Canadian oil drillers held back by labor shortage

Read Reuters, 03.26.03, 4:43 PM ET

CALGARY, Alberta (Reuters) - Lack of skilled workers held back oil and natural gas drilling in Canada in the first quarter, but service companies expect to make up for work curtailed by the shortage in coming months, resulting in higher demand and rental rates in a traditionally weak period. High oil and natural gas prices kept 86 percent of Canadian drilling rigs working in the first quarter, up from 68 percent a year ago. "As far as the second quarter looks, it looks quite strong right now," Bob Geddes, vice-president of drilling at Ensign Resource Service Group Inc., said during a conference call. "This year we are expecting a very strong May and June in southern Alberta on shallow gas projects." Staff constraints caused Precision Drilling Corp. , Canada's largest drilling contractor, this winter to run 70 of its 225 rigs with only two crews of five workers, instead of the usual three. "We needed another 350 employees," said Dale Tremblay, Precision's chief financial officer. Stiff competition for workers, partly a reflection of oil-rich Alberta's healthy economy, resulted in fleet utilization falling short of the 92 percent benchmark set during the first-quarter drilling boom of 2001. Rig use was also dragged down by mild temperatures in December, which slowed the start of the winter drilling season. Winter is the busiest time for drillers because marshy areas in northern Canada freeze, enabling them to support the weight of heavy rigs. The number of rigs working peaked at 607 in February, up from 300 in November, said Miles Lich, an analyst with brokerage Peters & Co. "In previous years we've ramped up through December but this year's increase was so late that, boom, we added 300 rigs in no time," he said. "That's a lot of rigs." The surge in activity was driven by unexpectedly strong prices for oil and natural gas. Fears about oil supply, the result of a prolonged strike in Venezuela and uncertainty about the impact of the U.S.-led war against Iraq, boosted oil to about $34.25 per barrel this year. In the fourth quarter of 2002, oil sold for $28.33 per barrel. Falling production from aging fields and a cold winter in the East that severely drained storage inventories have pushed up natural gas prices across North America. Spot contracts in Alberta have averaged about C$8.25 ($5.57) per thousand cubic feet this quarter, compared with C$5.38 in the final three months of 2002. Tremblay said high commodity prices and drilling project delays due to the staff shortage mean increased demand in the spring and summer, normally a slow periods for service firms. "We know it's going to stay steady. Producers are going to try to get out of (spring) breakup and be moving as fast as possible," he said. "It's looking very strong through the summer." Prices for Ensign's smaller rigs, used to punch down shallow wells, will likely fall C$1,000 per day this spring from the winter peak, Geddes said. A year ago, weak oil and gas prices caused spring rental rates to plunge C$2,000 per day from first-quarter levels. Depending on rig size, rates can range from C$10,000 to C$20,000 a day. Some forecasts have predicted 17,500 wells will be drilled this year in Canada, ahead of 14,500 last year and lagging only the record of nearly 18,000 set in 2001. "We're ahead of the curve from last year but we're still not through 2001 numbers yet," Lich said. "The second quarter will determine whether we have a banner year or just a good year." ($1=$1.47 Canadian)