Lehman: Canadian natural gas production gaining momentum

By OGJ editors
HOUSTON, Apr. 2 -- Canadian natural gas production has gained momentum despite a slow start in January, thanks in part to the recently completed pipeline expansion at Ladyfern field in northeastern British Columbia, said Lehman Bros. Inc. analyst Thomas Driscoll of New York.

In a recent research note, Driscoll said Canadian gas production could possibly exceed investor expectations. Natural gas well completions during the winter drilling season are up 13% compared with last year despite rig utilizations being down.

Total Canadian natural gas production grew 113 MMcfd, or nearly 5%, vs. prior-year levels, to 14.8 bcfd in January 2002. Meanwhile, month-to-month Western Canadian production was up 3.3% as of Mar. 20, 2002, when it averaged an estimated 14.4 bcfd. This marked a 1% increase from January 2002 levels but still fell 0.4% below February levels.

"Production should begin to benefit from the increased pipeline capacity at Ladyfern," Driscoll said. He expects volumes soon will reach 785 MMcfd compared with an estimated February average rate of 500 MMcfd (OGJ, Mar. 25, 2002, p. 9).

"The ultimate 235 MMcfd of excess pipeline capacity left over after peak production is reached could allow for fast-track development of any potential look-alike discoveries," Driscoll said.

Total capacity for Ladyfern is capped at 785 MMcfd by a recent partnership agreement among Alberta Energy Co. Ltd., Calgary, Apache Corp., Houston, Canadian Natural Resources Ltd., Calgary, and Murphy Oil Corp., El Dorado, Ark.

Declining rig utilization
Meanwhile, Canadian rig utilization has declined. For the week ended Mar. 12, oil and natural gas rig utilization was down by 149 rigs, or 26%, from the same week a year ago. With the exception of 1999, when rig utilization in March averaged 38%, Lehman Bros. said Canada's March rig utilizations have been 66-93% for the last 7 years.

The Lehman Bros. analyst took note of the market impact of possible further supply growth arising from the frenzied efforts by Canadian producers to replicate the success at Ladyfern.

"While reduced drilling should theoretically have a negative impact on production growth, the discovery of another Ladyfern-type field could accelerate volumes," Driscoll said. "This could potentially put more pressure on natural gas prices in the United States and especially in Canada as all of this gas may not find a market in the near-saturated US."

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