U.S. Drilling May Soften; Canada, World Levels Strong

G. Alan Petzet
Exploration Editor
Robert J. Beck
Associate Managing Editor-Economics

Drilling activity in the U.S. may soften slightly in second half 1997 compared with the first half, but OGJ still projects that more wells will be drilled this year than in 1996.

Canadian operators, meanwhile, seem primed to set a record for the year and might eclipse the torrid pace they set in the first half.

World drilling has held marginally ahead of the corresponding 1996 month for most of first half 1997 in all areas except Europe. Some 1,943 rigs were running in May in areas outside the U.S. and Canada, up 15.9% from May 1996 (OGJ, June 16, 1997, p. 76).

The U.S. outlook

OGJ forecasts operators closing the year with 25,600 wells drilled. OGJ's early year estimate of U.S. drilling was 24,900 wells on the year (OGJ, Jan. 27, 1997, p. 67). The Journal estimated that 23,340 wells were drilled in 1996.

Lower average oil and gas revenues at the wellhead for 1997 compared with 1996 might cause operators to slow drilling in the second half, OGJ calculations indicate.

A group of major oil companies indicated plans for a good gain in U.S. exploratory drilling in the second half against a small drop in total U.S. drilling.

Here are highlights of OGJ's early year U.S. drilling forecast for 1997:

Operators will drill 25,600 wells, up from an estimated 23,340 wells drilled in 1996.
All operators will drill about 4,023 wildcats and other exploratory wells of all types during the year.
A surveyed group of major operators will drill 2,061 wells during the year, including 239 exploratory wells.
The Baker Hughes U.S. rig count will average 860 rigs/week this year, up from 779 last year.
Operators will drill 14,032 wells in Canada this year after sinking 11,738 in 1996.

U.S. economics

OGJ's most recent figures indicate that operators might take in about $81.5 billion in wellhead revenues from U.S. oil and gas production this year.

That would make 1997 the third best year this decade, but it would still be a 7.8% drop from estimated 1996 revenues. The revenue figure is based on 1997 average prices of $17/bbl for oil, down from $18.46 last year, and $2.05/Mcf for gas, down from $2.25.

OGJ estimates that the operators as a whole would reinvest 17.78% of the revenues, about 3.5 percentage points more than in 1996.

Drilling cost increases can be expected, though, by about 5% to $97.57/ft on average. This brings the average cost per well, at average footage of 5,801 ft, to $566,000.

Geographic breakout

The Baker Hughes rig count averaged 21.7% higher in first half 1997 than in first half 1996, with meaningful gains in several states and areas.

Texas averaged about 339 rigs/week, about 27% more than in first half 1996, even though comparative activity was down slightly in four Texas Railroad Commission districts.

The Jurassic Cotton Valley reef gas play nearly doubled first half rig activity in TRC Dist. 5, the area from Robertson and Leon counties north to the Oklahoma state line.

Gulf Coast Dists. 3 from Giddings to the Louisiana line and 4 southwest of Corpus Christi each averaged 52 rigs/week, up 15% from first half 1996. The Panhandle (Dist. 10) hosted 21 rigs/week, one third more than in first half 1996.

All areas of Louisiana showed healthy first half gains year to year, and operators more than doubled the first half rig count in Mississippi to an average of 12/week.

In the Rocky Mountains, Utah's first half rig count more than doubled to 13 and Wyoming's climbed 72% to 31. North Dakota's eased slightly, possibly due to rig migration to Canada, but Williston basin operators still have a backlog of several hundred Ordovician Red River horizontal oil locations to drill mainly in Slope and Bowman counties.

Ohio and West Virginia both showed good gains.

The majors

A group of major oil companies OGJ surveyed reported plans to drill 239 exploratory wells of all types during the year in the U.S., only 87 of which were drilled in the first half.

The exploratory drilling increases are earmarked mostly for the Gulf of Mexico, Louisiana, southeast New Mexico, Oklahoma, and several Texas districts.

Overall, the responding group of majors indicated an easing of activity in the second half. The group has scheduled 987 U.S. wells in the second half, compared with 1,074 in the first half.

Canada's outpouring

Western Canada had an average of 324 rigs/week running in January through June, up 33% from the same months of 1996.

One Canadian drilling association prognosticated that 14,300 wells will be drilled in the country this year. It said this record number of wells might be set even higher if summer weather is dry enough.

OGJ's estimate of 1997 Canadian drilling includes nearly 2,800 exploratory wells of all types, including about 1,400 that were drilled during the first half.