By Lisa Fattori
Despite record flooding in the spring of 2011, Saskatchewan’s oil industry performed exceptionally well and is on course to enjoy the same success in 2012. Oil and gas sales for the year were more than $1-billion higher than in 2010, and the number of oil wells drilled increased by 29 per cent. Oil production for 2011 was on par with the previous year, even though there were months of downtime in the heavily flooded southeast, Estevan-Weyburn area. The industry’s comeback and impressive close to 2011 speaks to the diversity of Saskatchewan’s oilpatch and its producers’ flexibility and deftness in moving operations from one oil play to another.
Saskatchewan’s economic rebound in 2010 gained momentum in 2011, which instilled continued confidence in the province’s oil industry, enabling operators to carry out their capital programs. Oil and gas companies invested $4.5 billion in exploration and development activity, on par with 2010. The industry also provided direct and indirect employment for more than 33,200 people, for a nine per cent increase over 2010 employment figures. Favourable oil prices throughout 2011 contributed to the industry’s prosperity and analysts predict continued strength in prices through 2012.
Canada is the sixth-largest oil producer in the world – with a production level of 3.2 million barrels of oil per day in 2011 – and remains the largest exporter of petroleum to the U.S. In September 2011, Canada exported 2,829 barrels per day (b/p/d), to the U.S., while the second-largest exporter, Saudi Arabia, exported 1,479 b/p/d. Mexico ranked third with 1,192 b/p/d in exports.
Saskatchewan is the second-largest oil producer in Canada and exports 65 to 70 per cent of its annual oil production to the U.S. The province is home to the world-renowned Weyburn-Midale carbon capture and storage (CCS) project, which has garnered international acclaim. Saskatchewan is also a leader in the research and development of enhanced oil recovery (EOR) methods, as well as green technologies that increase efficiencies in oil and gas production and reduce the environmental impact of resource development.
A Thriving Economy
Economic indicators confirm Saskatchewan’s competitive edge and reputation as the ideal place in which to live, work and conduct business. The province’s population in October 2011 was 1,063,535, the highest level on record. In the second quarter of 2011, Saskatchewan saw the largest net inflow of inter-provincial and international migrants since 1971. Unemployment remains low, while job growth continues to be strong. In January 2012, Statistics Canada reported average weekly earnings of $904.42 for the province, which are the second-highest in Canada.
Saskatchewan experienced tremendous growth in retail sales, wholesale trade, manufacturing shipments and building permits throughout 2011 and reached new records in the first two months of 2012. Seven independent forecasters rank Saskatchewan first or second in economic growth in Canada for 2012. Average forecast GDP for the province is 3.0 per cent, ahead of the national average of 2.1 per cent. Saskatchewan’s oil and gas industry accounts for 20.7 per cent of the province’s GDP.
Despite increased costs associated with last year’s flooding, the province has maintained a balanced budget in 2011-12. In the Third Quarter Financial Report from Saskatchewan Finance, revenue is forecast to be $11.06 billion, up $271.9 million or 2.5 per cent from Budget. Non-renewable resource revenue is expected to remain strong, accounting for an estimated 24.9 per cent of total revenue for 2011-12. Lower potash revenue and Crown land sales will be partially offset by higher oil revenue. Decreased Crown land sale revenue signals industry’s reallocation of funds toward drilling and exploration to prevent previously purchased land from reverting back to the Crown. Industry’s focus on working current assets is a positive sign, as it suggests increased production in 2012.
Oil revenue is up $61.8 million from the Budget. The upgrade is due to a higher forecast for West Texas Intermediate (WTI) oil prices and a decrease in the light-heavy differential, partially offset by a forecasted higher exchange rate. Oil production is forecast at 156.2 million barrels in 2011-12 as industry rebounds from the drop in production due to flooding in the spring and summer of 2011. At third quarter, the average fiscal-year WTI oil price is also higher, with a forecast of U.S. $96.60, up from the Budget estimate of $93.75.
The boom in drilling activity in 2010 continued throughout 2011, when the industry broke a new record in the drilling of horizontal wells. By year end, 3,528 oil wells had been drilled, up 29 per cent from the 2010 figure and close to the record for drilling set in 1997. Of these wells 1,992 were horizontal, an increase of 30 per cent over the number of horizontal wells drilled in 2010. The number of oil well licenses issued in 2011 was 5,069, up from the 4,225 licenses issued in 2010.
Oil was first discovered in the Bakken Formation in the early 1950s, but it wasn’t until the recent advent of horizontal drilling and hydraulic fracturing techniques that the oil play became economically accessible. Estimated oil in place in Saskatchewan’s portion of the Bakken ranges from 25 billion barrels to 100 billion barrels. Current Saskatchewan Bakken production is estimated at 70,000 bb/s/day, up from 64,600 bb/s/day recorded in December 2010.
The widespread adoption of horizontal drilling is moving into other emerging oil plays, including the Viking and Lower Shaunavon. As of the second week of February 2012, horizontal wells in the Viking play totaled 903, and more than half of these were drilled in 2011. Due to flooding in the Estevan area, the Lower Shaunavon saw increased activity with 238 horizontal wells drilled in 2011 and another 21 added by Feb. 9th, 2012. Lloydminster had a very good year in 2011 with 814 vertical wells and over 300 horizontal wells.
In Saskatchewan, 91 per cent of the province’s drilling rigs are active compared to Alberta, which has 83 per cent of its rigs working. The Petroleum Services Association of Canada (PSAC) forecasts that 3,739 wells will be drilled in Saskatchewan in 2012, a six per cent increase over 2011. PSAC forecasts British Columbia’s drilling rate to increase three per cent, Alberta’s to increase two per cent and Manitoba’s to increase 14 per cent.
Over-supply and depressed prices continued to plague the natural gas sector in 2011, prompting operators to put their resources into oil production. Accordingly, the vast majority of total wells drilled in Saskatchewan in 2011 were oil wells. For 2012, PSAC forecasts an average natural gas price of CDN $3.25 mcf (AECO).
The Process Renewal and Infrastructure Management Enhancements (PRIME) project reached an important milestone April 2, 2012 when Saskatchewan oil and gas companies started using the Petroleum Registry of Alberta. PRIME is an Energy and Resources initiative that will modernize oil and gas-related business processes and systems for both government and industry. Including Saskatchewan data on the Petroleum Registry of Alberta is a key component of the project. Operators now have access to a web-based online system for the submission of well and facility infrastructure data, monthly production and pricing information, and royalty taxpayer information. The new reporting system is particularly more convenient for those oil and gas companies that do business in both Saskatchewan and Alberta.
Upcoming PRIME improvements and efficiencies include self-service information entry and access, which will enable operators to conduct ministry business outside of traditional business hours for 24-7 convenience. Companies may also benefit from reduced penalties for late and/or in-error reports, more accurate and timely information and reduced turnaround times. The broad scope of PRIME encompasses oil and gas royalty and tax billing; well, pipelines and flowline infrastructure; reservoir management; and petroleum tenure and subsurface management. By the project’s completion in March 2015, legislation, regulation and reporting will be as simplified and efficient as possible, which will make Saskatchewan an easier place for operators to do business.
A Greener Industry
Saskatchewan is also making advances in greener operating practices and emerging technologies for a more sustainable, environmentally responsible industry. In June 2011, Energy and Resources introduced Upstream Petroleum Industry Associated Gas Conservation Standards designed to reduce emissions from the flaring and venting of associated gas. The new standards will reduce greenhouse gas emissions by as much as 49 per cent. Rather than being flared off, associated natural gas that is rich in ethane, propane and butane can be processed and sold as value-added products such as liquefied petroleum gas. The new standards will initially apply to new wells and facilities licensed on or after July 1, 2012. Implementation for wells and facilities already licensed prior to that date will not take effect until July 1, 2015.
In January 2012, the Petroleum Technology Research Centre (PTRC) and University of Regina announced three new clean-technology oil production projects that could increase the efficiency of oil and gas production and reduce its environmental impact. Two of the projects focus on improved water filtration systems for the treatment of produced water – a process that costs the industry an average of $3 to $5 million per day. A more cost-effective treatment process to remove contaminants will help reduce production costs and foster enhanced water conservation.
A third project evaluates possible sources of nutrients for Microbial Enhanced Oil Recovery (MEOR) as a means to pump more oil from existing reserves that are in decline. Microbes have the potential to react in a reservoir and create solvents that improve the viscosity of oil. According to a June 2011 report by the Canadian Association of Petroleum Producers, between 2005 and 2010, Saskatchewan heavy oil production declined 36,000 barrels/per day. New microbial applications could improve recovery rates for depressurized, non-producing wells and provide revenue increases of $1.7 million to $3.4 million per well over five years.
Innovation in EOR techniques, including carbon dioxide injection, improves recovery rates of operating wells. New EOR technologies also have the potential to access Saskatchewan’s unconventional oil and gas resources that include natural gas in coal, shale gas, oil sands and oil shale. The Saskatchewan Petroleum Research Incentive (SPRI) is a provincial program that offers industry royalty credits for the demonstration of new technologies that will increase oil and gas production. Since the incentive was first offered in 1998, 32 projects have been approved. The program is available to operators until March 31, 2015.
Saskatchewan is also home to the Weyburn-Midale CO2 Project – an 11-year PTRC-managed research and development project that measures, monitors and verifies the safe injection and storage of carbon dioxide in two producing oil fields in southeastern Saskatchewan. In addition, the project showcases the successful commercial application of CO2 injection in EOR. With the recent conclusion of the Weyburn-Midale project, local industry and oil companies worldwide can look forward to the dissemination of the project’s findings, and the adoption of Saskatchewan’s CCS model in other jurisdictions. The official unveiling of the project’s Best Practices Manual occurred at the spring 2012 annual Carbon Capture Utilization & Sequestration Conference in Pittsburgh.
The expertise acquired with the Weyburn-Midale project is being applied to a new initiative by PTRC in partnership with SaskPower. The joint project provides a back-up carbon dioxide storage solution for SaskPower’s Boundary Dam Integrated Carbon Capture and Storage Demonstration Project. The Unit 3 facility at Boundary Dam Power Station in Estevan is a re-built coal-fired generation unit with carbon-capture capabilities for EOR purposes. Excess CO2 that is not sold for EOR will be stored through PTRC’s Aquistore project in a saline reservoir located three kilometres underground. Aquistore is involved as an independent research project to study the safe, deep saline storage of CO2. Phase 1 focuses on seismic studies, monitoring and gathering data; research that will help SaskPower prepare for the commercial operation of the system, which is expected in the first quarter of 2014. SaskPower’s carbon capture initiative and the Aquistore project will provide scientific results about deep saline storage, help meet industry’s demand for CO2 for EOR purposes, and reduce greenhouse gas emissions by approximately one million tonnes per year.
In June 2011, the Fraser Institute’s Global Petroleum Survey named Saskatchewan as the best place in Canada for oil and gas investment, noting that the province offers investors confidence in a stable, competitive royalty and regulatory structure. Globally, Saskatchewan ranked eleventh-best in the world, out of the 136 jurisdictions across Canada and around the world that were evaluated in the survey. Such an honoured distinction is testament to the oil industry’s outstanding performance on all levels and Saskatchewan’s role as a world leader in resource development.
“Industry is very optimistic about 2012,” says Energy and Resources Minister Bill Boyd. “We continue to see high oil prices, strong drilling activity and a booming sector that is attracting workers from across Canada and around the world.