Crescent Point Energy and the bountiful Bakken
How old plays and new technologies are transforming Saskatchewan's economy
Crescent Point Energy Corp. president and CEO Scott Saxberg
Photo: Todd Korol
Boomtowns have a long history of attracting fortune hunters. Saskatchewan’s oil boom is no fabled gold rush, but the rapid development of resource plays bearing names like Viking, Lower Shaunavon and the Bakken does resemble a bonanza in at least one sense. People are as eager to spend money as they are to make it, and thanks to the lucrative revival of old oilfields, diamonds are selling like hotcakes. “Sales have gone up dramatically,” beams Al York, who owns York Jewellers in downtown Weyburn. His father bought the outfit in 1980, but business today is unusually brisk. “We sell more bigger and better quality stones now, in the last three years, than we sold in the last 30 years that we’ve been in business,” York says.
The elevated traffic in precious gems coincides with a renewed sense of confidence in the southeast corner of the province. Local economies are booming and provincial resource coffers are flush. February Crown land sales centered on Weyburn and Estevan topped $18 million. Combined with extensive private freehold agreements, the total makes the Bakken the richest land grab in the province. The total sale of Crown oil and gas rights exceeded $43 million, the second-highest February on record, bringing land sale revenue for the entire 2010-11 fiscal year to $467 million or more than three times the amount collected a year earlier.
The activity has accelerated at such a clip that Energy and Resources Minister Bill Boyd declared following the winter land sales that the industry had officially “roared” back to life. “The outlook is very good,” the minister says, checking his enthusiasm. “We have a very large resource base in place. Companies are looking at the province as a good place to advance with lots of opportunities. The land sales are a good indicator of what we are going to see in the future.”
The indicators are strong in Weyburn. In 2010, the value of residential construction topped $21 million, not quite the value achieved at the onset of the boom ($24 million in 2008), but dramatically higher than the pre-boom value of $5 million just five years ago. With a population swell of almost 1,500 last year, a rise of 14.5 per cent to 11,800, the vacancy rate in Weyburn has been squeezed to less than one per cent. Seventy-seven new residential lots opening this spring are expected to sell quickly. “We’ve been able to stay ahead of the curve, but it’s a challenge,” says Debra Button, the town’s mayor since 2006. “Did we see it coming? There was some coffee shop talk that things could really start to hum down here. But you never know until it happens.”
It’s no secret that Weyburn and surrounding communities in the region sit atop one of the richest untapped oil pools in Western Canada. But it took a “perfect storm” of lucrative oil prices, new horizontal drilling techniques, a stable royalty and regulatory structure – compared to Alberta’s perennial tinkering – plus a handful of resource risk-takers to make the Bakken an attractive place to be.
“It’s been much better than we ever expected,” says Scott Saxberg, chief executive of Crescent Point Energy Corp. With production volumes of 42,000 barrels of oil per day, the Calgary firm is the largest player in the Saskatchewan Bakken. This year marks the company’s 10th anniversary and its fifth year in the Bakken, after buying into the play with a 2006 acquisition of Mission Oil and Gas, itself one of the earliest players in the field.
“When we acquired in the Bakken, it was a half-a-billion-barrel oilfield. Since then, that pool has grown to over five billion barrels of oil in place, to become the second largest light oilfield in Western Canada,” says Saxberg. “It is an exciting place to be.”
With 42,000-barrels-per-day of production, Saxberg’s Crescent Point is the largest player in Saskatchewan’s Bakken
Photo: Todd Korol
The attention is remarkable in part because it’s making up for almost six decades of neglect. The Bakken oilfield was discovered in Montana in 1953 and named for the farmer on whose land the first wells were drilled. However, it was largely ignored as too difficult and too costly to tap. In 1995, a geologist with the United States Geological Survey made a comprehensive field assessment and concluded that the Bakken oil formation contained a staggering 413 billion barrels of crude.
The prospect of a fresh motherlode did not precipitate a drilling frenzy, however. The Bakken resource is “tight oil” trapped in an impermeable layer of 350-million-year-old shale within the Williston Basin, a vast formation under the plains of North Dakota, eastern Montana, southeast Saskatchewan and the western corner of Manitoba. Conventional vertical wells drilled into the shale came up disappointingly dry. Estimates said as little as one per cent of the payload could be tapped with technology of the day.
In 2000, a geologist in Montana took a different route into the Bakken – horizontal. By drilling horizontally into the shale, then fracturing the rock with high-pressure liquid and sand, fissures were created in the source rock through which the oil could flow. The technology was further refined so that fractures could be precisely positioned, creating multiple flow points into one long horizontal well. The advances don’t come cheap. But the added cost of multi-stage frac jobs – in many cases more than double the drilling and well-completion costs of their vertical cousins – is offset by increased productivity.
The technology, which has also unlocked vast amounts of shale gas in the lower 48 states and pockets of Canada, has evolved in a familiar pattern. Much of the activity mirrors the renaissance in shallow gas drilling during the 1990s that produced new industry giants Canadian Natural Resources Ltd. and Husky Energy Inc.
“A lot of money was spent over the years and, yes, there were a lot of failures, but eventually [producers] developed consistent repeatable methods of drilling and increasing the production from shale rock,” says Gary Leach, executive director of the Small Explorers and Producers Association of Canada (SEPAC), whose members include the junior and intermediate-sized companies active in the Canadian side of the Bakken. “It’s made Saskatchewan a very exciting place for investors who fund the companies that are working there.”
The first experimental horizontal wells were drilled in the Saskatchewan Bakken in 2004, based largely on early successes in Montana. “The first three wells were drilled eight miles apart and they all produced light oil,” says Painted Pony Petroleum Ltd. chief executive Patrick Ward, who had a hand in the early production as a vice-president at Innova Exploration. “Within six months to a year, we estimated we had about 48 million barrels of oil in place,” he recalls. “It was a very significant discovery – in hindsight, the largest onshore light oil discovery in Canada for over 50 years.”
According to data from Saskatchewan Energy and Resources, an average of 750 barrels of oil per day was produced in the Bakken in 2004. By 2006, production had climbed to 5,000 barrels per day. From there, the trajectory is steep: 13,500 barrels in 2007; 41,800 in 2008; 54,500 in 2009; and more than 61,000 in the first six months of 2010 from more than 1,000 wells.
In 2007, Painted Pony raced onto the scene. “We started with $12 million and not a single barrel of production,” Ward says. “We’re now over 2,000 barrels per day, so that’s pretty good growth. We’ll probably see another 30 per cent growth this year,” he predicts. “We continue to expand our Bakken potential.”
The technology is expanding, too, as oil companies and their service partners search for better and less expensive means of drilling and fraccing, in the endless pursuit of cutting costs and boosting productivity. “The technology has changed significantly from year to year,” says Crescent Point’s Saxberg, who is introducing innovations such as cement liners and experimenting with water flooding and different concentrations of sand. “We’ve taken initial recovery in the field from 10 per cent to – with water flooding, we think we can get recoveries up over 30 per cent. It’s pretty exciting.”
Based on its Bakken success, Crescent Point has introduced horizontal drilling techniques to its other oil interests: Flat Lake in the North Dakota Bakken, the Lower Shaunavon in southwest Saskatchewan and a tantalizing but unproven area of exploration in southeast Alberta dubbed – optimistically – the Alberta Bakken. Straddling the Montana border south of Lethbridge, it’s drawing a surge of exploratory activity on both sides of the 49th parallel.
Production from the Bakken, expected to crest 1.3 million barrels per day over the next two years, is contributing to a storage glut at Cushing, Oklahoma
The Alberta play is not physically connected to its Saskatchewan cousin, but it is connected in geological time and conditions. Its “tight” shale source rock is Bakken-like, inspiring the same name and optimism that has characterized the original Bakken to the east.
Speculation has followed as companies like Crescent Point, Royal Dutch Shell, Bowood Energy, Murphy Oil and DeeThree Exploration move into the area, quietly snapping up land and establishing exploratory drilling programs that saw a dozen or so wells sunk by the end of 2010.
Crescent Point is leading the pack with five wells drilled or underway. The firm plans to drill 14 new wells in 2011, but it’s too early to assess the resource’s commercial viability. Early activity has coaxed limited oil production, but enough to give Saxberg a sense of qualified optimism. “It’s early days and highly risky,” he cautions. “We’re confident we’ll get oil production out of there but whether it will be economic or not, we’re not certain at this point.”
Alberta’s mature oilfields are also witnessing a revival. Resource plays better known to geologists as Cardium, Pekisko and Pembina are proving valuable after being largely written off as marginal assets whose production lives had run their course. Economic and technological barriers had previously kept recovery rates in legacy oilfields down in the range of 10 to 20 per cent.
“As technology improves, everybody hopes to increase those recovery rates,” says SEPAC’s Leach. “This technology that was first applied on a large scale in Saskatchewan has, in the last 18 to 24 months, been introduced in Alberta with some pretty exciting results in some of our older mature oilfields.”
The renewed activity is good news for an industry that has been in decline for more than a decade. Since the mid-1990s, when Alberta’s conventional production exceeded 300 million barrels per year, extraction has fallen dramatically to 168 million barrels of crude in 2010. At the same time, the younger oilfields of Saskatchewan saw a steady incline in production to 154 million barrels in 2010. It’s a difference of about 40,000 barrels per day.
Could a province better known for potash out-produce its oily neighbor to the west? “It’s not inconceivable,” says Roy Schneider, a spokesperson with Saskatchewan’s Ministry of Energy and Resources, quick to downplay any budding rivalry. “We’re not banking on it and we don’t much care. What’s significant for us is that a huge gap has become an almost insignificant gap.”
Alberta is far from a writeoff. CIBC World Markets projects that a staggering 77 billion barrels of already discovered black gold – much of it in Alberta – lies buried in old oilfields spread throughout the Western Canadian Sedimentary Basin. As oil prices rise, the new technology and horizontal frac jobs become more economic. “That’s where people often lose sight,” observes Ward, with Painted Pony. “People say we’re running out of resources, but as the technology advances and economics change, we can start extracting the stuff that’s harder and is costlier to produce. At a certain price it makes sense.”
While the Alberta government reverses and reviews recent changes to its royalty and regulatory structure, Saskatchewan continues to offer a stable and attractive environment for small and intermediate-sized oil entrepreneurs. “Through that period of difficulty we had in Alberta, Saskatchewan was a real beacon of stability,” Leach says. “It’s easy for the smaller and mid-size oil and gas companies to go to Toronto and New York and Calgary to raise money and persuade investors that Saskatchewan is a great place to invest.”
At York Jewellers in Weyburn, the “diamond rush” shows no sign of abating. Engagement rings are a big seller, York says. But mature clients eager to celebrate anniversaries and special occasions are also buoyant. “Everybody’s just so excited to see opportunity come our way and I really don’t see it stopping.”