Multilateral well program proving a big win in Lloydminster area and SE Sask

By Brian Zinchuk

LLOYDMINSTER – The week before the Lloydminster Heavy Oil Show, there were five drilling rigs working within eight miles of the Lloydminster Upgrader on the Saskatchewan side. That’s more rigs in that area than Pipeline Online has seen in the last decade.

Two were drilling for Cenovus Energy, one for Rife Resources, one for Croverro Energy and one for Baytex Energy.

While that number of rigs fell to two on Sept. 16, the question remains – is this rejuvenated drilling activity directly tied to the Saskatchewan government’s multilateral well incentive, announced in the 2024 spring budget?

Rife Resources drilling just southeast of Lloydminster on Sept. 10. The Cenovus Lloydminster Upgrader is on the horizon. It’s been years since there’s been much drilling happening this close to the upgrader, but in early September, there were five rigs within eight miles of it. Photo by Brian Zinchuk

In short, yes.

Adam Waterman, a consulting engineer and one of the oil show’s organizers, told Pipeline Online on Sept. 10, “They are drilling almost exclusively multilateral horizontals.

“In Alberta, it’s because of geological success. In Saskatchewan, however it has been down to a policy success from the Saskatchewan government, providing a royalty incentive tailored to multilaterals to kind of expedite the development.”

Minister of Energy and Resources Jim Reiter told Pipeline Online, “What I’ve been told by officials, is that there’s about, I think about 12 or 13 units in the Lloyd area, I think it is about half of them are multilateral. So, yeah, I would say it’s a huge success. Probably double the number units that are here right now. So I would, I would agree with (Waterman). We’re pretty excited about that.”

The other rigs working in northwest Saskatchewan are focused on drilling SAGD thermal wells, which, by their nature, are not multilaterals.

Asked if he thought opening up areas that haven’t seen activity in years is a big win, Reiter replied, “Yeah, absolutely it is.

“We’ve got a pretty aggressive target by 2030, to 600,000 barrels a day. So we need some success stories. I really do believe this is a success story already and it’s going to get better. But we’re looking at some other potential things we’re going to have to do in the next year or two to incentivize even more so. But we think this is a huge first step,” Reiter said.

Cold production revitalization

The area immediately adjacent to Lloydminster had, since the 1980s, been largely developed by a process known as CHOPS, or cold heavy oil production with sand. It involves using progressing cavity pumps producing copious amounts of sand, up to 30 per cent by volume. Each site is typically a single well battery, with the characteristic black tank(s) on site. Fluid is typically hauled by truck since heavy oil without diluent doesn’t flow well through pipelines.

The advent of the progressing cavity pump is what allowed CHOPS to grow production enough to sustain Lloydminster’s asphalt refinery, and then its upgrader, which went online in the 1990s. But CHOPS was eventually in decline. And about 10 years ago, Husky CEO Asim Ghosh said that company was going all-in on thermal development – building a series of what would eventually become 12 thermal plants scattered throughout northwest Saskatchewan, each running around a quarter to a third of a billion dollars as time went on.

What Ghosh did not say at the time, but became evident through Husky’s actions, was that investment into cold production would be largely curtailed. There used to be around 10 drilling rigs punching CHOPS wells continuously, mostly for Husky but for the last decade, CHOPS well drilling diminished greatly as the focus went to thermal sites.

Gamechanger

The advent of substantial multilaterals in the region has become a gamechanger. Lycos Energy, which has been at the forefront of this, was the company the provincial government brought out as its example when announcing the multilateral incentive. Lycos, which has been drilling up to 39 legs per well, has been able to produce cold heavy oil without hardly any sand. This dramatically improves production economics by increasing production, all but eliminating sand-handling costs, and minimizing surface disturbance.

And the incentive, if maxed out, enables the oil companies to see their royalty obligation on Crown land reduced to 2.5 per cent for the first 16,000 cubic metres of production, roughly 100,000 barrels.

Based on oil prices and exchange rates at the time of the budget, the net amount of royalties forgone, per well, of this type in the example, works out to about $1.5 million per well for the life of the well. That goes a very long way in covering the initial cost of drilling the well in the first place.

Waterman said his personal belief is that the incentives did not feature high enough in some larger producers’ capital inventories. He hopes that even after the program sunsets in 2029, the multilateral development of the Mannville formation around Lloydminster continues to highly feature in their capital inventories.

He said, “It’s fantastic. It lowers the operating expenditure of the well on almost by 10 barrels by not producing that sand. And it allows regions of our local reservoir that would have otherwise been unproductive vertically because of limited exposure and the necessity of a higher reservoir pressure to make vertical work. These multilateral horizontals don’t require that reservoir pressure, so wells with what would have been considered substandard geological properties are now it’s an investable opportunity.”

Waterman said, “It’s just another example of Saskatchewan getting energy right. We saw that the same simplicity of design of the program that was evident with the ASCP on display again, yet again, with this royalty program, and it’s been a fantastic success for the region.”

Asked if these multilaterals would have been drilled without a provincial incentive, Waterman said, “Eventually, but the fact that they’re getting to it now, I think, I believe the production results and the capital investment metrics will make such a statement internally at these companies, that it will be investing forward in years to come as well.”

He said industry is watching the multilateral developments with interest, pointing out to the experience of Veren (formerly Crescent Point) in southeast Saskatchewan Bakken play.

And for Bakken play and west central Saskatchewan’s Viking play, Waterman said, “For conversations’ sake, the completion costs of these wells are an order of magnitude lower than what you would see in the Viking or the Bakken. You can pipe, rod and pump and it’s on its way. There’s no stimulation.”

Indeed, Pipeline Online is aware of several oil companies in southeast Saskatchewan having moved to drilling multilateral wells since the program came online.