New wells drilled in western Canada were profitable on average when they targeted oil but not when they sought natural gas last year, according to studies by the Canadian Energy Research Institute (CERI).
Because of the economic disparity, rigs drilling for natural gas represented only 27% of the Western Canadian Sedimentary Basin (WCSB) fleet last year, CERI said. Gas prices have been depressed by increased supply from shale developments in the US.
At current gas prices, new wells drilled across the WCSB would, on average, not recover their full costs or earn positive rates of return, the study concluded.
CERI estimated weighted average supply costs in 2012 at $4.79/Mcf (Can.) for vertical wells and $5.71/Mcf for horizontal wells in the WCSB.
The study didn’t account for revenue or costs associated with production of natural gas liquids, toward which many producers have tilted their drilling.
“The majority of study areas considered in this analysis would need a higher natural gas price to be considered economic,” said the gas study’s executive summary.
The best economics were in the Montney play of northeastern British Columbia. The study also considered gas drilling economic in parts of central and southwestern Alberta and central-northwestern Saskatchewan.
Oil drilling economic
Oil drilling, by contrast, was economic in most of the WCSB at current prices, as horizontal wells and hydraulic fracturing increasing rapidly.
“Technological advances, cost reductions, and a sustained high oil price over the past few years have enabled a shift towards these deeper and more capital-intensive wells,” the CERI oil study said.
The study estimated weighted average supply costs for the WCSB at $40/bbl for horizontal wells and $64/bbl for vertical wells.
The lowest costs in Alberta were in the Cold Lake area, Lloydminster formation in the central-eastern part of the province, Cardium formation northwest of Calgary, and Slave Point formation in the north-central region. Average costs in those areas were $15-31/bbl.
In the Shekilie area of northeastern British Columbia, the average cost for vertical oil wells was $17/bbl last year, according to the study.
Supply costs averaged $23-34/bbl in oil wells drilled into the Viking and Lower Shaunavon formations in southwestern, central-western, and central northwestern parts of Saskatchewan.
“Even with lower production volumes compared with some Alberta areas, significantly lower capital and operating costs in Saskatchewan result in very competitive well economics for these areas,” CERI said.