Extended Decline Likely In U.S., Canada Drilling

G. Alan Petzet
Exploration Editor

Robert J. Beck
Associate Managing Editor-Economics

A 26 Year Record of U.S. Well Completions [29,219 bytes]
Oil & Gas Journal Well Forcast for 1999 [51,100 bytes]
U.S. Fields with Ultimate Oil Recovery Exceeding 100 Million BBL [27,892 bytes] PDF Format
Another decline in drilling activity is likely in the U.S. and Canada in 1999 following the off-year of 1998 in both countries.

Factors affecting exploration and drilling investment intensified through 1998, forcing mergers, selloffs, and retrenchments from fledgling operators to the industry's largest entities. Companies that service and supply the effort were hit hard as well (OGJ, Jan. 4, 1999, p. 18).

The cause: The E&P industry's lowest income from wellhead revenues in many years. This dramatic downturn will not provide much financial fuel for reinvestment this year.

Here are highlights of OGJ's early year drilling forecast for 1999:

Operators will drill 20,970 wells in the U.S., off from an estimated 23,900 wells drilled in 1998.
All operators will drill 3,564 exploratory wells of all types, down from an estimated 4,153 last year.
The Baker-Hughes count of active rotary rigs will average 700/week in the U.S., down from 830/week in 1998.
Operators will drill 8,223 wells in western Canada this year, down from 9,387 in 1998.

U.S. oil, gas revenues

OGJ estimates indicate that 1998 and 1999 will have experienced the lowest wellhead revenues from U.S. production since the industry downturn of the mid-1980s.

The mix of crude oil and natural gas prices in 1998 led to combined wellhead revenues to E&P companies of an estimated $59.9 billion. This is forecast to rise to perhaps only $62.9 billion this year.

Poor a showing as 1998's estimated 23,900 completions is, it exceeded the number of U.S. wells drilled in 1992, 1994, and 1995, and was within 150 wells of the 1996 total.

This is perhaps because wellhead revenues were relatively high in 1996 and 1997 at about $85 billion/year.

Interestingly, average drilling and completion costs have wavered at around $110/ft in 1997-98 and are expected to remain there this year.

Not much solace to present difficulties, the rig count averaged between 717 and 778 rigs/week in every year between 1992 and 1996. The last year it topped 1,000: 1,010 in 1990.

U.S. drilling figures

OGJ expects more than a 12% decline in total U.S. drilling in 1999 compared with the 1998 estimate. Exploratory drilling should fall to 16.9% of total wells from 17.4% last year.

Year to year upturns in drilling are possible as the result of shallow coalbed methane plays in Alabama and southwestern Virginia, but the expected numbers of wells are relatively small.

Drilling in 1999 should be lower than 1998 figures in most other states, with larger drops anticipated in oil-prone as opposed to gas-prone areas.

California onshore drilling, dominated by relatively shallow wells in heavy oil fields largely under steamflood, could drop to scarcely more than 1,000 wells from an estimated 1,300 in 1998.

Large losses in well numbers are likely in the Permian Basin, including southeastern New Mexico.

Conventional gas drilling and shallow Powder River basin coalbed methane work should cushion the decline in Wyoming, where OGJ projects an 11% drilling decrease to 1,115 wells in 1999.

Canadian outlook

Canada may face a 12.4% drop in total drilling and 17.6% less exploratory drilling in 1999 than in 1998, OGJ's estimates show.

East Coast offshore development and some exploration are likely to continue, but activity in the Atlantic off Newfoundland and Nova Scotia will not meet earlier expectations. Most eastern onshore plays have not resulted in discoveries.

Reports indicate that gas programs prevented 1998 from being a disastrous year for drilling in western Canada.

Baker Hughes showed a total of 236 rigs working in Canada in the last reporting period in December 1998, down from 493 at end-December 1997.

Horizontal drilling, used mostly in oil operations in Canada, took a big hit with the decline in oil prices. The method was said to have been employed at one in eight wells in Canada in 1997, but reports indicate it declined to perhaps half that in 1998.