Canada’s Permian of the North roused by cheap gas drilling

DRILLING rigs and roughnecks are hot commodities once again across the Montney shale formation in northern British Columbia and Alberta, and companies like Grimes Well Servicing are having a hard time keeping up with demand.

That’s because the Montney, unlike many parts of Canada’s oil and gas region, is seeing a surge of investment three years after the worst energy slump in decades. During the first four months of 2017, the number of wells drilled jumped 80 percent from a year earlier to 277, according to Calgary- based Grobes Media’s BOE Report. It’s the most for the period since 2014, when oil prices were twice what they are now and natural gas was 50 per cent higher.

Grimes started noticing a pickup in orders back in November and December – the start of the winter drilling season – as more customers put in urgent orders for equipment. Demand hasn’t let up. “By January, it was getting pretty crazy,” Derek Mackey, the company’s accountant, said by telephone from Edmonton. “Some people called saying: Can we get a rig in a couple days?”

Exploration is roaring back because energy prices stabilised, halting the slide at levels that remain profitable. The slump also left idle equipment, making it cheaper to drill. A new well now costs about C$ 5 million ($ 3.7 million), down from C$ 8 million in 2014, according to Wood Mackenzie Ltd. Seven Generations Energy and ARC Resources are among those stepping up exploration in the gas-rich Montney, which may signal more energy investment elsewhere.

“We call it Canada’s bellwether play,” said Mark Oberstoetter, lead analyst for upstream research at Wood Mackenzie in Calgary. “We have seen reduction in activity in every play, but the Montney has held up better than most.”

The deposit straddles the northern border of Alberta and British Columbia. It was

Exploration is roaring back because energy prices stabilised, halting the slide at levels that remain profitable. The slump also left idle equipment, making it cheaper to drill.

dubbed the “Permian of the North” by Vancouver-based Blackbird Energy because the Montney has the same layered, stratified geology as the Texas shale formation that has led a resurgence in US oil production. But unlike the Permian, which yields mostly crude, the Montney is rich in gas and associated liquids such as condensate.

Shale deposits have become popular targets for North American producers as technologies like horizontal drilling and hydraulic fracturing made it cheaper to extract oil and gas trapped in narrow seams deep underground. The techniques led to gushers at old fields in Texas, North Dakota and Pennsylvania.

That surge in supply helped to make the US the world’s largest oil and gas producer. It also led to a crash in prices. Crude that fetched more than US$ 100 a barrel in 2014 tumbled as low as US$ 26 by early last year. It’s recovered since then, averaging just under US$ 50 for much of the past 12 months, as the Organisation of Petroleum Exporting Countries and partners like Russia cut output.

West Texas Intermediate traded at US$ 49.84 a barrel as of 11 am in London on Friday.

Western Canadian gas also has recovered. After dropping as low as 65 Canadian cents ( 50 US cents) per million British thermal units last May, the lowest in about 20 years, prices have more than quadrupled to almost C$ 3, data compiled by Bloomberg show. — WPBloomberg