Forecast and Review Revenue Surge To Sustain Drilling In U.S. And Canada

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

Drilling activity in the U.S. and Canada will remain strong in 1997 after increasing in 1996.

Oil & Gas Journal figures indicate that rising oil and gas prices provided operators during 1996 with their highest wellhead revenues since 1985. This portends robust capital and exploration spending as long as operators follow through with plans revealed in recent weeks.

Also encouraging operators to boost drilling programs are economically juicy plays in the Gulf of Mexico, Gulf Coast, and several other onshore areas.

A group of major oil companies indicated plans to increase U.S. exploratory drilling this year against a slight dip in total U.S. drilling.

And Canada is matching or exceeding forecasters' expectations, with no letup in view from its last few years' pace of 11,000-12,000 wells/year.

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

Operators will drill 24,900 wells, up from an estimated 23,340 wells drilled in 1996.
All operators will drill about 4,650 wildcats and other exploratory wells of all types.
A surveyed group of major operators will drill 2,453 wells, including 250 exploratory wells.
The Baker Hughes U.S. rig count will average 830 rigs/week, up from 778 last year.
Operators will drill 12,011 wells in Canada after sinking 11,738 in 1996.

U.S. economics

OGJ estimates that operators reaped $87.96 billion in wellhead revenues from U.S. oil and gas production in 1996.

This eclipses even the $85.57 billion in revenues of 1990, an excellent year by standards of the most recent decade.

With some correction in prices at the wellhead this year, 1997 might bring operators $78.87 billion, better than almost every other year since 1985. A reinvestment ratio as high as nearly 18% of 1997 wellhead revenues, combined with 1996's high income, likely gives operators many spending options this year.

Year to year performance

A 7% overall increase in the Baker Hughes rig count compared with 1995 fueled drilling the past year. Most of the plays involved seem to be persisting in 1997.

Texas had nearly 13% more rigs per week active on average than in 1995.

Baker Hughes measured 15 rigs/week in Texas Railroad Commission western East Texas Dist. 5, double the 1995 average, and about 34 rigs/week in eastern East Texas Dist. 6, up 24%. Dist. 5 benefited heavily from a hot Jurassic Cotton Valley reef play in Robertson, Leon, Freestone, and Limestone counties, and that activity is expected to strengthen this year.

Lower Gulf Coast Dist. 4, the area generally west and south of Corpus Christi, employed 45 rigs/week last year, up 35%, and the Texas Panhandle tally, 17 rigs/week in 1996, was up 52%.

Further increases are almost certain this year in North Dakota and Montana, where Ordovician Red River, Mississippian Lodgepole, and other targets are keeping operators busy. North Dakota averaged 18 rigs/week in 1996, up 56%.

South Louisiana land rigs averaged 31/week, up about 10%, and Louisiana offshore's 87/week was a 7.8% increase. Cretaceous Austin chalk horizontal drilling will swell Louisiana's land rig count this year. Oklahoma was up 10% at 105 rigs/week.

The majors

A group of major oil companies OGJ surveyed indicated plans to drill 250 exploratory wells of all types in the U.S. this year, up 10% from 1996.

The Gulf of Mexico and Southeast New Mexico are the areas they target for most of the exploratory drilling increase. They revealed plans for 344 wells off Louisiana, up 22.8% from 1996, and 159 wells in Southeast New Mexico, up 55.9% from last year. The majors' Offshore Texas drilling outlook is also up.

The responding majors plan 67 total wells in eastern East Texas, down one-third from 1996. This probably indicates an easing of blanket Cotton Valley tight gas sands drilling in established fields.

The majors' 133 wells in Oklahoma this year would be a 14.6% increase, but they also responded that California heavy oil drilling would result in 11.8% fewer development wells.

Canadian focus

Operators in western Canada ran at a near-record pace during 1996, and OGJ expects record drilling in 1997.

The 1997 outlook has Canadian operators drilling more than 12,000 wells. A 16% increase in the Baker Hughes count of Canada land rigs at 270 rigs/week boosted overall drilling to an estimated 11,738 wells last year.

Canadian drilling should include 4,650 exploratory wells of all types this year, a 10% increase in exploratory activity from 1996.