A Slow Process
Nonetheless, the project’s first well is being drilled at Denzil, Sask, a four-hour drive away. The well was discovered early last year and there have been some delays due to a lack of available services and equipment in getting it up and running. A second well will be drilled just northeast of there at Seagram Lake. Three followup wells are still being evaluated.
Most of the wells are expected to reach 2-3,000 metres under the surface. They will be vertical wells with minimal fracking being used to keep costs low.
“This year, we had hoped to drill up to 15 separate field opportunities where we’re looking for larger accumulations,” says Maynes. “Given how slow it has been in the first quarter, I expect we might drill about 10 of those. It is slower with stakeholder consultation and lack of services. It is proving to be quite difficult to get equipment.”
“It’s an interesting problem that we have,” continues Maynes. “There has been so little investment over the last couple years and we’ve lost so many fieldworkers that there’s some shortages right now in Western Canada when it comes to activity levels.”
Maynes notes that many companies are reluctant to hire workers on a long-term basis until they are certain there will be enough work. Maynes himself believes that the turnaround has begun but it will be slow.
“People talk about cycles but this cycle is a little bit different,” says Maynes. “Historically, they’ve been more pricing cycles, demand driven and supply. With the advent of unconventional drilling or fracking, particularly in the U.S., the U.S. supply picture has changed dramatically. They used to be a significant importer of oil and a lot of people are talking about them getting to the point where they will be exporting oil, where they will have more oil then they need, and that has really changed this whole picture. We think it is going to influence the price of oil globally for at least the next three or four years. However, we believe here at NGPR that in four to six years we will see a dramatic turnaround in the price of oil. We don’t
putting our people back to work
We had a goal of
see any investment of a significant size going into the global market. If this continues for the next three or four years, we will see production start to drop off in the US. Our theory is that as that production drops off into the 2020s, we will see an opportunity for that price to come back very strongly and what we would like is to have the citizens of Medicine Hat sitting on oil or gas that we’ve discovered in those intervening three to four years that will be available to either sell or market ourselves. We have to do the work today but that’s the prize that we have for the citizens: That we have oil to sell when that price turns around.”
Profitability
The City is drawing from the reserve funds to finance the oil exploration, but plans to replenish it as soon as possible. Expectations are that the money generated by the project will be significant.
One of the benefits of undertaking this project in the downturn is the lower costs of labour and equipment.
“For most of these wells to drill to prove the concept will cost between $250,000 and $1 million each,” states Maynes. “If it is determined that they’re economical to produce, it generally costs us from $500,000 to $750,000 to put each one of those wells in production. So, overall, it’s about $1-$2 million per well depending on the depth that we’re drilling to and the costs all in.”
“Before we go into a new venture, we have an expectation that those wells in that field will produce between 500 and 1,000 barrels per day,” said Maynes. “So, to put that in a dollar perspective, we’re really looking for wells that will generate about $25,000 a day in revenue for us at our current prices. Currently, we produce about 9,000 barrels a day in equivalent oil and gas production in NGPR. Over these three years, we would like to see at least a 50 per cent increase in that production to be up in that 15,000-barrel-a day range. So, if we can deliver 5,000 barrels a day out of this program in the next three years that would be a very satisfying performance.”
According to Clugston, even at today’s price of oil, the wells will be profitable. The project is expected to generate $350 million of economic activity in the area in three years. Merete Heggelund, CAO, notes that if the discovery of another Glauc C-type field is made that figure could rise to $500 million. ❚
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