U.S. finding and development costs for oil and natural gas are significantly lower than Canada's for the second year in a row, and the gap is widening, according to a report by Ziff Energy Group, Calgary.
In 1995, U.S. finding and development costs dropped 10% to $4.50 (U.S.)/ bbl of oil equivalent (boe).
For the same period, Canadian finding and development costs declined by only 2% to $5.50 (Canadian)/boe.
The cost figures are net of royalties and based on a 6:1 boe conversion ratio.
Recent drilling trends
Meanwhile, activity levels in both Canada and the U.S. have changed dramatically over the last two decades, and particularly in the past 10 years.
Activity in both countries tripled during the 1970s and 1980s, with the U.S. peaking in 1981 and Canada in 1985.
U.S. drilling activity has since dropped to less than 25% of the 1981 peak, but Canadian activity has rebounded to peak levels after dropping late in the 1980s and early in the 1990s.
U.S. and Canadian gas drilling declined by about 10% in 1995, when a drop in gas prices prompted a shift to oil drilling, but the rate picked up last year-rising 20% in the U.S. and 5% in Canada.
Gas well completions in the U.S. declined to 50% in 1996 from 1994's level of 57%.
Canada's gas well completion rate dropped even more precipitously, to 43% from 59% during the same period.
Oil replacement rate jumps
Both Canada and the U.S. have enjoyed high rates of replacement for oil production in recent years.
Canada's replacement rate jumped to 126% in 1995 from 120% in 1994, boosted by the rise in oil drilling activity. Oil completions rose 28% in the same period, driven by horizontal drilling, especially in medium-to-heavy oil reservoirs. But even more significant changes occurred in the U.S., where 1995 oil production replacement exceeded 100% for the first time since 1987, returning to peak levels of 1980-85.
"U.S. oil replacement has improved steadily from 63% in 1992 to better than 100% in 1995, although the number of oil well completions has remained substantially unchanged," the report observed.
The U.S. also enjoyed a gas production replacement rate topping 100% for the second year in a row in 1995, despite a 17% reduction in the number of well completions.
In contrast to oil, U.S. gas production has been rising, and is now close to the record levels reached early in the 1970s.
Canada's exploration success
Exploration drilling success is higher in Canada than the U.S., Ziff noted, with Canada's success rate 60% in 1995 vs. a U.S. rate of 36%, reflecting greater maturity of U.S. basins.
At the same time, however, U.S. wells are considerably deeper.
Almost 65% of Canadian wells are shallower than 3,750 ft vs. only 10% of U.S. wells. Canada has no wells deeper than 10,000 ft, while some 28% of U.S. wells are 10,000-14,999 ft and about 5% are ultradeep, exceeding 15,000 ft.
What's needed
"As U.S. producers continue to improve their performance and literally probe deeper, Canadian producers will need to resharpen their focus to recreate the finding and development results that gave them an edge in the past," Ziff concluded.
Canada's industry will be helped by several factors, the report added. One is large potential reserves in basins considerably less mature than in the U.S. in terms of both density and depth of drilling.
Canadian producers will also benefit from a weaker dollar and greater availability of investment funds, Ziff said.
Copyright 1997 Oil & Gas Journal. All Rights Reserved.
