Saskatchewan Resource Sector Momentum Expected To Continue In 2014

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Building on the strength of the past two years, the Saskatchewan government is looking at another healthy year in the oil and gas sector, says the province's energy and resources minister.

"We think the fundamentals that have driven the results in recent years are still in place," Tim McMillan said in a recent interview.

"We've got great reserves and we have got companies that are very engaged in our province and are very pleased with the regulatory environment in our province," he said. "We think the price of oil has been relatively strong this past year and that it is going to drive further production and investments."

In 2012, Saskatchewan reported record oil production of 172.9 million bbls (473,600 bbls a day) and preliminary figures for 2013 indicate it is on track to set a new record, he said. In its first-half financial outlook, the government projected 2013 production of 175.5 million bbls, up from its budgeted estimate of 171.8 million bbls.

According to the Daily Oil Bulletin, 3,388 wells, including 3,223 with oil as an objective, were drilled in the province as of Dec. 23, 2013, compared to 3,219 wells, including 3,013 with oil as an objective, in 2012.

While only a few years ago Saskatchewan was primarily a heavy oil province, production is increasingly diversified, said McMillan. The Bakken formation in the southeast part of the province is the focus of light oil activity but there are other pools in the south in addition to the heavy oil in the Lloydminster/Kindersley area near the Alberta border.

"The southeast has really come on in recent years and we expect the strength there will continue," he said. "They are building upon strength in some of the technology gains that allowed some access to pools that we have known about for decades to be produced economically."

Crescent Point Energy Corp., the largest player in Saskatchewan, expects to spend approximately $781 million of its $1.75-billion 2014 budget in the Viewfield Bakken and Flat Lake resource plays of southeast Saskatchewan. Plans call for drilling approximately 215 net wells in the Viewfield area and 48 net wells at Flat Lake.

The company's waterflood plans for 2014 include the conversion of 30 producing wells to water injection wells in the Viewfield Bakken play. Crescent Point also plans to continue to invest in infrastructure projects to accommodate sustained growth of its Bakken production.

At the same time, some of the technology that is used in the southeast is also being used in other parts of the province, said McMillan. For example, the horizontal approach to producing wells is being used in some of the province's heavy oil plays as well to very good success.

After several decades where vertical wells were used to produce most heavy oil, the province is seeing the use of new technologies and methods to bring new life to the heavy oil sector, according to the minister. "Today, several of our large producers are going to pads and utilizing horizontals and some [wells are produced] very successfully with steam as well."

Husky Energy Inc., for example, has invested $500 million in two thermal heavy projects at Lashburn and one just north of Paradise Hills and "the reports have been pretty positive."

Crown land sales also are another source of revenue for the province although the 2013 total take of $67.37 million for 111,340 hectares was down from the $105.69 million it received in 2012 for the sale of 397,119 hectares. "I think industry has transitioned capital from land acquisition to production," McMillan said. "We are seeing families moving here for the development jobs."

With that has come substantial growth on the infrastructure side by both industry and the government, which has been investing in highways and communities, informed by a growth plan out to 2020 that it approved in 2012.

There could be a lot of Crown land once again available in 2014, added McMillan. "There was a very large take-up in 2008-2009 and companies have five years to develop it or it reverts back to the Crown so [we] are in [a] very positive position with some of those lands," he said.

Although drilling activity has ramped-up substantially, the tradition is that a very high proportion of Crown lands will revert back, according to the minister.

So what could change the picture for the province?

"One of the biggest challenges in the past year has been pipeline capacity," said McMillan. "Industry has answered the call and the percentage of crude leaving the province by rail has risen dramatically and that's very positive but the fact that has to happen is a challenge."

The province, though, still believes that pipelines are the most efficient way to move crude oil, according to McMillan. At present, Bakken oil can access the Enbridge Inc. mainline, which also accepts crude from the North Dakota Bakken that is imported into Canada at Steelman, Sask.

"There are a lot of very good projects under development and we will try to support them where we can," he said.

Saskatchewan views Asian markets, specifically China, as extremely important to the province's long-term future. "Getting access to the West Coast is something that is very important to us."

From that perspective, the recent recommendation from the Joint Review Panel recommendation to the federal government that it approve Enbridge'sNorthern Gateway project with 209 conditions was good news, he said.

"From Saskatchewan's point of view, we don't think any pipeline should go forward that isn't environmentally responsible, so having appropriate conditions in place is something we would expect of any pipeline."

TransCanada Corporation's proposed Energy East pipeline from Western Canada to Saint John, N.B., also "makes a lot of sense," as it would enable refineries in Quebec and Saint John to replace imported oil used with Canadian crude, McMillan suggested.

For its part, the Saskatchewan government will try to maintain its position as the preferred place for industry to invest capital, he added.

"We think we have a royalty system that is competitive but the bigger piece is the relationship and the structure in the way in which we deal with the regulations with industry," said the minister. "Industry has said it's very important that when they have a problem they can pick up the phone and call someone and that isn't the case in every province.

"The level of service we provide is part of our competitive advantage."


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