Better economics and export capacity reshape WCSB oil investment case

Improving economics and additional egress are starting to reshape the WCSB oil investment outlook after years of capital shifting to U.S. shale plays, according to Geologic analysts.

Darin McBeath, senior geologist, geoXPLORER, said thermal oilsands represent the largest investment opportunity in the WCSB, supported by high reserve replacement, long reserve life and reliable low-decline production.

“Globally, the oilsands are an outlier. It’s one of the few places, if not the only place, where the reserve replacement ratio is consistently over 100 per cent,” said McBeath.

“Worldwide, that ratio is around 25 per cent, so companies will be looking here for that high reserve replacement ratio, long reserve life index, and years of reliable, low decline production.”

Reserve depth is central to the WCSB’s appeal at a time when global producers are looking for longer-life oil opportunities.

Thermal oilsands anchor WCSB oil investment opportunity

McBeath said there are currently 80 projects from 21 different companies, and 17 of those companies have drilled wells in the past five years.

Production has been expanding steadily year over year at four per cent.

“Last year production grew at 4.5 per cent, which is an incremental 70,000 bbls/d, and I believe that number is going to increase.”

Collectively, there is approximately $30 billion in planned thermal spending over the next five to six years, which is expected to add around 600,000 bbls/d of production.

To accommodate that growth, Enbridge and Trans Mountain have announced plans to expand export capacity by up to 750,000 bbls/d.

There is a mix of brownfield and greenfield expansion planned, he said.

Most brownfield expansions tie into the massive SAGD projects built by large operators in the early 2000s.

The opportunity is also evolving, with operators moving beyond the large, capital-intensive projects that defined earlier oilsands development.

“Now we’re in thermal 2.0, where companies are getting a better handle on their cost structures,” said McBeath. “Improvements in well placement and production practices are providing incremental barrels more efficiently.  With small-scale thermal projects, operators are not burdened by the massive initial capital investment they previously required to produce hundreds of thousands of barrels. Instead, they are developing properties that produce thousands of barrels per day.”

Smaller thermal projects lower the capital barrier for operators

The trend is shifting toward small-scale greenfield development, creating opportunities for less capital-intensive investment.

“We’re seeing smaller capacity projects developed, producing from thinner zones. And this small-scale thermal has the potential to really change who can enter this realm.”

That shift could also broaden where thermal development is economic. Operators are expanding the oilsands footprint to the west, he said, pointing to International Petroleum Corp.’s Blackrod project.

“That’s the most westward project in thermal, and I think we’re starting to see a land sale trend developing west of existing SAGD operations,” said McBeath. “That’s where we can envision some of these small-scale thermal projects heading.”

Open hole multilaterals revive conventional heavy oil sector

Open hole multilateral (OHML) technology has revitalized investment in the conventional heavy oil sector, said Bruce Hancock, Geologic’s Director of Geoscience.

“There’s quite a bit of interest in the multilateral space, because everything that you can learn in Canada, you can take to the U.S.  There’s not as much multilateral activity going on into the U.S. right now.”

OHML technology was pioneered in the Clearwater play, but it is spreading across the basin into other bypassed or underdeveloped oil pools, he said.

That matters because OHMLs are not just opening new acreage; they are also changing the economics of known pools.

“It’s really hard to find new oil plays, but why not focus on oil plays that already exist?”

Hancock recently completed a review of all the oil pools in Alberta with over five million bbls of oil produced to date, for Geologic’s quarterly newsletter, geoXPLORER, asking what potential exists for going in and drilling multilaterals into those pools.

“I was amazed how many opportunities there are on existing old pools. Big ones, I think, you have the Devonian and the Cretaceous pools.”

Conventional plays often have existing production and cash flows, lessening risk while operators learn to apply multilateral technologies. Existing well bores can also lower costs through reentries.

Clearwater waterfloods add stability to heavy oil returns

In the Clearwater, waterfloods and polymer floods are helping shift the play from a pure growth story toward a more stable cash-flow opportunity.

“Investment opportunities remain in the Clearwater play,” said McBeath.

The biggest trend in the play is waterfloods with polymer floods also helping provide stable cash flows for investors.

“Currently, it’s about a third of all wells drilled as injectors. Year over year, we’re getting better and better results, and this is translating to lower declines, higher EURs, and more cash flow for these companies.”

But exploration also continues, focused on extending the Clearwater boundaries to the north and to the south, he said, providing additional growth upside.

Operators are also developing more intervals or Clearwater equivalents, he added.

“A big story coming out of the Clearwater is a lot of these operators are coming across intervals that they weren’t typically paying attention to or at least weren’t confident enough that they could get economic oil rates out of.”

Headwater Exploration has had success targeting Grand Rapids at Marten Hills. Rubellite has been targeting Sparky, with a test well delivering initial production of 286 bbls/d.

CNRL’s discovery in the Lower Wabiskaw set off a land rush at Brintnell, with 294 sections acquired for $273 million.

“What the Clearwater has done is sort of allowed us to expand further into the Mannville, giving operators a little bit more confidence to test things.”

Upside remains in Mannville Stack

Multilateral drilling is expanding in the Mannville Stack heavy oil play on the Alberta and Saskatchewan border as well, said Alex M.D. Renaud, Geologic’s senior engineering advisor for reservoir and production.

Operators began leveraging OHMLs in the Sparky and Waseca members but are now targeting up to eight different zones.

Both the Lloydminster and Cummings members are seeing sustained OHML activity, with drilling picking up in the General Petroleum and Rex members.

Waterfloods are also adding to the attraction, with the Sparky member an early target, said Renaud.

“Water injection started in this legacy oil play way back in the 1960s, but really where things turned a corner is the advent of multilateral well drilling which really started in earnest around 2021.”

Those changes are beginning to show up in production trends.

“Oil production is on the up, water injection’s on the up, GORs are coming off, and also water cut is on the downward trend. So that’s a good news story.”

Operators are also seeing strong performance in the Waseca, he said.

“Even though the Waseca produces about half as much as the Sparky member, I’d say it’s a little bit better quality production with a 15 per cent lower water cut, and the GOR is also lower than what you find in the Sparky.”

“I would say that as drilling activity picks up through here, perhaps waterflooding where it makes sense, I would expect to see some upside potential in these other members as well.”

Multilateral technology becoming more customized

OHML well designs continue to evolve as operators adapt the technology to different plays, zones and recovery strategies, said Rhonda Gravel, manager of Geologic’s Technical Advisory Group.

“If we just look at the multilateral length per well, average year over year, we can see that it’s kind of stabilized a bit over the last several years at about 12 km length per well,” Gravel said. “They’re drilling a few more legs per well in the Mannville at about 12 versus nine in the Clearwater.”

In the Clearwater, operators are drilling longer laterals suited for waterflood drainage. Increasingly they are being drilled at the same time as producer wells.

But there is still lots of experimentation going on in the Mannville, she said.

“There’s lots of fan designs, lots of times into various formations or members at the same time.”

Gravel expects Clearwater wells to continue being optimized for waterfloods and polymer floods where possible.

“We’ll see that as well in Mannville, but really that’s the story in the Clearwater.”

In Mannville, she expects operators to focus on targeting multiple zones within current land positions, while expanding into new areas and revisiting older legacy areas.

“There’s almost no limit to the number of formations where operators are dabbling with multilateral technology.”

“We’ve got new areas without infrastructure. It’s a great way to target these oil plays. And with old areas with some residual oil in there, they’re circling back.”

“Really, we’re just going to continue to see some of these take hold in the years ahead.”