As the first half of 2009 came to an end, the haves were companies that were big in oil. Even the oilsands, where $100 billion worth of projects are shelved, is starting to look good.

The have-nots were in natural gas, where poor prices have led to decade-low drilling activity, lousy land sale figures, and an extension of Alberta drilling incentives to spark a little action in the sector that contributed $5.8 billion in government royalties in 2008-09, more than triple the $1.8 billion from conventional oil.

Traditionally, based on contained energy, six million British thermal units of natural gas have been equated to one barrel of oil. But the Alberta government is allowing natural gas producers to convert last year's gas production to barrels of oil equivalent on a 10-to-one basis to boost their drilling incentive credit limits in recognition of its relative value.

Even that doesn't address the sinking fortunes of gas. In New York this week, natural gas contracts were at less than US$4 per million British thermal units, about 18-to-one to light oil at $70 a barrel.

Lanny Pendill, a St. Louis-based analyst for Edward Jones, said natural gas is a losing proposition and will be until at least the middle of next year due to a glut in the North American market fuelled in part by surprising output from shale gas plays in the United States.

The oversupply has led to natural gas exploration and development budgets being cut and producing wells being shut in by major producers such as Calgary-based EnCana Corp. and American giant Chesapeake Energy.

"Short term, there's probably not a lot of hope," said Pendill. "If you're a natural gas player, I think you're keeping your fingers crossed and hoping for a really hot summer followed by a really cold winter.

"But I think a lot of it depends on whether or not the pullback we've seen in terms of activity levels continues or if we start seeing rig activity pick up again because people are starting to hedge out their 2010 production," said Pendill.

A research report from investment bank Peters & Co. released Tuesday suggests that drilling activity in Western Canada could be even lower than the 10,000 wells it forecast a few months ago, a forecast matched by the Petroleum Services Association of Canada.

"For the past nine years, wells drilled in the first five months have represented an average of 37 per cent of the total wells drilled for that year," it states.

"Using this average and the approximately 3,300 wells drilled in the first five months of 2009, a projection of about 8,900 total wells in 2009 appears more likely."

Peters also forecast an average U.S. rig count for 2009 of about 1,000, suggesting the 80 per cent proportion seeking gas will diminish as oil-seeking drillers are given more work to do.

On Monday, the Canadian Association of Oilwell Drilling Contractors is scheduled to release an updated drilling activity forecast for 2009, an event delayed in view of the announcement extending Alberta's drilling incentives last week. It's expected to further reduce its Western Canada forecast of 11,176, due mainly to inactivity in Alberta.

Alberta Energy land sales of conventional oil-and-gas drilling rights, a key indicator of future drilling activity, so far in 2009 have totalled $98.3 million, about a third of the $284 million collected in the first half of 2008.

http://nbbusinessjournal.canadaeast.com/journal/article/718483