Full tilt: service firms adjust to a horizontal surge

Rig counts alone are no longer an adequate marker of field activity

April 01, 2011

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Motley Crews: the surge in horizontal drilling has well service companies – and their rig hands – busy
Photograph by Gordon Jaremko

The need for horizontal well drilling expertise has never been greater in Canada’s oil and gas industry. That was clear in January when the 250-member Petroleum Services Association of Canada (PSAC) updated its drilling forecast for 2011.

In the update PSAC revealed that it expected a total of 12,750 wells to be drilled in Canada this year, an increase of 500 wells from its original forecast. PSAC also predicted that more than 5,000 horizontal wells would be drilled in Canada in 2011 as companies use the technology to access unconventional supplies of natural gas and unlock oil from old reservoirs.

The tremendous uptick in demand for horizontal drilling services and the “frac crews” that work on them is providing well service companies in Western Canada with new business opportunities. But it’s also providing them with challenges they must overcome to make the most of those opportunities. “The horizontal rig count really started to move around 2007,” says Dale Dusterhoft, CEO of Calgary-based Trican Well Service Ltd., one of Canada’s leading well and production service companies. “It was relatively flat up to that point, making up about 10 per cent of the wells drilled. But since 2008 we’ve essentially seen a five-fold increase in the number of horizontal wells drilled.”

Companies like Trican aren’t seeing activity reach the heady days of 2005 when over 24,000 wells were drilled in Canada. But the nature of horizontal well drilling means well service companies don’t need that level of activity to stay profitable and grow their businesses. The amount of equipment and number of people and days required to complete the more technically complex horizontal wells is much greater than for conventional wells.

And the number of reservoirs in Canada being horizontally fractured has gone up as well − from five in 2008 to more than 30 in 2010, according to Trican’s statistics. More time, more equipment and more fraccing required for horizontal drilling has resulted in more volumes of work on those wells than on conventional vertical wells. The larger volumes mean service companies don’t have to work on as many wells to make the same revenue as they did in the good old days. For example, Trican’s revenue per frac job increased from $59,500 in the 2008 to $159,960 in 2010.

“We’ve seen a situation where the well count doesn’t have to be 22,000 wells a year like it was in 2006 and 2007,” Dusterhoft says. “It can be 10,000 or 11,000 wells per year and we’re as busy with our fracturing and coiled tubing service lines as we were in 2007 when we were drilling those 22,000 wells.”

Trican’s growing payroll backs up Dusterhoft’s assertion. The firm now has 14 frac completion crews in its stable, and the University of Calgary graduate says the company continues to add to that. In 2009 the company had about 1,000 employees for its Canadian operations when the well count was just 8,450. It has 1,600 today.

But that activity is creating challenges for the service companies trying to take advantage of the horizontal drilling boom. Access to skilled labor is one of them. PSAC president and CEO Mark Salkeld cited that challenge even as the association predicted an increase in drilling for 2011. “Due to strengthening oil prices and innovations in technology, we expect 2011 to continue to see modest increases in drilling levels from 2010, recognizing shortages in skilled labor that restrict the ability of drilling and petroleum service providers to realize full output capacity,” Salkeld said.

Solving human resource challenges will require innovation from well service companies. Working on a frac job in cold temperatures and remote locations like the Horn River Basin in northeastern British Columbia – often far away from family and friends – is not for everyone. Dusterhoft says companies need to work hard on the human resource challenge to convince people to work for them. Working hard means developing extensive training programs to ensure employees have the tools to succeed. But choosing the right employee is also important.

“The people we are hiring are new to the industry and we are hiring for attitude. We’re looking for an attitude that fits our culture and then we are training them on all the skills necessary to keep them in the company and learn our business,” Dusterhoft says. “One technique we use is instead of hiring people that may have worked for four or five companies and are just bouncing around, we’ll quite often hire people right out of high school.”

But labor issues aren’t the only ones well service companies must grapple with as horizontal drilling floods the oil patch. With the drilling technology becoming more common in Canada, concerns about the environmental impact of this form of drilling are being raised. Reducing the use of fresh water in fraccing jobs is just one of the environmental issues the well service sector is being asked to address.

Despite the issues and challenges, the horizontal drilling revolution is expected to spread. It’s migrated from the U.S. to Canada, and now the rest of the world is taking notice of how the technology has unlocked previously stranded petroleum resources. Dusterhoft says as the technology goes global, it will result in additional business and growth for Trican and other Canadian well service companies.

“You will see horizontal fracturing in Europe. You will see it in China, India, and Australia. Even the Middle East will start moving towards a lot of these services,” Dusterhoft notes. “We see this as a significant opportunity for us. As the world moves towards more lower-quality rock, they are going to need more of our services.”

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