Canada’s oil and gas drilling forecast to hit decade high in 2025 – report
The Canadian Association of Energy Contractors reports the highest levels of drilling activity and associated jobs since 2015.
By Rory Johnston for Oilprice.com
New technologies have revolutionized the oil industry but they also seem to have created a bizarre vulnerability. A new chart released Monday by ARC Financial, a Calgary-based energy investment and research firm, points to an interesting trend emerging in Albertan non-bitumen oil production. As can be seen in the graph below, production decreases markedly each summer—but why?
These dips in production are due to a combination of two factors: the prolific rise of tight oil and what is known in Western Canada as the “spring breakup.”
The rapid depletion rates associated with tight oil wells necessitates the constant drilling of new wells to maintain aggregate production levels. Typical conventional oil wells have a gradual depletion curve, with production declining on average by 6 percent per year. Tight oil wells, on the other hand, have a far steeper depletion curve with production decreases of 30 percent or more per year. If this depletion rate is not compensated for through the drilling of new wells, aggregate production declines. For instance, the International Energy Agency estimates that 2,500 new wells must be drilled each year just to maintain current production levels of the Bakken formation in the United States. This means lots of heavy machinery, foot traffic, and complex construction.
This is where the spring breakup comes in. Every spring, the frozen earth throughout Western Canada begins to thaw. Dirt roads, drill sites, and machinery are inundated by mud as the spring warmth melts the rock-hard ground. Drilling operations stop dead in their tracks as access routes become impassable. Many of these operations utilize horizontal drilling and hydraulic fracturing, and the lack of constant drilling in the spring depresses production until the mud hardens and drilling can begin anew. According to the Canadian Association of Oil Well Drilling Contractors, drill rig utilization dropped from 61 percent in the first quarter of 2013 to 18 percent the following quarter due to the spring breakup. The decline rates are so pronounced that they can be clearly seen on the graph as distinctive valleys. The graph also shows that these valleys are deepening over time, as a greater portion of Albertan non-oil sands production is sourced from these tight oil wells.
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Inconveniently, the annual declines in production correspond with increases in demand associated with the summer driving season. While current production decreases are not enough to make a significant price impact, it is certainly something to consider as tight oil production grows as a proportion of Albertan aggregate non-bitumen supply.
Despite significant improvements in oil technology, the industry is still largely beholden to ebb and flow of Mother Nature.
By Rory Johnston
