Oil back in favor with US drillers after years of targeting gas

Some interesting drilling data has emerged from the American Petroleum Institute: US oil and natural gas drilling activity rebounded in the second quarter, with completions rising 38 per cent from 2009′s second quarter – following a grim first quarter in which drilling activity posted a 22 per cent decline year-on-year. Those numbers underline the turnaround in the sector, despite looming fears about the broader economic recovery. Hazem Arafa, director of API’s statistics department, said in a statement:

The roller coaster year of 2009 has given way to somewhat brighter prospects in US drilling activity in 2010. As expectations for crude and natural gas demand have become more bullish, drilling activity has started to reverse its steep decline from the last five quarters.

Breaking down the figures reveals something even more startling. For most of this decade, the Institute notes, natural gas had been the primary driver of domestic drilling. But the latest data suggests this is no longer the case. An estimated 4,396 natural gas wells were completed in the second quarter of 2010, up 22 per cent from 2009′s second quarter. Yet estimated second-quarter oil well completions surged 59 per cent to 4,847.

The reason for the surge in oil drilling is not only the hope of extracting oil from shale rock, to duplicate the success drillers have had in tripling estimates of US supplies of natural gas in recent years. The higher price that oil continues to get, versus the depressed gas price, is another motivator. Raoul LeBlanc, director at PFC Energy, the consultancy, says the area around old, conventional  reservoirs, known as “halos”  are attracting attention, as are the oil shale and tight oil plays as drillers increasingly use new technology to grow oil supplies. “It’s really gaining traction,” LeBlanc says.

Given the moratorium on deepwater offshore drilling, the amount of oil wells drilled onshore looks likely to continue to rise. With the liability, price and bureaucracy of operating offshore set to rise following the oil spill in the Gulf, onshore prospects will look increasingly good to smaller operators who had been venturing out. The disaster in the Gulf has demonstrated just how many risks are involved in the process of drilling offshore. If the world’s biggest oil companies cannot effectively stop such a disaster, how could one of the independents? Being forced back onshore, at a time when new technology and expertise has cracked open the prospects of extraction from long abandoned formations, could be a blessing in disguise.

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