Dramatic turnaround in drilling rekindles industry optimism in northeast B.C.

After a two-year downturn that pushed B.C.'s Peace Region from having close to zero unemployment to the highest jobless rate in B.C. last year, jobs are suddenly flowing back into northeastern B.C.

Oil and gas companies have dramatically stepped up drilling this winter.

“It’s been crazy,” said Dawson Creek Mayor Dale Bumstead. “It was like somebody turned a switch on about November, December. Before Christmas, all our hotels were almost 100 percent occupancy and rental accommodation was filling up.”

“There’s optimism out there right now,” said Mark Salkeld, CEO of the Petroleum Services Association of Canada (PSAC).

Between 2015 and 2016, new oil and gas rights sales dropped dramatically and drilling in northeastern B.C. slowed to a trickle, thanks to a sustained plunge in oil and gas prices and growing uncertainty over large LNG projects.

But on January 18, the auction for petroleum and gas rights generated more sales in a single day – $40 million – than the total reaped in all auctions held in 2015 and 2016. PSAC recently bumped up its estimate for the 2017 winter drilling season in B.C. to 367 wells from 280.

“We’re seeing it in company guidance,” said Mark Oberstoetter, lead oil and gas analyst with Wood Mackenzie. “A lot of companies are doubling or adding a lot of spend in 2017, versus the low scene in 2016. So we’re seeing a lot of optimism.”

Art Jarvis, owner of FloRite Environmental Systems and executive director for Energy Services BC, said companies in Fort St. John that parked equipment and laid off 40 to 60 percent of their staff during the downturn are now scrambling to find workers again.

While some might view the sudden activity as a sign of renewed optimism that an LNG industry will develop in B.C., Oberstoetter said it’s really just economics.

Even throughout the last two-year drilling drought, midstream companies have pumped billions into the Montney, building new gas processing plants and pipelines. Veresen Inc. (TSX:VSN) and Encana Corp. (TSX:ECA), for example, are spending $2.5 billion building three new gas processing plants in the Fort St. John and Dawson Creek area under the Cutbank Ridge Partnership.

But the more labour-intensive exploration side of the business, drilling and fracking, all but stopped between 2015 and 2016, thanks to a sustained plunge in oil and gas prices.

Gas well drilling is labour intensive. Each well takes a crew of about 135. That’s not including all the related jobs created for service businesses like Jarvis’ company, which provides truck-mounted pressure vessels that bleed off pressure to separate liquids from gases at wellheads.

In the Montney, companies will typically spend $3.5 million to $5 million per well, although some deeper and more complex wells may cost as much as $15 million.

The Montney has proved to be one of North America’s lowest-cost regions. The sheer volume of gas makes for good wellhead economics, and an abundance of liquids such as light oil, condensate and propane provides added value to producers.

“You get a lot of volumes for every well you drill,” Oberstoetter said. “They’re very big wells, and well costs have come down a lot.”

During the last drilling cycle, between 2012 and 2014, much of the drilling was being done by companies like Progress Energy (owned by Petronas) and Shell, which were proving out wells in anticipation of a liquefied natural gas industry developing.

The current boom involves companies that are after natural gas liquids, including some newcomers, like Crew Energy Inc. (TSX:CR) and Tourmaline Oil Corp. (TSX:TOU), which have been buying up assets in the Montney in both Alberta and B.C.

Last year, Tourmaline bought $1.4 billion worth of natural gas assets from Shell in Alberta’s Deep Basin and B.C.’s Montney.

Last year, when Terra Energy went bankrupt, Crew Energy snapped up some of its wells and processing assets.

--Business in Vancouver

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