Buoyed by strong crude prices, drilling for oil and gas in Western Canada hit a five-year high for the season as producers put in motion their winter action plans.

The number of rigs in the ground last week reached an 83 per cent utilization rate, a level for the beginning of January not seen since the heady days of 2006 when service companies were frantically trying to capture high natural gas and oil prices.

"Basically any rig that is capable of drilling is drilling right now," analyst Kevin Lo, with FirstEnergy Capital Corp. said. "All of it's very healthy for the oil-and-gas industry. And of course, the majority of the wells are still levered towards oil."

Crude oil closed at $99.25 US per barrel in New York Friday, off its Jan. 4 high of $103.22 but high enough to support activity in the oilpatch.
The first quarter of the year traditionally is the busiest for drilling and service companies, noted Nancy Malone, vice-president of operations for the Canadian Association of Oilwell Drilling Contractors.

"January is prime time for working and with some cold weather coming in next week, it's going to keep on going," Malone said. Association members such as Precision Drilling, are confident strong oil prices will support the level of activity into 2012, Malone said. The unknown part of the equation is the timing of the spring breakup and how long it will take for road bans on heavy equipment to be lifted.

Last year, a period of heavy spring rains saw many producers put back their drilling programs by a month or more, making the third quarter of 2011 the busiest on record for many association members, Malone said.

Natural gas prices have been less supportive of drilling. A supply surplus and warmer-than-expected winter failing to draw down inventories has pulled down prices to near 28-month lows, with the re-source settling at $2.623 US per million British thermal units on Friday.

Gas rich in pentane, butane and propane - so-called wet gas - has been receiving a higher premium than its dry peer as it is priced against oil, making the resource attractive to producers, added Lo.
 
"Even with the meltdown in gas, the hunt for liquids will continue," the  analyst said." You might see utilization back off a little bit on the gas side,  but it's not going to be material."