Reaching for a million (or 600,000?), Part 3: Low Productivity and Reactivation Oil Well Program announced

 

REGINA – All oilwells decline in production to the point where, eventually, they produce next to nothing and their future is an eventual abandonment and reclamation. If they’re not a liability on the books, they soon will be.

But what if you could breathe new life into an old, depleted well? What if you could make use of existing infrastructure like pumping equipment, tubing, flowlines and batteries, as well as the vertical wellbore, itself?

That’s exactly what the new incentive offered by the Province of Saskatchewan tries to do, by incentivizing the reinvigoration of old wells by drilling new, additional horizontal legs.

First announced in this spring’s provincial budget, it was reannounced on May 13 at Innovation Place in Regina by Minister of Energy and Resources Colleen Young. And with her was much of the leadership team behind Saturn Oil & Gas, which was the company that suggested the program.

The Low Productivity and Reactivation Oil Well Program (LPRP) program is similar in several ways to the increasingly popular Multi-lateral Well Program announced in the previous year’s budget. The Low Productivity and Reactivation Oil Well Program is volumetric in nature, and based on the number of legs drilled. Qualifying wells will have production of less than 10.5 barrels per day. The existing well is re-entred, and additional horizontal legs are drilled. To qualify, a leg must have at least 500 metres of new lateral wellbore. Up to two legs per well can be counted towards the program, with a reduced royalty on the first 3,000 cubic metres of oil produced per leg. Thus, if two legs are added, the royalty on the first 6,000 cubic metres, or 37,739 barrels produced once the well is back on line are subject to a royalty of 2.5 per cent. That’s the maximum benefit of the program.

That 2.5 per cent is the same as the reduced royalty for the Multi-Lateral Well Program, which is also based on the number of legs drilled, their lengths, and the volume of oil produced. And as these old wells will already have at least one, and perhaps more, horizontal legs, they, too will essentially become multi-lateral in nature.

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Minister’s explanation

Minister of Energy and Resources Colleen Young said, “Last year, the sector alone employed more than 26,000 people, while its production value reached $13.5 billion. This led to Saskatchewan oil and gas once again being a top GDP contributor for the provincial economy. So growing the oil and gas sector and increasing oil production continues to be a top priority for our government, and that’s why we are constantly reviewing current industry programs, talking to our industry partners, and developing new ones.

“And as you have heard the Premier and I say many times before, we aim to increase Saskatchewan oil production to 600,000 barrels produced per day by the end of this decade. And this is one of the key milestones set out in our 2030 growth plan. Achieving this goal will benefit everyone in the province. A stronger oil and gas sector will create more good jobs, more economic opportunity and generate increased revenue for the programs and services that we all rely on. Specifically, this means more funding for essential services like roads, schools, long-term care facilities and other health care facilities in our province. A stronger oil and gas sector helps us deliver for Saskatchewan and for Saskatchewan people.

“The many royalty and incentive programs offered by our government is one of the many ways we’re working to achieve this goal.”

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She officially launched the program, saying, “The goal of this program is to encourage our industry partners like Saturn Oil & Gas and others to make investments in low producing or inactive wells. Investing in already existing, low producing or inactive wells will lead to new incremental oil production. This new production means additional revenue for the province of Saskatchewan.

“The LPRP was announced in this year’s budget, along with our decision to extend our already successful oil infrastructure investment program, which targets new pipeline development.

“These two programs do many things. Number one, they target existing infrastructure and oil wells in the province that are already set up for production. They offer a reduced royalty rate to make it more attractive for companies to make an investment into their existing infrastructure. And thirdly, they help spur investment in innovative drilling techniques, which will allow companies to extract more oil and leave less of it underground and dormant.

“New, innovative techniques such as these will ultimately lead to more efficient and economical oil production, which is an exciting feature of this work,” Young said.

 

 

“We estimate that there are nearly 25,000 of these types of wells in Saskatchewan that could qualify for this new program. We project the low productivity and reactivation oil well program will add up to an additional 30,000 barrels per day of oil production and add about $21 million in additional revenue for Saskatchewan people. We expect that the LPRP will encourage more contracts and work for service and supply companies in the province, as well. As these low producing wells are reopened, producers will be using service and supply companies to do the initial startup work. That will mean more work for the many people employed by the oil and gas sector.”

The Multi-Lateral Well Program is hoped to increase oil production by 50,000 barrels per day. Combining the two programs’ goal, if successful, could lead the province roughly halfway to reaching that 600,000 bpd goal from its current production of around 450,000 bpd.

(Note: In his election interview with Pipeline Online last October, Premier Scott Moe spoke of trying to one day attaining one million barrels per day of oil production. Thus, Pipeline Online is holding him to that, and working on this ongoing series of stories called “Reaching for a Million”)

 

Saturn CEO

Saturn Oil & Gas has grown phenomenally in recent years from a few hundred thousand barrels per day to over 40,000 barrels per day, most of which is in Saskatchewan. It was Saturn who came forward with the idea for the program. A large part of that has been what they call the “Saturn Blueprint,” which involves acquiring mid-life assets and developing them. You can read more about that here.

Saturn CEO John Jeffrey said, “What we were trying to do here was we want to create a win-win for the oil industry and the province. So by taking otherwise liabilities, which were interactive wells, by putting money into it, and by turning them back on, creates additional revenue for the province, in terms of royalties, it creates additional opportunities for us, the oil companies.

“But I think the big win here is, generally, if you’re drilling a new well, those are going to be drill rigs and crews brought out of Alberta, when you start looking at the service side, which is, this is those are more local crews. So that’s more jobs for the province, more royalties, and that, in our opinion, is the best win-win scenario we can get. And then again, small oil companies, starting today, you know, prudent ones are going to go to the orphan well fund, see what’s there, take wells out, and that takes a burden off industry and taxpayers to have to clean those up. So we don’t see any downside. There’s no cost to the province, and it’s all incremental to the energy industry and the province.”

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He noted that a well drilled recently under this program saw it go from zero production to over 100 barrels per day, which was twice what they were hoping for.

“That’s very exciting for us,” Jeffrey said. “And again, the big cost savings here is, if you’re looking at recompleting the existing well, all of your vertical pipe and everything that’s in the ground, your surface lease is tied in – that’s already built. So you save all those funds from a drilling well next to it. So that’s the savings we get. And again, once that well is otherwise depleted or low producing, the province is no longer receiving royalties from that either. So as it stands currently, before this program, we’d be better off to drill another well, poke another hole in the ground. Now we’re incentivized to go back and recomplete that well. So again, it’s better for landowners, better for the province, and better for us.”

Essentially this is breathing new life into wells that are just about dead.

Asked where they would apply this program, Jeffrey said, “I think the bulk of our inventory would be southeast Saskatchewan: Weyburn, Carlyle, Estevan, that area. But I think we’d also have interest in exploring the Southwest as well.

 

Details and success

Justin Kaufman, Saturn’s chief development officer, said, “With regards to the incentive itself, Saturn completed a pilot project in 2022 to reenter low producing inactive wells. These wells, in general, were under performers drilled by previous companies where Saturn had acquired the assets. The underperformance was largely due to the horizontal section being drilled below the oil/water contact, and this led to the wells preferentially producing water. Our geologists picked four locations to re-drill and successfully increase the production on those wells by 150 barrels a day.

“Unfortunately, even with the production uplift, those wells didn’t compete with the economics of new drills because there was no royalty holiday left. And in fact, at the current oil prices would not be economic today.

“Upon discussions with the government about our issues and with the help of EPAC (Explorers and Producers Association of Canada), the new Low Productivity and Reactivation Oil Well Program was created by the province. With the new royalty incentive, those inactive or low producing wells will now compete for economics and will turn liabilities into assets for the province for future royalty generation.

“In fact, because of the new incentive, Saturn just executed on its first redrill since 2022. We took a well that had zero production from 2012 to 2024 to producing over 100 barrels a day in its first 30 days of production. This was our 9 of 21 well in the Hastings area in southeast Saskatchewan.

“Saturn has greater than 1,400 conventional, horizontal wells that this royalty incentive could apply to which has the potential to materially increase production in the province towards the 600,000 barrel per day goal. We are proud and honored to produce resources within Saskatchewan, and will continue to make the province our primary development focus,” Kaufmann said.

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Providing further details for Pipeline Online, Kaufmann said, “This will be more for your conventional wells in southeast Saskatchewan, is how we see it. So some more type of your Mississippian wells, where you do have the permeability in place that you just need to go in to reenter those wells, drill an additional leg. It doesn’t require a lot of additional completion. So it keeps the capital low, and it keeps the return higher, so that it’s able to compete for economics, and even economics with today’s oil prices that we’re seeing in the low $60s.”

He pointed out the 9 of 21 Hastings well hadn’t produced a barrel since 2012. “In that specific area, we see 25 additional wells for that re-entry. So it’s great to work with the province to increase the incentive on a per-well basis. And like we mentioned earlier, it should help.”

“It’ll be the same rig that’s working in the area. It’s more capital efficient as we’re drilling primary drills next door to just move that rig down to re-drills.”

He said they would focus on adding single legs, but there may be cases where multiple benches could result in adding multiple legs. The Frobisher formation be the most likely formation targeted. “There’s a lot of oil in place there, and in the Mississippian in general,” he said. “Frobisher still has a lot to give. It’s still ranked one of the best performing reservoirs in North America for returns. It makes up about 25 per cent of our inventory. We have close to 600 locations. So yeah, we’re definitely excited to continue developing inside that formation that does provide a good return.”

Beneficial to some, but not all, oilfield service segments

While there are substantial benefits to the oil producer by re-using old, existing infrastructure, and to the province by adding production and royalties, there are those who will not benefit.

Drilling rigs, rig moving, shack rentals, directional drilling, measure while drilling, land spreaders, mud suppliers and service rigs should see more work from these wells, for example. But entire segments of the industry that would otherwise normally take part in when a new well is drilled will be essentially excluded. That includes lease building, pipelining, battery construction, casing (installation and trucking) and more. Those segments are already hurting as the adoption of more multilaterals is resulting in a dramatic reduction in their activity levels.

That’s because in southeast Saskatchewan the last 15 years have seen much of the industry, including those segments, base their activity levels on a typical drilling rig drilling one well every six to seven days. That meant each of those industry segments, and others like rig moving, would typically be deployed four times per month per active drilling rig.

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But in the biggest change in the industry in over roughly 15 years, the multilaterals being drilled in southeast Saskatchewan are running from around 23 days to 42 days. Thirty days is more common. Taking that 30 days as the new typical for multi-laterals means instead of moving a rig four times a month, it’s being moved once. Only one lease is built instead of four. Casing is trucked out and run in only once, instead of four times. A service rig only completes one well instead of four. And only one pumping unit, be it a pumpjack, progressing cavity pump or electric submersible pump or some other method, is sold and installed.

For many of these segments of the industry, for every rig that’s drilling a big multi-lateral as opposed to a typical week-long well, it can be up to a 75 per cent reduction in activity. That’s a hit as brutal or even moreso than the oil downturn of late 2014/early 2015.

And when you combine that with oil prices that have crossed the threshold where oil producers are cutting back or delaying their drilling programs, pain is being felt. Pipeline Online spent half an hour on the phone on May 14 with one company owner who would prefer not being named who is definitely feeling the pinch with activity levels lower than he’s seen in many years. This new program will benefit some segments, but not his, he noted. And in recent weeks, Pipeline Online has heard from several oilfield service companies that they are being asked by oil companies to reduce their rates due to the lower price of oil.

The new Low Productivity and Reactivation Oil Well Program promises to breathe new life into wells that were on their last legs, and with that additional activity that otherwise likely would not take place. And that should lead to many more years of service work for those wells. But for some of those segments of the industry who will not benefit, it’s looking like a tough spring and summer.

 

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