the drop has been concentrated in shallow gas and coalbed methane drilling, the types of Canadian gas activity most easily turned off and on in rapid response to price movements.

CAODC records indicate the amount of work on maintaining and expanding Canadian gas productive capacity over the long run has not fallen off significantly, Banks said. While fewer rigs are operating, the total footage being drilled has held up, the drilling contractor data shows.

Canadian field activity also remains intense by historical standards. The current early September rig count of 500 still considerably exceeds the 349 units employed at this time in 2004, the 425 busy in 2003 and the 266 drilling in 2002.

Over the past four years the size of the western Canadian drilling fleet has jumped by 148 rigs or 22% to 810 from 662, CAODC records show. The fleet will grow again to 830 rigs by December, Banks said.

About 80% of Canadian gas activity continues to be concentrated in Alberta. The dip in shallow drilling is deepest in Saskatchewan and on Alberta’s eastern plains, while the pace of chasing deeper targets along the foothills of the Rocky Mountains in western Alberta and northeastern British Columbia is staying strong.

The combination of an expanding rig fleet and reduced well numbers has slowed or stopped increases in industry costs that have been escalating at a rate that Peters analysts estimate to be an annual average 8.8% — but only for now, Banks and Lachance suggested.

The long-range industry trends are gradually changing a traditional Canadian pattern, the field contractors said. The old routine — brief bursts of frenzied activity followed by long slumps — is being replaced by short lulls between lengthening active seasons that keep on becoming busier. “The peaks and valleys are a lot closer together now,” said Banks, a field veteran and former independent contracting company owner.

The change is a big help in at least taking the edge off one of the worst Canadian industry headaches, perennial labor shortages. The relatively steadier pace at generally increased activity levels not only makes field work look more like a career — it encourages equipment, safety and efficiency improvements, Banks and Lachance said.

Trinidad and other large Canadian contractors, pieced together in a prolonged merger wave among formerly mostly privately-owned small field service houses, have become early adopters of computer and mechanical advances. The result is a gradual reduction of heavy and dangerous labor which was a traditional hallmark of work in Canadian gas fields.

Rig personnel still work 12-hour shifts around the clock every day of the week, outdoors in often severe weather. But pay has risen. Training requirements are increasing. Workers are now enrolling in mandatory apprenticeship programs and becoming known as drilling technicians, a new title intended to replace their old and less dignified label of roughnecks. Rig crews are increasingly using joysticks and touch screens to operate remote-controlled, automated equipment, rather than personally wielding chains and other manual tools.

“It’s a much safer environment,” said Lachance, also a veteran of decades in gas fields where he had his own private drilling contractor firm. “Our rigs cost more but we’re not having problems getting hands.”

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