High prices and expectations that the continental market will stay tight to keep prices up have lit a fire under supply development by Canadian natural gas producers who have come roaring back after Spring weather delays. Gas is identified as the target for a 62% majority of a record 18,470 wells projected to be drilled this year by the Canadian industry.

The prediction comes from field and equipment contractors in the Petroleum Services Association of Canada, whose 250 member companies are widely accepted as reliable forecasters because they are among the first to register turning points on the supply side.

The 18,470 wells anticipated by the end of this year in a new PSAC forecast of field activity top the previous Canadian high of 18,255 in 2001 by 1%. The 2003 pace will be 17% faster than 2002, when shaky prices in the first half of the year slowed activity down to 15,829 wells. The projections foresee 11,229 gas wells, 5,072 oil wells, 1,969 dry holes and 200 service wells.

The activity pattern showing up on PSAC records also suggests that Canadian producers are at last beginning to fulfill hopes that they will step up investment in deeper, larger drilling targets along the foothills of the Rocky Mountains in western Alberta and northeastern British Columbia. The fastest rate of growth in activity is projected in B.C., where gas is virtually the only drilling target. The PSAC foresees 905 B.C. wells in 2003 or 46% more than last year.

In Alberta, source of four-fifths of Canadian production, the 2003 well count is expected to reach 13,435 or 16% more than in 2002. In Saskatchewan, surges in shallow drilling for low-cost but small reserves of both gas and heavy oil are expected to generate a 13% increase to 3,900 wells this year.

A spring lull in Canadian drilling turned out to be a temporary setback caused by unfavorable weather rather than economic weakness. A rash of late snow storms turned operating areas into seas of slush and mud that halted equipment movements. Signs of the year setting a Canadian field activity record are already apparent. Summer drilling is exceptionally strong, with about two-thirds of the industry’s 670 land rigs busy around the clock seven days a week.

PSAC president Roger Soucy credited the surge to a number of factors combining to whip up a storm of activity: high prices, record producer revenues and cash flow, strong demand for all the production the Canadian industry can generate, and rapid depletion of shallow gas reserves that have dominated its drilling targets since the mid-1990s.

Canadian industry analysts see no end in sight to highs in prices that only a few years ago would have been viewed as exceptionally tall and likely short-lived market spikes. FirstEnergy Capital Corp. for instance, forecasts oil will average US$30 per barrel for 2003 and only retreat modestly to US$27 in 2004. The Calgary investment house foresees annual average gas prices of US$5.70 per MMBtu in 2003 and US$4.75 next year. Supplies are forecast to stay tight.

A mid-year survey of U.S. production by FirstEnergy covering 56% of American production by checking on a 31-company sample of household names such as BP, Devon, Burlington, ExonMobil and ConocoPhillips projected continuing supply erosion. The Calgary analysts estimated that first-half 2003 U.S. production declined by 1.6 Bcf/d or about 3% compared to the first six months of 2002. They forecast a decline of about 1.5 Bcf daily in total annual U.S. production this year. The Canadian drilling surge is forecast to generate a reprieve from developing production declines or possibly even cause a one-year spell of growth in capacity.

The Alberta Energy and Utilities Board has predicted that high drilling levels could increase the chief gas-producing province’s capacity by 1.5% or 200 MMcf/d this year into a range of 13.3-13.4 Bcf/d. But barring geological surprises, rated as increasingly unlikely in maturing or picked-over fields, the AEUB has also continued to project an overall average annual decline by 2% in Alberta gas production for the period 2003 through 2012. Canadian gas suppliers are pinning their hopes for at least partially offsetting the Alberta erosion on BC.

In some cases hope also continues to run high for Canada’s East Coast, where a handful of drilling rigs continue to hunt for new gas finds offshore of Nova Scotia amid persistent but unconfirmed rumors on the speculative side of Canadian stock markets that EnCana has scored a success liable to revive its suspended Deep Panuke project, but is keeping it confidential until the end of the year.

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