[Published in The Roughneck] The service rig industry is feeling optimistic, and this confident outlook has everything to do with the recent dominance of long-reach horizontal wells in Canada.
Rig activity is typically tracked in terms of drilling rig utilization. An active drilling industry today puts in place the wells for service rigs to maintain and repair tomorrow.
Looking ahead to 2014, CAODC’s Forecasting Committee anticipates that drilling activity will be close to the same as it was in 2013. These well counts are nothing close to what the drilling industry achieved in 2006 when 22,000 wells were completed. The annual well count has been declining. But with just over 200,000 existing wells that continually need workovers or repairs, our service rig industry is steady and strong for the future.
2013’s 11,000 wells offer service rigs more opportunity than 2006’s 22,000 wells.
The service rig industry is optimistic not because of how many wells are drilled. Rather, it’s the kind of well that’s being drilled that matters. 2013’s 11,000 wells offer service rigs more opportunity than 2006’s 22,000 wells.
“There was a lot of shallow gas drilling in 2005 and 2006.” says Preston Reum, Chairman of CAODC’s Service Rig Executive Committee and Director for Essential Well Service Inc. “But those wells just don’t require the maintenance.”
Reum counts off two qualities in today’s drilling program that service rig contractors are happy to see: “Every well has a better lifespan for requiring maintenance and repairs. And also, the well gets more complicated when you start going lateral.”
These two factors – wells with oil payzones as well as more complicated wells - suggest that Canada’s service rig fleet will stay busy. And both factors are at play in horizontal drilling activity.
Horizontal wells tend to be more lucrative than vertical wells. So it’s no surprise that this drilling program is attractive for exploration and production (E&P) companies. Drilling vertically to access an oil or gas formation offers limited production opportunities. But if a wellbore runs laterally into the payzone, the E&P company can penetrate the formation at several points and dramatically improve the inflow of oil and gas.
This multi-stage frac-ing is commonly associated - in the media - with shale gas wells, but it’s also applicable to oil wells and other gas wells. Advancements in horizontal drilling and in frac-ing have made many old oil and gas fields economically feasible again.
Service rigs have been busy in recent years bringing old fields back into production. And service rig equipment and crews will stay in demand to keep these wells in production.
The long-reach horizontal well has friction points. Because of these friction points, downhole equipment needs regular maintenance.
Reum explains, “When you start going lateral, more torque is needed on the drilling side. For the service rig side, going lateral means you’re responding to more tubing wear and more rod wear.”
This is especially true for equipment that sits where the well bore bends to become lateral.
Another industry shift that has been good for service rigs is the focus on oil wells. When natural gas prices were high earlier in the last decade, activity focused on gas wells. The Canadian industry drilled one oil well for every three gas wells in 2006. Today about three oil wells are drilled for every one gas well.
“Oil wells, as a rule, need more maintenance than a gas well,” say Reum.
When an oil well is particularly lucrative, producers try to avoid downtime in production as much as possible. Essential has several service rig crews on 24-hour standby in northeast Alberta where Steam-Assisted Gravity Drainage (SAGD) wells are in production. It’s an unusual schedule for service rigs, a sector that traditionally works during the day.
Looking ahead, industry is turning attention to export opportunities for gas. Shale gas development has made the commodity abundant in the North American, and this has driven the price down to bargain basement prices. But depressed pricing isn’t the case for markets overseas, and Canadian producers are actively pursuing opportunities to move gas product overseas. What’s needed is the infrastructure to move natural gas to the west coast and terminals to send Liquefied Natural Gas (LNG) to Asia. Plans for several LNG terminals along the B.C. coast are underway.
David Daly, the Manager for Fiscal Policy with the Canadian Association of Petroleum Producers, notes that these terminals and pipelines are a critical component for Canada to reach new markets:
“We could see an LNG terminal later this decade. By 2018 or 2019, we’ll possibly have one of these terminals completed.”
In light of the infrastructure discussions underway, producers are eyeing gas production opportunities in north-east B.C. (around Fort St. John and Fort Nelson).
Unlike 2005’s shallow gas wells, these gas wells will require the same long reach that is predominantly used today.
Overall, horizontal drilling has brought increased opportunities to service rigs across western Canada.
Says Reum. “Our job is to help with all of this production, whether we’re getting a well going or doing workovers or repairs. It looks like there will be plenty of that kind of work ahead.”