Dip In Drilling Likely For The U.S., Canada In 1998

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

Drilling activity in the U.S. and Canada may fall slightly in 1998. This follows record drilling in Canada in 1997.

Several economic factors will cut U.S. drilling by 3.5% this year from the estimated level of 1997: more than sufficient supplies of crude oil worldwide, weakening oil and gas prices, and Southeast Asian economics.

As a result of these developments, operators probably will have less revenue at the wellhead than they had in 1997.

Here are highlights of OGJ's early year drilling forecast for 1998:

Operators will drill 25,900 wells in the U.S., off from an estimated 26,850 wells drilled in 1997 (Table 1 [56,557 bytes]).
All operators will drill 3,315 exploratory wells of all types, down from 3,466 last year.
The Baker-Hughes count of active rotary rigs will average 900/week, down from 945/week in 1997.
Operators will drill 14,339 wells in Canada this year, down 5.2% on the year.

U.S. economics

OGJ estimates that with somewhat weaker oil and gas prices, U.S. operators will receive $80.06 billion in revenues at the wellhead this year. This is a drop of 7.4% from 1997, but it is still slightly above the average for the 5 years ending in 1998.

Drilling and completion spending is forecast at $13.828 billion this year. This is also higher than average spending the past 5 years.

The predicted 25,900 wells would involve about 155 million ft of hole, for average footage of 5,985 ft/well. This is footage, not depth, because of the increasing prevalence of horizontal and directional drilling.

These figures lead to averages of $533,900/well, or $89.21/ft nationwide, including offshore. This is 2.5% more per well and 2.7% more per foot than in 1997.

An average cost of $89.21/ft would be the highest in at least the 11 years ending in 1998.

Tracking completions

Using OGJ's completion estimates for 1997 and 1996 and American Petroleum Institute figures for the previous 3 years, the 5 year average of completions is 24,008 wells/year.

OGJ's 1998 estimate of 25,900 wells is higher than all the previous 5 years except 1997.

A time lag of varying proportions exists between when operators complete wells in the field and when they report completion to the API. This makes comparison of OGJ well figures with API completion data almost impossible. OGJ attempts to make timely estimates, before full data are available from the operators through API.

For instance, OGJ's estimate that 26,850 wells were drilled in the U.S. in 1997 is up 13.4% from OGJ's estimate of 1996 drilling of 23,679 wells. However, the most recent API completion figures for 1997 show only a 5% increase through the third quarter (OGJ, Dec. 15, 1997, p. 29).

Years compared

The surge in 1997 U.S. drilling resulted from a 20% increase in the Baker Hughes rig count compared with 1996. Texas claimed nearly half of the increase.

Operators fielded an average of 356 rigs/week in Texas, up 72 from 1996.

The largest increases occurred in southern West Texas, western East Texas, South Texas, and western West Central Texas.

Wyoming averaged 39 rigs/week, up 62%.

Louisiana, including the Gulf of Mexico, averaged 191 rigs/week, up 22%.

New Mexico averaged 52 rigs/week, up from 34 in 1996.

Kansas fell 5 rigs to 19 rigs/week, and Oklahoma fell 2 rigs to 104.

The year in Canada

Canada's record year brought forth an estimated 15,133 wells in 1997.

The rig count there averaged 363 rigs/week, up 34% from 1996. Yearend 1997 figures showed nearly 500 rigs working in Canada.

Another big year in 1998 could see 14,339 wells drilled in Canada, OGJ reckons. This is believed to be the country's second best showing ever, with the decline from 1997 due to the factors mentioned above.

Preliminary estimates indicate that about one in every eight wells drilled in Canada in 1997 was a horizontal well.