Western Canada gas and conventional oil finding and development (F&D) costs, excluding revisions, grew 12% in 2004 to C$14.30 per barrel of oil equivalent (BOE) or C$2.40 per thousand cubic feet (Mcf), mainly due to smaller recoveries from new wells. Acquisition costs jumped even more, to C$17 per BOE. Those are among findings in Calgary-based Ziff Energy Group's recent F&D and reserve-replacement cost study. The annual study, now in its 19th year, includes buy-versus-drill comparisons with acquisition data from Calgary-based Sayer Securities Ltd. It analyzes costs and the effect on the industry, company strategy area and play levels. The study found that capital spending surged 18% to hit a record of C$16.50 per BOE of production. Spending continues to increase; in the first nine months of 2005 land costs are up 70% from 2004. Overall well completions are keeping up with the record level of 2004. Ziff found that in eight regional "gas strategy areas," three-year F&D costs range from a low of C$1.70 to C$3.00 per Mcf. In five "oil strategy areas" F&D costs range from C$9 to more than C$15 per barrel. From the results, Ziff shows F&D increases for each strategy during the last five years and ranks the 13 strategies by overall performance. The record level of gas drilling is boosting reserve replacement, to more than 125% in 2004. However, 2004 saw the sixth straight year of significant negative gas revisions. Reserve replacement reached 105% for oil, partly due to revisions, and marked the first time in four years of full oil replacement. The firm also found that the biggest drillers of deeper exploration wells in Canada and the most exploration-focused companies are Talisman Energy, Devon Energy, Burlington Resources and ConocoPhillips. Husky is very active but less exploration-oriented, Ziff adds, and EnCana Corp. is more focused on developing resource plays in Canada. Also, among the findings is that the energy-trust sector now accounts for more than 20% of total production from western Canada, including more than 30% of conventional oil output. The sector has grown through both acquisitions and company conversions since 2001 and now is becoming increasingly active in drilling. In 2004, energy trusts spent C$6 billion on acquisitions and about C$2 billion on finding and development. Eight of the 36 active trusts invested more than C$1 billion combined. They are Enerplus, Pengrowth, PrimeWest, Peyto, ARC, Bonavista, NAL and Advantage. Overall, trusts replaced just over half of their 2004 production through organic (F&D) activity. Ziff adds that reserve-replacement cost can be a better measure of overall trust performance. But F&D is growing in importance for many trusts: when confronted with high acquisition costs, they are adding technical staff to better exploit the opportunities they already own.

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