The western Canadian oil and gas industry has taken it on the chin since global oil prices collapsed in late 2014.
Capital spending on conventional oil and gas development fell from a peak of $43 billion in 2014 to $21 billion in 2016. The well count has followed a similar decline, from 11,226 wells rig released in 2014 to 3,562 wells in 2016.
While Saskatchewan was hit hard by the decline in investment and activity, it fared a little better than its neighbour to the west. The well count declined by around 70 per cent in Alberta from 2014 to 2017, while Saskatchewan saw a decline of 55 per cent.
There are a number of reasons for Saskatchewan faring better than Alberta as prices dropped from highs of around US$100/bbl in 2014 to lows of $26/bbl in early to 2015 before recovering to jump around $50/bbl as 2017 began to unfold.
The first is geology, according to industry analysts at Scotia Waterous. A study by the investment house released in late 2016 shows six Saskatchewan oil plays are in the top 10 in Canada and the U.S. when ranked by profit/investment ratio.
When Scotia Waterous compared 55 U.S. and Canadian oil plays, Frobisher-Alida oil ranked second by profit/investment ratio and the Ratcliffe Play ranked third.
Viewfield Bakken oil, Upper Shaunavon oil and Viking oil ranked sixth, seventh and eighth, respectively.
Border Midale oil had the 10th best profit/investment ratio of the 55 plays.
All six plays break-even at a WTI oil price of US$40/bbl and some break-even at US$35, says Patricia Mroch, associate director with Scotia Waterous in Calgary.
The low break-evens are also among the best in North America, as are the payback periods, Mroch told a Canadian Society for Unconventional Resources (CSUR) Saskatchewan conference.
All of these plays are relatively shallow and cheap to drill compared to some of the deep shale plays, Mroch told the Calgary conference. She noted that it obviously helps that all six are oil plays.
The two top-ranking Saskatchewan oil plays on the list—the Frobisher and the Ratcliffe—are conventional Mississippian plays that don’t require fracture stimulation, Mroch said. “So they’re high quality. You have enough permeability and porosity that fracturing them actually doesn’t benefit you.”
In her presentation, Mroch noted Mississippian activity last year was strong across the entire trend in southeastern Saskatchewan—indicative of favourable economics even at oil prices below US$50/bbl.
She noted production from the Mississippian wells is stable with “very low” declines.
All six plays are being drilled horizontally, but fracturing is occurring as operators move into tighter parts of plays such as the Midale, Mroch said.
Scotia Waterous reported activity has been “very strong” in the Bakken-Torquay Field with Crescent Point responsible for about 85 per cent of 2015 wells and about 95 per cent of 2016 wells.
Bakken production has declined with reduced spending in the past 18 months while the smaller Torquay tight oil play has been growing as the economics are slightly stronger, according to Scotia Waterous.
“The reason people are still drilling in Saskatchewan is because those plays are still economic, and because it’s a stable environment politically,” Mroch said.
“People aren’t worried about the royalty regime changing like it has in Alberta. And in Alberta there are new carbon levies coming in. So there is some concern about how that’s going to affect the Alberta economics.”
Merger and acquisition activity has been strong in Saskatchewan compared to the rest of Canada, indicating the province is attractive to investors, she said.
Along with being cheap to drill, these plays can also be profitably produced at low oil prices.