Saskatchewan announces oil waterflood incentive program

Saskatchewan energy minister Bronwyn Eyre. Image: University of Saskatchewan

Regina – The Government of Saskatchewan announced a program on Dec. 5 designed to improve competitiveness of the petroleum industry and increase investment in the province.

The Waterflood Development Program replaces a previous program with a more aggressive initiative to provide long term, stable production, said Minister of Energy and Resources Bronwyn Eyre. The program also complements an existing horizontal drilling incentive.

“This initiative is about planning the future,” Eyre said.

The program will incentivize the conversion of producing wells into waterflood injection wells or the drilling of new dedicated waterflood injection wells.

The province says that at maximum uptake the program will support $375 million in new investment over the next five years and 500 new permanent jobs. Over 10 years, the program will lead to an estimated $245 million in new provincial royalties, and $1.9 billion in direct GDP impacts, and 14.5 million barrels of new oil production.

The program will also enhance the competitiveness of Saskatchewan’s energy industry by facilitating an economically sustainable increase of production capacity by an estimated 72 million barrels over the course of the next 35 years, Eyre said.

Waterflooding is a secondary recovery oil production technique that re-pressurizes an oil reservoir to boost total oil recovery.

“It’s important to note, this program will not undermine the actions of Alberta in its attempt to solve the differential crisis, because this isn’t heavy oil,” Eyre said.

“This is about enhancing the competitiveness of our energy industry in other plays, into the future, ensuring we’re ready to address not only today’s challenges, but those which lie ahead…We have to do something to address capital flight, and the risk of capital flight.”

Capital spending in the oil and gas sector in Canada has dropped 39 per cent since 2014, and the majority of that money has gone to the United States. Oil production in Saskatchewan has dropped six per cent since 2014.

“The value of oil has dropped 42 per cent, oilwell drilling, 30 per cent, employment, 10 per cent, and investment, 37 per cent. Provincial total oil revenues between 2014 and 2017 declined 50 per cent. Across Canada, as many as 100,000 workers have been laid off in this downturn, and Saskatchewan hasn’t been immune to that. So the time to act is now, to do all we can, as a government, to send the signal, that despite all the challenges we face, we stand with our oil and gas sector, with the 35,000 people who go to work every day in Saskatchewan in our oil and gas industry,” Eyre said.

Directional driller Cathedral Energy Services CEO Scott MacFarlane said the company is excited about the announcement.

“It will bring further investment in the Saskatchewan economy. It’s a further boost to strengthen the overall sector to Saskatchewan,” he said.

“It will help Cathedral as well as other oilfield services companies, by way of increased operating activity levels, which we are desperately needing at this point in time.”

MacFarlane noted that the government involved industry in this plan, adding that “We need to be getting the message through to the federal government that we need to be building pipelines so that we can get our product to market, and get the price for it that we deserve.”

Vermillion Energy vice-president Jenson Tan said the water flood incentive is another example of continuing to make the province an attractive place to invest.

“In our current capital spending plan, Vermillion plans to invest $225 million in Saskatchewan in 2019 in our light oil assets in southeast Saskatchewan. We will be drilling 150 wells, with many of these having some of the best economic recurrence in North America. What we are really excited about is the waterflood potential on our asset base,” he said.

“We plan on investing at least $30 million on waterflood and enhanced oil recover assets in the coming year which will be used to pilot and implement several waterflood projects.”

Several will be directly impacted by this new initiative.

“The incentives announced today support this waterflood investment, which we believe could unlock significant resource potential, which would further increase our investment levels in the near-term, mid-term and long-term,” Tan said.

Eyre explained the incentive is revenue neutral. “It’s a royalty deferral, not a royalty break or royalty reduction. It’s a three-year royalty referral which allows companies to make the $500,000-ish in capital investment and flow that capital through as quickly as possible in order to make the conversion.”

Eyre told reporters the initiatives has been in development for a long time.

“On behalf of the members of Energy Producers Association of Canada, it is a pleasure to support the good work of the Government of Saskatchewan,” Energy Producers Association of Canada president Tristan Goodman said.

“Waterflooding is an important long-term reservoir management strategy that improves oil recovery. Given the current challenges facing the Western Canadian oil industry, initiatives such as this will assist the sector over the next few years.”

— Pipeline News