In the summer and fall of 2014, Canada’s independent oil and gas producers—those represented by The Explorers and Producers Association of Canada (EPAC)—were still riding the waves of global crude oil prices that were flirting with US$100/bbl.
Rig activity in western Canada was still comfortably around 60 per cent as the industry headed into the critical winter drilling season.
But then, Saudi Arabia dropped its OPEC bombshell: the world’s largest crude oil producer would no longer prop up global crude prices, but would instead protect its share of the world market, even if that meant prices would fall. And fall they did, from nearly US$95/bbl in August to less than US$50/bbl by January 2015 and to less than US$34/bbl by January 2016.
As prices crashed, Canadian producers scrambled to cut costs, extracting painful concessions from their service providers, shedding workers by the tens of thousands and, ultimately, cutting capital expenditures to the bone.
An illustration of the depth to which activity was cut can be drawn from CanOils. In the traditionally active first quarter, Canada’s intermediate producers steadily withdrew dollars from drilling: from 947 wells drilled in the first quarter of 2014 to just 272 wells in the first quarter of 2016.
The impact of the price collapse was unimaginable just a few years ago, when EPAC launched its awards program, and was compounded in 2016 by policy shifts both in Canada and the U.S., says Gary Leach, EPAC’s president.
“When we first launched the awards, we had no idea that our industry was about to sail into the worst downturn in decades, compounded by new governments elected in Alberta, Ottawa and even the United States, who have pursued dramatically different policies affecting our industry,” he says.
Despite these challenges, Leach adds, the entrepreneurial spirit of the independent sector of the industry remained alive and is evident in the quality of nominations for this, the fourth annual EPAC Awards.
The nominees were quite diverse in the resource assets they owned and were developing from predominately light oil with good infrastructure availability to more remote and emerging natural gas resource plays, Leach says. And their desire to innovate has been equally impactful, driven by a need to improve their efficiency and margins in a climate of lower for longer commodity prices, oversupply and market access issues.
“In all cases, the winners were typically able to demonstrate superior growth in production, reserves and cash flow per share and a highly competitive cost structure and strong investment recycle ratios,” Leach says. “Given the challenging commodity price environment over the last year the winners demonstrated very impressive performance.”
Much of that success came on the strength of more efficient drilling and completion programs. Many of the winners took time while drilling operations were suspended to fine-tune how they drilled and completed their wells, resulting in longer laterals, increased frac stages and reduced frac spacing and optimization of drilling pads and surface equipment.
Below you’ll meet the four companies who stood out among the EPAC Award nominees. But make no mistake: the fact that so many junior and intermediate companies survived, and indeed thrived, in the current environment is testament to the entrepreneurial spirit of the sector, Leach says.
“Hopefully, the 2017 awards, and the roadmap to success shown by the nominees and winners will inspire confidence in the future,” he says. “Particularly for young people pursuing careers in our industry, the EPAC Award winners demonstrate the world class opportunities that still lie before us here in the Western Canadian Sedimentary Basin.”
The EPAC 2017 Award Winners