Viking A ‘Pretty Dynamic Formation,’ Remains A Growth Driver For Saturn
Editor’s note: This is the first of a two-part look at Saskatchewan’s Viking play. Today, we focus on Saturn Oil & Gas Inc.’s operations in the play. Tomorrow we spotlight Baytex Energy Corp.
With many members of its management team having considerable experience and knowledge of the play, upon its inception in 2017 Saturn Oil & Gas Inc. targeted the Viking in west-central Saskatchewan to kick-start its operations and serve as a growth engine for the newly-minted junior producer.
And almost four years later, and despite the company’s recent acquisition of assets in the Oxbow area of southeast Saskatchewan from Crescent Point Energy Corp., the Viking remains a pillar of Saturn’s foundation.
“I would say for us the Viking is a pretty dynamic formation. What we really like about it is how homogeneous it is. When you can identify those structural and stratigraphic trends, it turns the Viking into more of a resource play. Meaning you can fully develop not just sections of land, but townships of land,” said Justin Kaufmann, senior vice-president exploration.
“That is probably one of the things that really drew our eye at the beginning — you can accumulate a lot of reserves in a short period of time with a strong geologic model, acquiring undervalued Crown land and by completing strategic and successful drill programs. So within three years we went from zero dollars of reserves to over $100 million of reserves in the Viking. That would be one of the main focal advantages the Viking has to offer to the producer and shareholders.”
Before starting Saturn, some of the key members of the executive team — including Kaufmann and CEO John Jeffrey — owned a Saskatchewan-based geological and engineering consulting company called Axiom Group. Axiom developed wells across the Western Canadian Sedimentary Basin (WCSB) including hundreds in the Viking specifically, working in the play with such producers as Whitecap Resources Inc. and Novus Energy Inc.
And that experience and knowledge of the Viking set the stage for Saturn to turn its initial focus to the play.
“We had a background in the Viking drilling those wells. That being said, when we started with Saturn and took over as the executive team, we saw an opportunity there. We thought that would be a good place to start based on our experience,” Kaufmann said.
“We have had 800 total wells in our technical team’s combined experience drilled in the Viking. Due to that experience, we began mapping it and when we started running models on the economics and quick rate of returns, it was determined very quickly that we should focus on this formation.”
Kaufmann said the management group also saw the benefit of the Viking being a bit of a “unique formation” in that there aren’t a lot of upfront finding and development costs.
“In other plays, like in southeast Saskatchewan, there’s a lot of geophysical work that needs to be done upfront to identify those stratigraphic edges, where in the Viking, based on a lot of the previous wells that have been drilled, you can make a pretty well-defined structural map and then you just need to go down to Regina, put in the work, look at those drill cores and make sure the oil was in place with your structural trends,” Kaufmann said.
“So that was the start: Define our geological model and then we started participating in Crown land sales. About 95 per cent of our land was bought off Crown land sales; land that was available and overlooked by some of the major Viking producers. And then we started developing that land and continuing our growth organically, which led to a series of successful drilling campaigns.”
Kaufmann said Saturn’s Viking program is focused in three areas: Milton, Prairiedale and its newest core area of Loverna.
Before the pandemic took hold and commodity prices crashed, in Q4 2019 the company drilled two three-quarter mile horizontals at Loverna that achieved strong results.
“Our very last well is on pace to produce 67,000 barrels, which is a tier one Viking well. We further went back into the area over the last couple of months and drilled another three wells … that helped further define that pool and prove up the economics,” Kaufmann said, adding that on average the three new Loverna wells have the potential to match the previous wells.
“We’ve collected about 12 sections of land there. It is a very homogeneous play in the Loverna area and the stratigraphic facies where the hydrocarbons accumulate is fairly well defined.”
This year’s capital expenditure budget in the Viking is a modest $10 million and is expected to rise to $10–$20 million in 2022. Aside from the Viking wells already drilled in the play, Kaufmann said Saturn plans to punch additional wells in the play in the coming months.
“We have a mandate from our capital providers to expand our drilling program right now. We did acquire 242 booked locations in our Crescent Point acquisition in the southeast in the Oxbow area. So we’re going to be shifting gears and picking up a rig down there to run full-time,” he said.
“That being said, we also want to continue development of our Viking. We want to be known as a dual business unit company so we are currently planning up to an additional six wells in the Viking for Q4 this year and potentially six to eight in Q1 2022.”
Drilling and completion costs, well economics strong
At 700–750 metres in depth, Kaufmann noted that the Viking is one of the shallower unconventional reservoirs in North America. And that’s another benefit of the play as well costs are relatively cheap when compared to many other areas of the WCSB.
“We’re currently drilling full-mile extended reach wells that are completed with 44 stages. The average drill, complete and tie-in cost is close to $1 million, but that varies anywhere from $900,000 to $1.1 million,” he said.
“Drilling from multi-well pads makes a huge difference because there’s $40,000 to $50,000 in trucking costs saved by avoiding moving from site to site and also the costs of moving your completion team around, etc. and the length of the horizontal obviously also makes a significant difference.”
Given the continued strength in oil prices, Kaufmann said the economics of the company’s Viking wells are “extremely strong.”
“With oil prices right now, based on today’s futures we’re sub-12 month payouts. Saturn does have approximately 80 per cent of our production hedged right now against the futures. So we do believe in hedging your bets and locking in the economics” he said.
“With the newest three wells now completed and online and with the current strong oil prices, we’ll probably continue to look for hedge points to ensure a strong return to shareholders.”
Kaufmann said the company’s decision to scoop-up most of its Viking lands via Crown land sales has also helped to boost returns as it benefits from Saskatchewan’s industry-friendly royalty scheme.
“Since we did buy almost all of our land out of Crown land sales, our average royalty is about $1 a barrel. We have the Crown royalty holiday on every single one of our horizontal Viking wells. We only pay 2.6 per cent on the first 37,000 barrels produced and then once it’s less than about six barrels a day that royalty goes away. So the average initial royalty rate on one of our Viking wells is 1.6 per cent,” he said.
“Also contributing to the high netbacks is keeping costs low. We’re able to keep some of the lowest operational costs of any of our peer producers. We’re targeting lifting and transportation costs at $10 per barrel, so that further drives strong economics,” Kaufmann added.
Like D&C costs, Kaufmann noted that production rates and estimated ultimate recovery of wells (EUR) can be “highly variable” across Saturn’s Viking asset base. In general, Kaufmann said the company’s Viking wells are coming on at between 60 and 100 bbls/d and decline about 40 per cent in the first year and then the decline rate slows thereafter. Corporately, the reserves are booked at an average of approximately 50,000 bbls across 128 booked locations.
“We have a few wells in Plato, Sask., where the wells only come on between 60 and 70 barrels a day, but they are our lowest declining producers. So despite more moderate initial production rates, the EURs are still expected around 50,000 barrels,” he said.
“In our new area at Loverna where we have now drilled five wells, we are encouraged that as a group they are now on pace to produce above our current type curve expectations of a reserved booked 50,000 barrels. The average IP30 of the Loverna wells were approximately 80 barrels a day, which are top tier Viking wells,” Kaufmann added.
“Our geological model has proven successful in the Viking, with initial production results that we’re seeing on our newer drills. That’s ultimately driving the high returns. We look forward to continuing our drilling programs in the Viking and further refining our corporate approach to developing this incredibly dynamic formation.”
- Saturn Oil & Gas Inc.