From the pine forests of northern Alberta and British Columbia to the mesquite flats of South Texas and the Louisiana marshes, this is a busy summer. Operators on both sides of the border are dealing with a boom atmosphere tinged with the urgency to replace reserves. Increased oil and gas demand and high commodity prices have propelled activity in every remote corner of the oil patch. Old plays are being revisited with new technologies. But more companies are complaining about not having enough people. On a recent trip to Calgary, I was told that the situation is dire in the heavy-oil-sands region, a unique corner of the oil patch in northern Alberta. Companies are rumored to be recruiting welders right out of high school, promising them training, housing and annual wages of close to C$150,000. The labor crunch could get worse: these multibillion-dollar, long-term projects must compete with projects for building infrastructure in Vancouver, host of the 2010 Winter Olympics. Bringing the oil-sands to production requires massive amounts of man-hours and logistics. This year Canadian Natural Resources is building an airstrip and a camp for 1,500 workers at its Horizon project north of Fort McMurray. This large capital commitment should be worth it-the project holds 1.9 billion barrels of proved reserves net to Canadian Natural. First production of light, sweet synthetic crude from Phase I is expected in 2008 at the rate of 110,000 barrels per day. Admittedly, oil-sands projects are atypical. But on both sides of the border, operators cite the lack of rigs and crews to enable them to reach their production goals. The Canadian rig count targeting medium and deeper zones is up nearly 50% from a year ago. In the U.S., land-rig companies are now building about 108 new rigs for delivery this year and in early 2006. What's more, half of those are already contracted by exploration customers as soon as they leave the yard, according to a report by Dan Pickering of Pickering Energy Partners in Houston. Some E&P companies are taking matters into their own hands. Chesapeake Energy Corp. is, for one. About half of its production increase in the past four years has come from the drillbit. In the first quarter, Chesapeake added 333 billion cubic feet equivalent of proved gas reserves by drilling-even though it tends to grab headlines more often for its frequent acquisitions. At present, about 75 rigs are working for Chesapeake, making it the largest consumer of onshore drilling services in the U.S. So, rigs are serious business to chairman and chief executive Aubrey McClendon. That's why, to offset the risks of rig availability, timing and pricing, the company owns a drilling subsidiary called Nomac Drilling Corp. It has 13 rigs now and another 15 to be delivered in the next 12 months. Chesapeake also owns 17% of the stock of Pioneer Drilling, giving it synthetic ownership of 17% of a 60-rig fleet. More recently, Chesapeake bought a 45% equity stake in DHS Drilling Co., a subsidiary of Denver E&P company Delta Petroleum. It owns 10 rigs in the Rockies. Finally, Chesapeake is sponsoring the building of 20 or so rigs by third parties. "The motivation behind our rig investments is two-fold," McClendon says. "We must have an adequate supply of reasonably priced rigs to accomplish [our reserve and production goals]. If the drillers won't build them, we will have to. Second, our greatest business risk is runaway drilling costs (without accompanying runaway gas prices). Therefore, like any business risk, we must mitigate this." He's done it before. From 1995 to 1997, the company owned 33% of Bayard Drilling Co. and later took it public, netting $80 million. "To date we are up by almost $200 million on our rig investments in this cycle. That almost fully mitigates the impact of service-cost inflation on Chesapeake during 2005," McClendon says. The start-up E&P marketplace is no less busy. In Canada and in the U.S., entrepreneurs are recycling capital as fast as they can get it, building small companies into attractive acquisition targets. Even as Plantation Petroleum was selling itself to Range Resources in June, chief executive Tom Meneley was already negotiating the private-equity funding for Plantation III, and he also had an asset acquisition under way to jump-start it. He plans to take only a week or so off after the deal with Range closes. Citigroup Smith Barney's annual midyear spending survey shows the breadth of the activity boom. Some 73.5% of independents surveyed have increased their U.S. capex budgets, compared with 2004 actual capex, and 62% of the companies have larger budgets for Canadian E&P. (For more on this, see "Trends & Analysis" in this issue.) "We do not believe current conditions are as good as they were three decades ago, but they appear better than at any time since," says oil-service analyst Geoff Kieburtz.