EPAC 2017 Top Public Emerging Producer award sponsored by Dentons.
Like many other emerging and junior producers held captive by a market-share battle half a world away, Yangarra Resources hunkered down in 2016, eliminated first-half drilling activity (it didn’t drill a single well between October 2015 and the summer of 2016), made strategic property acquisitions where the bid-ask spread was manageable and re-engineered its Cardium drilling strategy with longer horizontal laterals.
The results of those efforts included more than 30 new sections of contiguous Cardium rights in the Willesden Green–Ferrier region northwest of Rocky Mountain House, four Cardium wells drilled in the second half (two with two-mile laterals and two with mile-and-a-half laterals) and the completion of a standing Duvernay well, initially drilled in 2014.
“It really was a year for us to acquire land,” says Jim Evaskevich, Yangarra’s president and chief executive officer. “With oil prices where they were, it was a good time to get out there and expand our land base because a lot of the folks we would normally like to do business with were finally in a situation where they would sell property.”
The new Cardium drilling profile is particularly exciting, he adds. Not only are the laterals up to twice the length of standard one-mile legs, Yangarra is now drilling deeper into the Cardium, reaching the bioturbated zone between the Upper Cardium and the Lower Cardium, where fracs are more efficient and initial production rates significantly higher.
“Before, we would just be under the sand right at the top of the Cardium; now, we’re drilling quite a bit deeper into the reservoir, in the bioturbated section, which effectively gives us about 100 per cent more reserves in place,” Evaskevich says.
“Prior to this, we didn’t have the technology to be able to frac the bioturbated zone, but now, with sliding sleeves and cemented liners, we’ve gone to 15,000-pound fracs, and they’re working quite well.”
Two of the first wells drilled with this profile recorded IP30 rates north of 550 boe/d, a recent Yangarra presentation shows, compared to an IP30 rate of less than 450 boe/d for an earlier well drilled according to the old profile. Meanwhile, the longer horizontals—fracked with sleeves as opposed to open-hole ball-drop technologies—result in a 33 per cent internal rate of return improvement and about 70 per cent more cumulative production compared to one-mile laterals.
And Yangarra is also experimenting with more concentrated fracking of those extended-reach wells. Last fall, it fracked a record 101 stages on a well and just recently ran another at 108 stages.
“We needed to see if we could do it, and it turned out very well, so going forward, our wells will generally be two-mile laterals with somewhere between 100 and 110 stages,” Evaskevich says. “The reduced frac interval that results from 100 or more stages means increased liquids content and higher flowing pressures.”
The revamped drilling completion strategy will be implemented virtually across the board this year, on the five wells Yangarra has already drilled this year and the 10 more it has scheduled for the second half, all part of a $50-million capital program that looks like it can be funded entirely from cash flow. Production is forecast to average between 4,500 boe/d and 5,000 boe/d in 2017, while year-end debt is projected at between $65 million and $70 million, leaving the debt-to-cash-flow ratio at somewhere around 1.3–1.6 by year end, down from 2.7 in the fourth quarter of 2016.
The company is also working to reduce its completion costs, and one of the prime reasons it moved away from open-hole ball-drop technology to cemented liners and sliding sleeves was the potential for cost savings. Combining the tighter frac spacing with cemented liners and sleeves and nitrogen-free coil tubing fracs, Yangarra reduced its completion costs per stage last year to just $16,250, nearly half what it was in 2015 and a staggering $180,000 per stage less than in 2010.
It hopes to normalize those costs going forward, Evaskevich says, and to further that goal, it made a conscious effort back in the middle of 2016 to solidify its relationships with its favourite service providers, most of which had been decimated by the commodity price collapse and cost-cutting pressures exerted on them by producers.
“We made a conscious decision eight or nine months ago to really bore into who we wanted to use going forward and strengthen those relationships,” he says. “We’re not bidders. I expect my people to know what a job costs, so we’re using suppliers that we trust and like, and as a consequence, they return that favour, and we enjoy particularly good crews on all the major stuff that we do.”
The EPAC 2017 Award Winners
Top Public Emerging Producer: Yangarra Resources