Market Snapshot: Western Canadian Rig Activity Switches From Oil-directed to Gas-directed Drilling

Release Date: 2015-06-09

The Western Canada Sedimentary Basin (WCSB) is Canada’s major petroleum producing area. Before 2008, drilling rigs largely targeted conventional natural gas in the WCSB, and gas drilling averaged 73 per cent of all activity between 2000 and 2008.

Industry’s primary target started shifting from natural gas to oil in 2008 because of the discovery of tight oil in various WCSB formations, and because oil prices were high enough to justify developing it. The share of rigs targeting oil quickly increased until it formed the majority in 2011, and peaked at 62 per cent in 2012.

However, as shown in the graph below, the share of rigs drilling for gas has been on the rise since 2012. By late 2014, the majority of rigs were targeting gas instead of oil, and the share had increased to 62 per cent in January and February of 2015.


Figure Source and Description

Source: JuneWarren Publishing. 2015 data represents January and February only.

Description: This graph shows the historical split between gas-directed and oil-directed drilling in the Western Canada Sedimentary Basin. Gas-directed rig activity has accounted for the majority of the activity in the basin between 2000 and 2008, reaching nearly 80 per cent in early 2004. The proportion of oil-directed drilling increased year-over-year since 2004, eventually overtaking gas drilling in mid-2010. By 2014, drilling in liquids-rich gas plays led to gas once again accounting for the majority of drilling activity and it reached 62 per cent in early 2015.


This rebound in gas drilling is due to a number of factors. Increased targeting of tight gas containing natural gas liquids can earn more revenue for producers. Growth in gas activity is also due to an increase in wells being drilled to evaluate gas resources that would support proposed liquefied natural gas export projects from Canada’s West Coast. Lastly, since the start of 2015, the increase in the share of gas drilling has been amplified by low oil prices, which has caused industry to significantly reduce its oil drilling.

 

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