Alberta allows producers to drill new conventional oil wells without production limits

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Alberta government allowing producers to drill new conventional oil wells without production limits
WATCH: Effective immediately, the Alberta government is loosening curtailment rules for new oil wells - for conventional oil wells in Alberta, including fracked wells. Tom Vernon explains – Nov 8, 2019

Just in time for the winter drilling season, the Alberta government is hoping to boost production by allowing new wells to be drilled.

Effective Friday, the province said all producers can drill new conventional oil wells without being restricted by production limits, however existing producing wells will remain under curtailment.

Energy Minister Sonya Savage said the move to increase drilling activity is aimed at drawing investment back to the province and supporting struggling communities.

“Companies are currently making investment decisions, and we want those dollars and jobs to be in Alberta. We are doing everything we can to help,” Savage said in a statement.

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The province said the move will provide flexibility for industry while aligning with the objective of curtailment — protecting the value of Alberta’s oil by maintaining a balance between production and takeaway capacity.

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Under the previous NDP government, Alberta put a cap on the amount of oil the industry could produce as a way to narrow price discounts that grew as oil production exceeded the ability of pipelines to get crude oil to market.

READ MORE: Acquisitions, insolvencies cited as drilling company count tumbles by 40%

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The measure was continued by the United Conservative government when it was elected last spring, but the industry quota is rising to 3.81 million barrels per day (bpd) in December, up 250,000 bpd from the original limit of 3.56 million bpd.

In September, approximately 480,000 bpd of conventional oil was produced in Alberta, according to the province, which said 90,000 bpd were from curtailed operators.

The oil curtailments, trouble building new pipelines and cooling investor sentiment have depressed the Canadian industry for several years, prompting some companies to send their drilling rigs south of the border to oilfields in the United States.

READ MORE: Canadian drillers moving oil rigs south to chase better prospects in Texas

The Canadian Association of Oilwell Drilling Contractors (CAODC) represents more than 100 companies that drill or service oil and gas wells, and applauded Friday’s announcement.

“Today’s announcement is excellent news for the industry,” CAODC president and CEO Mark Scholz said in a statement on Friday.

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“2019 was another difficult year, and our activity levels were moving toward the historical lows of 2016. These efforts by the provincial government should encourage new production, and help get women and men in our industry back to work.”

Scholz said earlier this year every member he had spoken to had at least seriously considered moving people or equipment south. On Friday, the association said since February 2017, 29 high-spec and deep drilling rigs have left Canada for the United States, as well as several well servicing rigs and crews, the association said.

Scholz said lower operating costs, the higher U.S. exchange rate, and year-round drilling opportunities are an attractive incentive for Canadian oil and gas companies.

“Canada’s reputation as a good place to do business for oil and gas producers has been seriously damaged in recent years.”

“Announcements such as this, that incentivize investment and encourage production, are needed if Alberta and western Canada are going to compete with other oil-and-gas-producing jurisdictions,” Scholz said.

Drilling activity in Canada was down about 30 per cent last winter compared to 2018.

In January 2018, about 60 per cent of Canada’s drilling rigs were working, but in the same month this year, the rate fell to just 34 per cent. In February, the rate was 35 per cent, down from 58 per cent from the same period the previous year.

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READ MORE: Precision Drilling reports Q1 profit, revenue up from year ago as rigs continue moving south

The CAODC said through Q3 2019 (July 1 to Sept. 30), there were just over 3,600 wells drilled, and the total well count for the year is expected to be 4,896 — far short of CAODC’s forecasted total of 6,962.

According to the CAODC, each working drilling rig supports about 145 direct and indirect jobs.

“These measures to stimulate new drilling are a welcome sign of hope for communities and businesses in rural Alberta, and for oil and gas families.”

— With files from the Canadian Press

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