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Canadian Insight |
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Online oil and gas magazine keeping investors informed ... |
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Updated on Friday, January 27, 2012 |
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The Big Oil Crunch
The ‘Big Oil Crunch’ is coming and the world is not prepared! The media, environmentalists, Hollywood actors and a handful of politicians are off on a rant about the possible oil leaks in a pipeline which hasn’t been constructed.
Most conventional sources of oil have passed their peak. Debt crisis and environment issues have seriously slowed development of unconventional sources. These reserves include the Arctic, Brazil’s recent offshore discoveries, Canadian oilsands, Gulf of Mexico, and Venezuela’s tar sands.
Unconventional reserves could add sufficient global oil output but development is slow or non existent. With exception of Russian Arctic, the far north reserves will not see the drill bit for many years. Development is a must to maintain present supplies and prevent a serious oil shortage. Analysts predict an oil shortage may occur as soon as 2015 and not any later than 2025.
Most oil companies have lost much market capitalization and in turn have lost most of their borrowing leverage. For the companies with high debt levels, banks have placed restrictions on their borrowing. Some unfortunates have been forced into bankruptcy while others have been pressured to liquidate their assets.
New fields require pipeline and other infrastructure which may take 5 to 10 years before oil flows. Oil from our oilsands requires even more time before production comes on stream. Consider this, global demand will increase by 30% in the next 18 years. Analysts predict global consumption will rise by 30 million barrels per day from the present 87 million barrels before 2030.
At present, Russia, Saudi Arabia and Kuwait have cushioned some increased demand. Oil fields in the North Sea, Alaska’s North Slope and Mexico’s Cantarell are in the later stages of production and are showing a very short life expectancy .
Major oil discoveries were developed before 1950 and some as late as 1980. There are 70,000 known oil fields in production around the world. These are all aged oil fields. Out of this total, only 100 oilfields produce half of the total global oil supplies and 500 of these fields produce an additional 30%.
The super giant, Ghwar oil field in Saudi Arabia was first discovered in 1948, and it has been in production for over 60.years. Saudis have been elusive as to its available reserves. The Saudis are reported to be enhancing production using water, carbon dioxide and nitrogen injection.
It is doubtful that Saudis can maintain the Ghwar field economically productive for the next thirty years. Some experts see the Saudi fields drying out much sooner. It could become another Cantarell surprise.
The North Slope of Alaska was discovered in 1968 and reached its maximum output in 1988. Production has been on a steep downturn since 2005 and the field now produces 450,000 to 500,000 barrels per day. It is estimated that North Slope production will trickle to a stop in the next 10 to 15 years.
Commercial quantities of crude oil in the North Sea were first discovered in 1963. Norway and the United Kingdom are two of the main oil producers. Both countries have experienced a steep decline in their output. Norway reports a drop of 42% in oil production during the past ten years. U.K.’s Buzzard Field first discovered in 2001 is already sputtering with problems.
United Kingdom received a nasty surprise this year. U.K. oil production plummeted this year by 45%. That country’s production levels have now slipped to mid-1970’s levels.
The Brits are no longer a net oil exporter and now rely on more oil imports. Its production has now slipped below one million, and it is now averaging at 998,000 per day.
The sudden drop in North Sea production was perceived not to happen so suddenly. U.S. Energy Information Administration forecasted earlier this year that U.K. production would fall to 1.2 million barrels by the end of 2012 but ...it happened much sooner and more sharply than predicted.
Mexico’s Cantarell Field, first discovered in 1976, and once considered as the largest oil discovery in western hemisphere, has been on a very steep decline for the past decade. U.S. Energy Information Administration forecasts that Mexico will become a net importer by 2020 despite several other fields that are in their prime of production.
Conventional crude oil production in Alaska, California, Texas and throughout continental U.S. reached peak production levels over forty years ago and are on a sharp decline.
Exploration and development has been brisk in North Dakota’s Bakken but this is an unconventional oil field and is costly to develop. Production from the area bordering Canada is slightly over 450,000 barrels per day exiting out of 2011.
The environmentalists and Hollywood actors have been misguided on several fronts concerning the oilsands, hydraulic fracturing and construction of safe pipelines. They feel that setting up wind turbines are a plausible solution to prevent a future energy crisis.
It is unfortunate that this opposing minority has the media in its pocket and both do not have an understanding how important this natural resource is to human kind.
Crude oil not only supplies fuel for automobiles, transport trucks, aircraft, ships, and railways but helps provide over 3000 manufactured items. It is also the raw source for agricultural fertilizers, synthetic fabrics, plastics, chemicals and a wide variety of lifesaving medications.
Let’s not confuse this possible crude oil shortage with exhausted global oil reserves. The oil is there and new fields need to be developed in time to avoid an oil crunch.
By the editor of Canadian Insight J. Klemchuk
Did you know?
Geophysicist King Hubbert published in 1956 a peak oil theory. Hubert concluded in his observations that oil production takes the shape of a bell curve. It starts at zero and then rises to a peak. He observed in the U.S. that an oil field’s highest productivity occurs after 32 to 35 years. Once peak production has been reached, from there on it is on a steady decline. At this point oil prices begin to escalate until oil resources reach total depletion or cost become prohibitive.
Lower Shaunavon – Saskatchewan’s stealth oil play
Higher oil prices, smaller land base choice and overheated land sales in Alberta are driving back oil companies seeking highly prospective oil plays into Saskatchewan. Last three provincial land sales indicate that southern Saskatchewan and in particular lower Shaunavon is the prime choice.
The Shaunavon formation is composed of two members with different properties. Both members were formed in the Bathonian age and are situated in Western Canadian Sedimentary Basin. The upper unit is composed of sandstone, limestone or dolomite. The lower member is made up of microcrystalline limestone situated below sedimentary bedrock of oolite (egg stones).
The Shaunavon formation presently consists of 131 discovered oil pools and has a current assessment of 2 billion barrels of discovered oil in place. Canada’s National Energy Board estimates that there are an another 896 undiscovered oil pools and an additional 3.3 billion barrels of crude oil in place.
The lower Shaunavon member has an oil bearing zone at 4,388 feet or 1350 meters. The pay zone is from 13 feet (4 meters) to 52 feet (16 meters). Oil is rated as medium crude with gravity range of 18° to 22° API. Prior to introduction of horizontal drilling and multi-stage fracturing, this play was not an economical reservoir.
First discovered in 1953, lower Shaunavon formation now looks very promising with the event of advanced technology. A decade ago, a lower Shaunavon well averaged at 10 to 15 barrels per day of medium grade crude oil from a vertical well. Production in the area has made a dramatic jump. Some oil companies report a first year average of 100 barrels per day, declining to and stabilizing at 60 barrels per day in the following year.
There are several incentives which are enticing oil companies into the region. Large land tracts of lease land are still available at competitive prices. The potential of new discoveries are very high according to NEB data.
In 2010, the Saskatchewan government extended favorable royalty and regulatory practices. New horizontal wells are exempt from royalties on the first 100,000 barrels (2.5% mineral tax applies and must be paid). Drilling permits are done promptly and turnaround time is expeditious.
Alberta’s oil plays are quickly becoming congested with an abundance of participating oil and gas companies. Alberta land prices are continuing to climb. Saskatchewan offers much potential and the lower Shaunavon oil play will be difficult for most to resist.
By J. Klemchuk
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Shouts & Toots’ from the Oil Patch
Petroleum Services Association of Canada has readjusted its forecast for oil and gas drilling in Canada. The association foresees a drop of 11% in oil and gas drilling during the remainder of 2012. PSAC basis its prognosis on tight labor supplies, and continued depressed natural gas markets.
The services association expects that there will be 13,500 oil and gas wells drilled in Canada during 2012, that is a drop of 1700 wells from its previous prediction. It states that many companies have expressed concerns with the natural gas markets and have reacted accordingly. Some companies have changed their drilling plans and are shutting down their on field production.
Natural gas prices have dropped by 40% in the past year and are at a ten year low. Huge American oversupplies are resultant of slow developing markets and heavy drilling in U.S. shale plays. Warm winter weather across North America has caused a further build up and contributed to a dismal natural gas outlook.
There were some reports of natural gas sales made which were below $2 per mcf in western Canada several weeks ago. PSAC expects natural gas prices to increase slowly to $3.25 per mcf later this year.
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Canacol Energy Ltd. (CNE:TSX) announced on January 27th an update of its development drilling program at its operated Rancho Hermoso Field located in the Llanos Basin of Colombia.
The RH 14 well was spud on December 23, 2011, and reached a total depth of 10,294 ft measured depth on January 6, 2012. The Corporation has completed the drilling and casing of the Rancho Hermoso 14 ("RH 14") development well. The RH 14 well has been placed on permanent production from the Ubaque reservoir at a stabilized gross rate of 7,666 barrels of oil per day (1,916 bopd net to Canacol). Production includes a 17o API oil with 20% water cut.
Canacol spud the Rancho Hermoso 15 well on January 25, 2012. This well will be followed by the drilling of the Rancho Hermoso 16 and 17 wells.
Canacol is a Canadian-based international oil and gas corporation with operations in Colombia, Guyana, and Brazil. Its corporate offices are in Calgary. Company has a market cap of $523.5 million and 612 million shares outstanding.
Donnybrook Energy Inc.(DEI:TSXV) announced on January 27th that the Company's second Bigstone area horizontal well, Donnybrook Bigstone Hz 15-32- 60-22 W5M (50% working interest) encountered 2,744 meters strong gas shows and excellent penetration rates during drilling.
The 15-32 well is currently flowing natural gas, natural gas liquids and hydraulic fracture fluids and is undergoing clean up after completion of the 23 stage hydraulic fracture operation. The flow rates for the 15- 32 well will be released once the well has had further time to clean up and the rates are stabilized.
Donnybrook is currently waiting on final surface lease approval to commence construction of 2 drilling pads that will facilitate the drilling of up to 6 additional horizontal Montney wells. Construction of the first surface wellsite is expected to be completed by mid February. Donnybrook anticipates this well will be drilled from a surface location at 4-28-60-22 W5M and will spud prior to the end of February.
Donnybrook Energy Inc. is a junior oil and gas company and holds interests in 45 gross (22.5 net) sections of petroleum and natural gas rights in the Bigstone-Simonette-Resthaven area. Its corporate offices are in Calgary. Company has a market cap of $56.2 million and 194 million shares outstanding.
Pennant Energy Inc. (PEN:TSXV) announced on January 27th an operations update on its Bigstone Montney high natural gas liquids resource play. The Donnybrook Energy Bigstone Hz 15-32-60-22 W5M well has been drilled and is undergoing clean up after completion of the 23 stage hydraulic fracture operation. The flow rates for the 15-32 well will be released once the well has had further time to clean up and the rates are stabilized.
Thomas Yingling, President of Pennant Energy Inc. stated, "Although the mechanical issues we have encountered with the 15-32 well have raised some technical issues, Pennant is excited about the quality of reservoir the 15-32 well has encountered and looks forward to receiving results from the production test and placing the well on production. We are continuing to move ahead in the field with operations to tie in both the 15-32 and 14-29 wells, and are preparing to drill a third well on this exciting prospect."
Pennant Energy is a junior oil and gas company with corporate offices in Vancouver and operations in western Canada. Company has a market cap of $13.8 million and 63 million shares outstanding.
More Oil Patch news on next page →
Worthy Quote Scott Alexander, “Making money is a hobby that will complement any other hobbies you have, beautifully.”
Priming the pump for Manitoba sweet crude
Competition amongst Canada’s western provinces has always been keen in the oil patch. Every province has its own royalties and incentive programs structured to entice and maintain new developing reserves. One slip up and companies will leave in droves into neighboring provinces. Luring back lost interest can be costly and difficult.
Smaller players like Manitoba have to be vigilant to maintain and lure new exploration and development. Alberta, British Columbia and Saskatchewan are well noted beyond the borders for their large oil and natural gas reserves. Frequently, their scheduled crown land sales play an important role in attracting oil companies into prospective and renowned plays.
Manitoba, the small kid on the block, has seen its share of ‘boom and bust’ in the past sixty years. Slumping oil prices throughout history have had a more negative effect on the oil patch in Manitoba than in Alberta but …. It’s much, much brighter in Manitoba’s oil patch now.
Manitoba’s first oil boom started with the discovery of the famous Daly field in early 1951. The field, located fifteen miles west of Virden, was first explored by three major oil companies – California Standard, Shell Canada and Imperial oil. Each company contributed to drilling a total of eight wells with some shows of oil.
On February 1, 1951, California Standard discovered the first commercially viable oil well. This well quickly led to the development of Manitoba’s first oil field, the famous ‘Daly field’. This continued to discoveries at Lulu Lake, Waskada, Tilston, Virden and Roselea. By 1956, Manitoba had 359 wells and 12 discovered oil fields.
Waterflooding was approved by the provincial government in 1960. This was in direct response to companies’ requests for enhanced production in the Daley and Virden oil fields. By 1968, Manitoba’s oil production surpassed an average of 16,500 barrels per day but began to drop until 2004 when production slipped to 11,000 barrels per day. Today, Manitoba’s production has doubled in the past seven years and now is within striking distance of 30,000 barrels per day.
The Manitoba government held its first land lease sale and introduced the ‘holiday volume’ incentive program in 1979. Another successful stimulant was implemented in 1987, ‘Enhanced Oil Recovery Program’. These two incentives brought another boom to Manitoba’s oil patch. In 1980, a second formation was discovered, Spearfish Formation.
In 1985, a Daly well was drilled beyond the licensed depth which resulted in the discovery of the Bakken Formation. This accidental discovery enticed other companies to explore at deeper depths. Eventually, this has lead to the discovery of two more formations, the Jurassic Melita formation in 1993 and Devonian Three Forks Formation and the Sinclair Field in 2004.
The oil producing region in south western Manitoba has the highest private mineral rights ownership in Western Canada. Many landowners settled in the province prior 1890. After this date, the federal government took over the mineral rights throughout Western Canada.
Eighty percent of all mineral rights in Manitoba’s oil patch are still held privately. The crown holds a paltry 20%. In comparison, the provincial government of British Columbia holds 95%, Alberta 81% and Saskatchewan 78% of all provincial mineral rights.
Privately held mineral rights have slowed oil exploration and development in Manitoba. It is far more difficult to deal with multiple mineral rights owners than one provincial authority. During the past decade, mineral rights brokers have eased the situation. Landowners can now place their land to be tendered on broker’s tendering lists.
Land owners are offered several dollars per acre to several hundred dollars and may involve a substantial signing bonus. Some are as high as $50,000; most are a fraction of this amount. Crown land sells at an average of $260. Bids may be much higher in both instances pending how desirable the land is. The most attractive area of the province is straddling the Saskatchewan and U.S. border north to Waskada.
Drilling and completion cost between Manitoba and North Dakota are several light years apart. A fully completed Manitoba horizontal well drilled into the Bakken formation costs from $1.2 to $1.5 million. A fully completed horizontal well drilled into the Bakken in North Dakota exceeds $5 million. The difference in cost is directly linked to expensive drilling depths and higher land costs.
It is true that North Dakota’s wells out produce those of Manitoba but the bottom line… costs in Manitoba Bakken oil range from $15 to $20 per barrel. In comparison, those in North Dakota run from $45 to $60 per barrel.
Manitoba government continues to use incentives to attract and promote its oil industry. The ‘holiday volume’ on horizontal and injection wells has been extended to 2015.
Last year, 516 successful wells were drilled in that province. Petroleum Services Association of Canada forecast that there will be another 550 new Manitoba wells place on production this year. Drilling interest in Manitoba’s oil patch is red hot.
By J. Klemchuk
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® Canadian Insight was established in 2009. It is privately owned. This site is not affiliated with any oil company, association, or organization governing its content. We solely rely on advertising revenue to fund our operations. A scheduled email appointment may be made for a business interview. No personal calls are accepted. Please feel free to forward your suggestions or questions to: editor@canadianinsight.com
Editor: J. Klemchuk Co-editor & Photographer: Fay Klemchuk Contributing writer: Allan Pierce Contributing photographer: Natalie Klemchuk |
