Brian Zinchuk: A big deal in the Bakken for Saturn reminds us that all of this has happened before, and will happen again

Back in 2008, when I was being recruited to become editor of Pipeline News, the Bakken oil play in southeast Saskatchewan was all the rage. That year, the largest Crown land sales in Saskatchewan history totalled over a billion dollars, and that doesn’t even count the freehold mineral rights.

Someone told me that for every dollar in land sales, expect seven dollars in development in the coming years. I would say that absolutely occurred. Indeed, It’s likely been much, much more than a 7:1 ratio.

But someone else also told me back then that this play would take about 15 years to be fully exploited. I don’t know who told me that, but 15 years later, they were right on the money.

On Jan. 20, Saturn Oil & Gas announced it had picked up Ridgeback Resources for $525 million. This included their Bakken and Mississippian plays in southeast Saskatchewan, as well as three different areas in Alberta.

What struck me was this map, which I found on Ridgebacks’ web page. It struck me for several reasons.

First of all, I hadn’t realized how extensive Ridgeback’s holders were. They essentially formed a halo, about a township wide, surrounding Crescent Point’s Viewfield Bakken core area. It’s an impressive amount of land – many townships worth.

But then I started looking much more closely at it, and I would encourage you to do the same. When you blow it up on a 27 inch monitor, you see several themes.

Each dot and line represents a horizontal well. Look at the grey wells in the centre, which the map legend calls, “regional Bakken.” In reality, most of those wells are Crescent Point. The black wells are horizontal Ridgeback wells.

During the Bakken boom, and well into the oil downturn, Crescent Point led drilling in Saskatchewan. For several years, they led Canada as well. I remember doing regular rig reports where Crescent Point would have up to 26 active drilling rigs working in Canada, and all but one would be in Saskatchewan (22 overall was a more common number). By the time they were running over 20 rigs, the largest numbers were in the Torquay play, around Torquay, and the Viewfield Bakken, around Stoughton.

But these days, Crescent Point’s rig count in Saskatchewan on a good day is around a half dozen, including usually two in southwest Saskatchewan. On Jan. 23, it was just three in all of the province. The days of Crescent Point lining up three or four rigs in a row and spudding them at the same time are long gone.

And this map explains why.

There’s not much left for them to drill. Crescent Point’s Bakken play is almost completely drilled out in its central core. If this map was kid colouring with a crayon, you’d compliment them on filling in everything inside the lines.

Then you look at the outer portion – the yellow halo made of Ridgeback land. It, too, is mostly drilled out close to the Viewfield core. Things thin out towards the periphery, so there’s still land to be drilled, but you can see the choice locations have clearly been taken advantage of already, at least in terms of unconventional production.

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This would explain something I’ve been saying for years – Crescent Point is losing interest in southeast Saskatchewan. It sold off most of its land outside the Viewfield and Torquay plays, and has been focusing on Alberta.

That’s significant, because Crescent Point was briefly Saskatchewan’s largest oil producer. That was around 2014 or so, when Bakken oil production in Saskatchewan peaked around 70,000 bpd.

As for Ridgeback, I’m not at all surprised to see them selling. The southeast Saskatchewan assets in question were largely PetroBank, which begat PetroBakken, which became Lightstream, which went belly up in 2016 with $1.2 billion in debt. Its two largest creditors formed a new company, Ridgeback Resources, out of the bankruptcy.

Enter Saturn, stage right

Now enter the third player – Saturn Oil & Gas Inc. They grew tremendously in the last few years. From punching holes near Kindersley, they bought a large chunk of land from Crescent Point when it put up several large parcels for sale. And now purchasing Ridgeback, they are growing massively again. Two years ago, Saturn was producing around 220 boepd. This deal puts them around 30,000 boepd.

The question becomes will they be successful in milking the most out of an area that is now definitely in decline? And will the profits outweigh the abandonment liability from those hundreds of wells in the later stages of their respective lives?

You might think I’m writing something of an obituary here for southeast Saskatchewan oil production, but I’m not.

There was a recurrent theme in the 2003-2009 TV series Battlestar Galactica, about history repeating itself. “All this has happened before, and will happen again,” is how Battlestar put it.

Those with a memory longer than mine will point out that much of the land I described above was once owned and operated by Dome Petroleum in the 1980s. Dome went bust, and others came in.

Around 2007, the combination of horizontal drilling and multistage fracking is what led to the explosive growth seen in this map, first in the Bakken, and then the Torquay. The Saskatchewan government around that time used to publish how many horizontal wells were drilled as opposed to vertical, because the growth of horizontal wells was a big deal. Now, they don’t even bother, because almost every well is horizontal. Vertical wells are the rare exception.

That technology was game-changing, and fueled the “Bakken Boom.”

What’s next?

The question I am always seeking to answer is “What’s next?” Will it be polymer floods, for instance? For a while, it looked like adoption of carbon capture on SaskPower’s two Estevan area power stations could lead to widespread adoption of carbon dioxide enhanced oil recovery (CO2-EOR) in the region, beyond the Weyburn and Midale Units. I know that Crescent Point had done some CO2 testing, but have not heard any results. If they had approached SaskPower and said “We’ll buy CO2 from you for the next 25 years if you just put additional carbon capture on Shand and Boundary Dam Power Stations,” Estevan would be in a very different position.

However, it’s now looking like that opportunity will soon be lost, if Justin Trudeau’s carbon tax kills of our coal-fired power industry sooner rather than later.

So what else could it be? A deeper formation? Some other tertiary recovery method?

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Or maybe, just maybe, it could be a new form of well. Cache Island Corp., led by former Crescent Point CEO Scott Saxberg, started drilling a new form of well north of Stoughton. They had six horizontal legs. But these wells weren’t fracked, saving the enormous expense of fracking. If fracking is “unconventional,” then these new wells were “conventional,” as it were. What’s old is new again, and the open hole completion technique were interesting enough that soon thereafter Crescent Point drilled two similar near by. And they showed promising results.

Is this the next big thing? I don’t know, but I have faith the next big thing will eventually happen.

After all, I distinctly remember in 2009 sitting in my SUV in my driveway, taking a call on my cellphone from a pretty excited Trent Stangl, from Crescent Point. The company had just gone halfers with TriStar Energy to purchase a sizeable portion of land and production from Talisman Energy across southeast Saskatchewan. It was a deal that was transformative for Crescent Point, in the same way the Ridgeback deal is transformative, today, for Saturn.

I dug up this brief report on it, from EvaluateEnergy.com:

As a result of these transactions, Crescent Point acquired approximately 4,000 boe/d of high quality, high netback production in southeast Saskatchewan, approximately 21.1 million boe of proved plus probable and 14.6 million boe of proved reserves, 312 net sections of undeveloped Saskatchewan land, and ownership of freehold mineral rights on 217 net sections of land. Crescent Point’s net consideration for the assets acquired and retained was $324.5 million of cash. The acquisition was financed through a $230 million bought deal financing that closed on March 24, 2009 and through the Trust’s existing bank lines.

Any of that sound familiar? Talisman had lost interest in southeast Saskatchewan, and was off to do what they considered bigger and better things. Now Crescent Point has been doing the same. And some of the land they previously sold to Saturn is actually some of the very same land in question.

So now Saturn is the next company to take a go at it. And maybe they’ll figure something else out no one else had done previously. Maybe it’ll be this new form of Bakken well. Time will tell, but it might take a bit of patience. And maybe Crescent Point, itself, might find this new technique promising enough to revisit their vast lands in southeast Saskatchewan.

After all, all of this has happened before, and will happen again.

 

Brian Zinchuk is editor and owner of Pipeline Online. He can be reached at brian.zinchuk@pipelineonline.ca

 

 

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