Saskatchewan’s oil drilling has stopped completely, and oil production is down 28.2 per cent
In recent years, by mid-July there would be 30 to 50 drilling rigs working throughout Saskatchewan. Nearly all would be drilling for oil, but one or two would be drilling for potash or helium.
The active drilling rig count is one of the key leading indicators of the oil industry. As of July 16, there was just one rig working in Saskatchewan, and it was drilling for helium, according to Rig Locator (riglocator.ca). According the Rig Locator, no drilling rigs have been drilling for oil in Saskatchewan since the end of the winter drilling season in mid-March.
Additionally, Saskatchewan’s oil production went from 502,700 barrels per day (bpd) in March 2020, to 361,000 bpd in May, a decline of 28.2 per cent. When oil prices cratered in April, many oil producers shut down substantial portions of their production and all ceased drilling.
The tremendous destruction in demand for oil around the world came with the onset of the COVID-19 crisis in mid-March. This coincided with Saudi Arabia and Russia flooding the market with additional oil. In mid-April, West Texas Intermediate (WTI) oil briefly went into negative pricing territory for one day.
Since then WTI has climbed back to US$40 per barrel, but drilling has not resumed and rigs are parked throughout the province.
Asked about this on July 16, Minister of Energy and Resources Bronwyn Eyre said, “Remember, before COVID, we had a strong … drilling season right when we talked about it in the early days of 2020.
“It seems like an eternity ago, but 756 new wells were drilled, which was a strong Q1 for 2020 and for that winter drilling season.”
She pointed out that Saskatchewan had a higher “drilled but uncompleted” (DUC) well count than other provinces at that same time. This could lead to an advantage in the future, she said, as those wells could be brought online more quickly when market conditions improve. The drilling cost is usually around 60 per cent, Eyre said. As new wells, they will have higher initial production rates and better cash flow than existing wells.
“Most new wells qualify for one of our volumetric drilling incentives of a 2.5 per cent maximum Crown royalty rate,” Eyre said.
“I spoke to many, many companies and operators over the course of those months — March, April, May and June — and I continue to. Our royalty regime is something that, even through these very difficult age operators regard, and companies regard, as a beacon of stability,” she said.
Eyre said capital investment in exploration is expected to drop 50 per cent this year, compared to 2019, when it was $3.98 billion. This year she expects it to be closer to $2 billion.
“It’s going to take some time, of course, to get back to those pre-COVID drilling numbers. Obviously, we hope the numbers are going to increase even now, going into the latter part of 2020 into the late summer and fall.
“That sharp decline, of course, has had a major impact on the services sector, which is why we’ve been so focused on getting those funds out for the Accelerated Site Closure Program.”
The province has announced that it has approved its first parcel of work packages to be completed through the Accelerated Site Closure Program (ASCP).
Source: Brian Zinchuk Local Journalism Initiative Reporter | Pipeline News