Dismal gas drilling forecast gets bleaker
Last Updated: Friday, February 20, 2009 | 4:50 PM MT
CBC News
For the first time in more than two decades, the group that represents oil and gas drillers in Canada has been forced to revise its already bleak outlook for the industry.
The Canadian Association of Oilwell Drilling Contractors is now predicting 22 per cent fewer wells will be drilled in Western Canada, compared to the forecast it released in October.
"Activity levels have been low enough that we're not tracking onto a 2009 forecast that was fairly pessimistic to begin with," association president Don Herring said Friday.
'Essentially for activity to increase, the royalty take has to go down.'—Don Herring, Canadian Association of Oilwell Drilling Contractors
He said this was the first time in 25 years that the group has had to change its forecast in the middle of winter, which is usually the busiest time of year for natural gas drillers.
In a report on Friday, the group said it believes only 11,176 wells will be drilled in 2009, and not the 14,325 it predicted in October.
Natural gas prices have fallen to about half of what most producers need to make to be profitable, and a freeze in credit markets have hurt drillers, said Herring.
Nancy Malone, the group's economic analysis manager, said the slowdown will hurt local economies.
"The number of jobs that are generated by a rig are significant," she said. "So that would be the rig crews that serve the oil and gas, field services, the hotels in the small towns, grocery stores, gas stations, that sort of thing. So when the rig count slows down you certainly see a drop-off in that kind of periphery."
The association is expecting to see some recovery in the last six months of the year, but more likely in 2010.
Earlier this month, the Alberta government said it was looking at incentives for small energy companies, but would not be touching royalties that firms pay to the province.
"You can kind of dress it up any way you want and describe it as some kind of a tax credit, or an incentive. But essentially for activity to increase, the royalty take has to go down," Herring said before meeting Alberta Energy Minister Mel Knight on Friday.
With files from the Canadian Press
