Brian Zinchuk is editor and owner of Pipeline Online
Minister of Energy and Resources Jim Reiter on April 30, announcing the Mult-lateral Well Program. Photo by Brian Zinchuk
Incentive program applies to all formations and oil production
REGINA – It’s a program so nice, they announced it twice. Or was that three times?
The Government of Saskatchewan held a press conference in Regina on April 30 announcing, again, the Multi-Lateral Well Program. The program was initially announced in the lead up to the provincial budget on March 20, with details provided within the budget regarding the program’s particulars. Pipeline Online covered those in great detail in this article.
April 30 saw Minister of Energy and Resources take the podium with Dave Burton, president and CEO of Lycos Energy, a Calgary-based junior oil producer which has been doing extensive work with multilateral wells in northwest Saskatchewan, and one of the companies that was consulted in developing the program. This presentation provided more detail, from the oil producer’s perspective, about what it means.
And as this is the largest change in oil royalties in Saskatchewan for the better part of two decades, with the intention of significantly kick-starting additional drilling and added oil production, the province is making sure people know about it.
The event took place at the Petroleum Technology Research Centre, with its CEO Ranjith Narayanasamy as master of ceremonies.
“Our government has been taking steps to encourage more investment to support the success of the oil and gas industry through enhanced and new incentive programs. And that’s why you’re all here today. The incentive program that we’re highlighting today creates a competitive royalty regime to encourage the use of multilateral horizontal wells, which will increase investment in our province.
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“Some of you might be wondering what a multilateral well is … but basically, what it is, is it uses either a pitchfork or a fishbone configuration to replace multiple single horizontal wells. And what that does is it minimizes surface disruption and makes oil production more economical. Multilateral drilling configurations allow a single well to access more of the oil reservoir.
“At the Ministry of Energy and Resources, our officials there are estimating that this is going to lead to between 100 to 200 additional wells to be drilled in the province each year as a direct result of this program. What that means is more rigs and more workers in the field and more jobs and economic opportunity for Saskatchewan. It ensures that Saskatchewan producers can maximize production from our existing reserves while working towards our 2030 Growth Plan goal of 600,000 barrels per day.”
While that number of wells may not seem large, the difference is these wells are significantly more involved than previous well designs, taking longer to drill, and having many times more contact with the reservoir than a typical one or two leg horizontal well.
Reiter continued, “This program reaffirms Saskatchewan its commitment to remain the most investment friendly province in Canada for oil and gas production. It’ll help to stimulate our oil and gas sector and attract investments that otherwise would go to other jurisdictions.
“I’d like to share a quote from Jon McKenzie, who is the CEO of Cenovus energy. What Jon said was this: ‘The new incentive program for multilateral drilling opens up significant new drilling investment opportunities in Saskatchewan for Cenovus. It aligns with our focus to strategically build our integrated position in the Lloydminster region. And we anticipate it will have positive impacts for provincial employment, as well as new production growth. We’re pleased to see government focus on creative ways to bring more investment to Saskatchewan.’
“So our government continues to offer a stable and predictable regulatory environment to encourage investment in the oil and gas sector. This sector is a major contributor to our economy, and the increased revenue generated from this program will ensure that we’re able to continue to invest in classrooms, care, and communities.”
Dave Burton, president and CEO of Lycos Energy. Photo by Brian Zinchuk
Lycos Energy examples
Burton presented a short video demonstrating how multilateral wells with numerous legs are different from vertical or more typical horizontal wells.
He said of Lycos, “We are primarily a multilateral heavy oil driller, have been since we started. And the whole goal of what we’re doing was to increase productivity on a single basis with less surface impact.
“To your points before, Saskatchewan has been a tremendous jurisdiction to work in. And this is another example of why we’re here. This has changed investment dollars substantially, for the calls that I’ve had for investors in the last few weeks. So we appreciate it, and are looking forward to doing more here.”
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Pulling up the video, he said, “Basically, what we’re trying to do is just access more reservoir. So typically, you drill the vertical wells straight up and down, you’d get three maybe 10 meters, max, of contact with the reservoir. We then went to the horizontal wells, which you go up to 3,000 meters of reservoir. That wasn’t enough in certain places you needed a larger drain. So we drilled the fishbone well in Baldwinton, Saskatchewan, a couple of years ago, with 15,000 meters of reservoir contact. That was a game changer. And that was one of the first fishbone wells that we’ve ever drilled. So you can see before you’d have 128 wells in a square mile. We now have one wellsite to drill 60,000 meters plus a reservoir from one wall site.”
Describing the video, he pointed out how they’ve drilled fishbone-pattern wells that have up to 40 legs coming off the main leg.
“This is all done underground. This is all open hole, and from one surface well site. So this is really the game changer that we’ve got here. The more contact you have with the rock, the more you’ll drain from one well.
“So that’s simplistically is really what we’re doing out there. It takes about two weeks to drill one of these wells. So we can do as many as four from one surface site. So again, that can be up to 80,000 meters from one 200 metre by 200 metre surface pad. So minimal disturbance going all the way through.”
He gave the example of a “sweeper fishbone,” which was done very near Lloydminster. Some of the legs split multiple times, Burton said.
Multilateral well drilled in Saskatchewan by Lycos Energy Inc. The 29 leg frond design well targets a 5m thick Sparky sand and drains almost half a section from over 16 km of open hole. Image courtesy Chinook Geosteering Services, using publicly available data
He explained that because some heavy oil wells are quite shallow, you don’t have a lot of weight on the bit. Splitting legs allows them to drill more rock from one well.
The net result is a dramatic reduction in the number of surface sites required. And he added, “We use no water drilling these wells, we’re not fracking these wells, and we’re only taking 200 metres by 200 metres of ag land to do it.”
“This initiative, first of all, it will substantially change investment in the province to something that I think is the kind of drilling that we would like to incentivize and have people be doing. Environmentally – much more friendly, surface disruption wise, much more friendly. Absolutely, the investment dollars are flowing towards Saskatchewan, (and) will continue to. It’s not only competitive, it’s actually, I believe, a better program than we’re seeing in Alberta. And I think it’s going to be driving a lot of dollars towards here. We’ve certainly seen that we are reallocating capital to Saskatchewan right now. So we appreciate this. It’s incredibly quick, how fast the government’s reacted here. And we appreciate being part of it.”
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Reinvigorating cold heavy oil production
Over a decade ago, cold heavy oil production with sand (CHOPS) largely went out of vogue in northwest Saskatchewan as thermal SAGD plays took hold, especially with Husky Energy (now Cenovus). The thing is, Husky’s larger thermal plays were a quarter billion dollars to $350 million, all-in, for each one. Such massive cash outlays are cost prohibitive to smaller players and smaller scale approaches. Asked if this multilateral program could lead to a revitalization of cold heavy oil production, Reiter said, “Yeah, absolutely.
“We’re pretty excited about this response from industry since the announcement on budget day has been incredible. So, we think this has huge potential. The idea, when we first started working on this, it’s important, technology changes, to keep your jurisdiction competitive. We think this is going to do that. And then some you heard what Dave said during his presentation, and we’re very optimistic with what this can do to get our barrels per day up towards the growth plan goal.”
To that end, Burton said of reinvigorating cold heavy oil production, “Certainly a lot of our wells are economic at lower oil prices. However, some of the reservoirs we’re going after with these multilateral wells are not the highest quality reservoirs on the planet. So, you know, outside of thermal, you need something else to stimulate production. And this is exactly what we’re doing here.
“It would be the logical extension from the horizontal well, so the horizontal wall made poor vertical plays economic and this is making poor horizontal plays economic, so it’s adding a lot provincial economy.”
Burton said the $1.5 to $2 million per well is substantially lower than the expenditure for a thermal project.
Also, compared to CHOPS production which could see sand cuts in excess of 20 per cent volume, this form of well produces next to no sand. (Watch for a detailed discussion with Burton to be posted on Pipeline Online in the coming days.)
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Responsive, and quick turnaround
One oil producer from southeast Saskatchewan who had been part of the consultation with the ministry last fall told Pipeline Online on April 30 he was happy with the ministry’s addressing of concerns raised and including them in the program. And Burton also expressed pleasure that the program took a short time to put together.
Reiter said, “This kind of kicked off, although our folks were kind of keeping an eye on it as technology improved, … a little over a year ago, started doing some work on it. Our ministry folks did some exceptional work, did a lot of consultation with a lot of folks in industry, and, I think, to a large degree in captured much of what the recommendations were, to your point about the gentleman you talked to. It’s come together very well.”
Reiter explained, “It’s a volumetric incentive. Essentially, what it is, is on the first 16,000 cubic metres of oil that’s done under this process, they get a reduced royalty rate. And then after they reach that level, then it goes back to normal royalty rates. So it’s sort of recognizes the increased investment, increased costs to industry recognizes that in the early stages, province still gets revenue from it. And once it reaches that level, then it’s back to normal revenue sources for the government. So it’s a win-win. It helps industry, in the early stages, develop those wells, and it increases revenue for provincial coffers that we use for health care and education and highways.”
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