This is an extract from http://www.canada.com/business/Drilling+picks+prices+recover/2444416/story.html
CALGARY - Oil and gas drilling activity has gained new life in Western Canada during the first two weeks of the year, rising to levels not seen since 2008 but still below industry averages.
Stronger oil prices have sparked renewed interest in drilling from an industry recovering from soft commodity prices, low demand and tight credit markets.
The sector averaged 380 active rigs out of a fleet of 813, about 18 per cent higher than what the association had forecast -- 320 -- for the month.
"It certainly is an encouraging start," said Don Herring, president of the Canadian Association of Oilwell Drilling Contractors. "And if we were able to maintain this kind of activity level compared to the forecast, we will be very pleased."
Spring breakup, when terrain softens and makes moving heavy equipment prohibitive, likely will see the number of active rigs fall, he noted.
The association is forecasting an average of 800 rigs running this year, about 10 per cent less than the high of 2007. The lower numbers also take into account older rigs being retired, he said.
A sharp drop in commodity prices during the second half of 2008 spilled over into last year's budgets, which saw drilling activity -- particularly in Alberta -- fall to near 20-year lows. Natural gas prices lagged far behind crude oil as the economy recovered from a global recession, further dampening what represented more than half of the drilling demand in the province.
Herring attributed the early recovery to sustained oil prices driving interest in light oil plays in west-central Alberta. The area has gained new life with the use of horizontal drilling targeting what geologists call the Cardium formation, part of the Pembina field.
Results from the first Alberta land sales of the year supported a positive trend, raking in a total $46.4 million from the auction of oil and gas rights.
Approximately 79,100 hectares were taken up by companies for an average of $586.89 per hectare, with top bids coming in at $8,515 for a parcel west of Rimbey.
The early numbers compare with $20.12 million collected during Alberta land sales during the same period last year, but still are about 63 per cent lower than in 2007. The record-setting year saw land sales during the first week of January reach $54.24 million, for an average $457.30 per hectare.
Land sales are a leading indicator of where hot plays are developing, and this latest auction points to a shift in the industry's focus to new areas, said Gregg Scott, principal of Scott Land and Lease.
The highest single bid, for a one-million-hectare parcel, in Wednesday's land sale hit $8,515, with the lowest comparative bid for a similar-sized parcel sliding to $6,777.
"It's nice to see the momentum we saw at the end of December carry over into the new year," Scott said.
Alberta more than doubled its land sale total after raking in a near-record $383.9 million from its final auction of oil and gas rights in 2009.
The single-sale tally was more than the $347 million the province took in all year and the highest conventional land sale since Dec. 14, 2006, when the government took in $474.9 million.
Andrew Bradford with Raymond James in Calgary said the first two weeks of 2010 mark the first year-over-year increases in oilfield activity since late 2008.
"It's off to a pretty good start," he said in an interview. "It's been over a year of continuous year-over-year decline. Are we out of the woods? No, not yet, but we're not walking back into the trees."
On the shrinking numbers of rigs, older rigs are being taken out of service while others are shifting south in a development Bradford described as "healthy."
Companies such as Trinidad Drilling Ltd. and Savanna Energy Services have moved rigs to Mexico, while Ensign Energy Services, Precision Drilling Trust and Stoneham Drilling Trust have relocated rigs to several hot plays in the United States, he noted.
The emergence of lighter, more mobile single rigs capable of drilling intermediate depths is making some classes of double rigs obsolete. In addition to being cheaper to move and operate, they are also considerably faster at drilling certain kinds of wells, especially shallow ones. However, the most utilized class of rig remains the deeper triples.
Bradford predicted day rates will trend upwards starting in the second half of the year as a smaller rig fleet "creates the potential for more tightness in the market when things pick up."
domeara@theherald.canwest.com
