US oil and gas drilling reached a 21-year peak during 2007’s first 3 months and was nearly twice the level of first-quarter drilling activity during the 1990s, the American Petroleum Institute said on Apr. 26.
An estimated 11,771 oil wells, natural gas wells, and dry holes were completed during the period, 1% more than the total for 2006’s first quarter, API said in its latest quarterly well completion report.
It said gas remained the primary US drilling target, with an estimated 7,085 completions, a first-quarter record. But an oil drilling resurgence that began in 2000 continued with an estimated 3,674 completions. That was second only to 2006’s initial 3 months, when estimated oil drilling was at 1988 levels, API said.
Estimated exploratory completions, accounting for just under 6% of the first-quarter’s total, fell 21% year-to-year as developmental completions rose 3%.
The report did not surprise domestic drilling observers. “It’s consistent with the Baker Hughes rig count, which is at its highest level since 1986,” said Mark S. Urness of Calyon Securities in New York. “The difference is that today, we have a much larger percentage-roughly 86%-drilling for gas.”
Relatively higher prices are causing more oil wells to be drilled, he said. “For natural gas, some of the growth reflects concern over relying heavily on Canadian imports as their internal demand grows,” Urness told OGJ. Large, publicly traded drilling contractors are not drilling as many US wells, but privately owned firms, often with five or fewer rigs, have increased their activity, he said.
Frederick Lawrence, vice-president of economics and international affairs at the Independent Petroleum Association of America, said “We’re seeing more independents take a domestic focus. They’re prioritizing their onshore portfolios and concentrating work on positions they have built up.”
Rockies active
API does not report US drilling regionally, but other observers said activity remains particularly strong in the Rocky Mountains.
“Probably the two hottest areas are the Uinta-Piceance and Green River basins,” said Marc W. Smith, executive director of the Independent Petroleum Association of Mountain States, Denver.
“Our members are optimistic about transportation out of the region. It also looks as if producers in the Powder River basin are coming up with solutions to their produced water. Barring any regulatory surprises, I think we’ll continue to see good, sustainable growth.”
Smith said the Rockies labor market remains tight, although it has improved from 18 months ago because of producers, drilling contractors, and service and supply companies’ training initiatives.
Lawrence observed, “Independents are hiring a lot of staff, using more rigs and calling on more frac trucks and other services. But production per well is declining so more wells are being drilled.”
Producers’ costs also are climbing, Lawrence noted. The IPAA official cited a study by John S. Herold Inc. that found preliminary finding and development costs above $30/bbl at the end of 2006, compared with about $15/bbl at the end of 2004. Lower gas prices were among the negative factors, he said.
“Oil activity is growing. We haven’t given up on it. A lot of oil plays like the Bakken are exciting, but they’re also costly. The question now is whether the high prices will bring the majors back into the domestic drilling picture.”
