Low-cost light oil production drives Viking M&A deals

Low-cost light oil production is the key factor driving dramatic and sustained volumes of M&A activity within Canada’s high-profile Viking formation.

More than Cdn$8 billion in asset and corporate deals involved Viking light oil assets in Eastern Alberta and Saskatchewan in 33 separate deals since 2014, according to CanOils M&A data. Among these deals were Teine Energy’s Cdn$975.0 million acquisition of Penn West assets – the third biggest M&A deal in Canada in 2016 – and Tamarack Valley Energy’s Cdn$407.5 million acquisition of Spur Resources.

Analysis of data from three typical Viking wells reveals that costs are not only low, but that total drilling costs(1) fell even further between the winter drilling seasons of 2015 and 2016. The cost cuts year-on-year, when analysed in relation to the total measured depth(2) of the well, were between 5% and 9% for each Viking type well.

This well cost data is available within the Petroleum Services Association of Canada’s (PSAC) latest well cost study, which has now been digitized for the first time in its 35 year history. Learn more here. The study demonstrates how these costs compare with other prolific Canadian formations, as well as how total drilling costs and the costs of over 100 drilling cost components in the Viking have changed over the past few years.

The three Viking type wells in the study are:

• AB4D, East Central Alberta, Halkirk area, Horizontal well, Total measured depth 2,150m
• SK1A, Central Saskatchewan, Dodsland area, Vertical well, Total measured depth 700m
• SK1C, Central Saskatchewan, Dodsland area, Horizontal well, Total measured depth 1,550m

Source: PSAC Well Cost Study, powered by CanOils. Find out more here.

“While drilling and casing cost cuts have been important, it’s crucial to note the scale of cost cutting that has taken place in the Viking formation when it comes to completing a well, because they make up a larger portion of total costs,” said Karl Norrena, Manager, New Product Development at JWN Energy.

In the SK1C Dodsland horizontal type well, for example, completion costs make up in excess of 63% of its total drilling costs in both 2015 and 2016. The completion costs for this Viking type well dropped 4% between the two drilling seasons.

Completion costs are made up of three sub-categories in the PSAC study data:

• Completion-related casing and cementing;
• Completion and testing; and
• Completion-related contingency and overhead.

Of those cost sub-categories, it was casing and cementing that drove the overall drop in the Dodsland Viking horizontal well completion costs by the largest margin; the costs in this particular category dropped by 19% between 2015 and 2016.

Source: PSAC Well Cost Study, powered by CanOils. Find out more here.

These three sub-categories are comprised of multiple individual cost components. The PSAC study reveals the average cost values for all of them for around 50 type wells across Canada.

Digging even deeper, PSAC’s data demonstrates that this drop in casing and cementing costs for the horizontal Dodsland Viking type well was driven mainly by a 23% drop in production casing costs. These costs now make up a smaller percentage (albeit still the largest) of completion-related casing and cementing costs than they did in winter 2015.

Source: PSAC Well Cost Study, powered by CanOils. Find out more here.

Notes

1) The combined costs to drill, case and complete a well are referred to throughout as “total drilling costs”

2) Total measured depth (m) is the total combined vertical and horizontal length of the wellbore.