Whitecap is now injecting CO2 into the Frobisher, opening up all sorts of possibilities
By Brian Zinchuk
CALGARY – Ever since 2000, the Weyburn Unit has injected CO2 into the Marly and Vuggy formations. But starting late last year, Whitecap Resources has begun experimenting injecting carbon dioxide into the underlaying Frobisher formation.
The results could be profound for southeast Saskatchewan, as most drilling activity in southeast Saskatchewan these days is focused on the Frobisher. If additional carbon dioxide was available, the possibilities are enormous. And so far, results have been positive.
The CO2 injection into the Frobisher was one nugget in Whitecap Resources Inc. report of its operating and audited financial results for the three and twelve months ended December 31, 2023.
The company said in its Feb. 21 release, “We have also recently started CO2 injection at a pilot CO2 flood into the Frobisher formation underlying the Weyburn Midale unit. We drilled two (2.0 net) producer wells and three (3.0 net) injection wells in 2023 and initiated CO2 injection in late 2023. Early results are encouraging with a notable production response coming through approximately one month after injection, increasing oil rates on the two producer wells from approximately 40 bpd to over 200 bpd, per well. Further technical analysis to determine commerciality and large-scale development is ongoing, and we will provide updates as next steps are determined.”
Ensign Drilling Rg 423 east of Benson drilling for Whitecap Resources on Jan. 27. Frobisher wells like this have been a major focus of drilling in southeast Saskatchewan. Photo by Brian Zinchuk
While the Bakken formation got all the headlines starting around 2007, the reality is today in southeast Saskatchewan, very few Bakken wells are drilled. Most of the activity, especially in the hotbed Lampman area, has been Frobisher wells. And that area has had Frobisher development for decades. So if the Frobisher responds well to tertiary recovery through carbon dioxide floods, it opens up a lot of possibilities for extending the life of some of Saskatchewan’s most prolific oilfields.
Strong year
2023 was a strong year for Whitecap both operationally and financially, the company said in a Feb. 21 release, highlighted by 11 per cent production per share growth and the achievement of its second of two net debt milestones, prompting a 26 per cent increase to its base dividend. The ongoing development of its high-quality drilling inventory has yielded exceptional results, the company said, with its team “constantly evaluating options to further improve capital efficiencies and netbacks for increased profitability.”
Average 2023 production of 156,501 boepd, including 103,014 bpd of light oil and liquids and 320,922 mcf/d of natural gas, generated funds flow of $1.8 billion ($2.94 per share) and after capital expenditures of $954 million, resulted in free funds flow of $838 million ($1.38 per share). Dividends declared of $373 million ($0.62 per share) along with $123 million of share repurchases on Whitecap’s normal course issuer bid (NCIB) resulted in shareholder returns of approximately $500 million ($0.81 per share).
“We are committed to strong return of capital to shareholders with a current base monthly dividend of $0.0608 per share ($0.73 per share annually) which will be supplemented with share repurchases on our NCIB,” the company said.
“We are also pleased to report exceptional 2023 reserve values highlighted by per share organic growth across all three reserve categories. These organic growth additions resulted in proved developed producing (PDP) and total proven (TP) production replacement of 107 per cent and 141 per cent, respectively, and reflect our strong 2023 drilling program. Three-year average finding and development (F&D) recycle ratios between 2.6 times and 3.3 times highlight the robust profitability of our asset base through commodity price cycles.
“Our balance sheet remains a priority for us and is in excellent condition with less than $1.4 billion of net debt (0.7 times debt to EBITDA ratio) at year end and approximately $1.7 billion of available capacity on $3.1 billion of total debt capacity. As we continue to allocate a portion of our free funds flow towards debt reduction, this will further strengthen our balance sheet for both downside protection and value enhancing opportunities in the future.”
In west central Saskatchewan, the company added additional Viking properties. Whitecap said, “Near the end of the fourth quarter, we completed a tuck-in acquisition of light oil Viking assets in one of our core areas in western Saskatchewan for cash proceeds of $154 million, prior to closing adjustments. The acquisition consolidates an active area of our Viking drilling program, was completed at attractive acquisition metrics, and was highly accretive to funds flow per share and free funds flow per share. Our team is now actively executing on production optimization opportunities on this 100 per cent light oil asset base.”
The company provided the following fourth quarter and full year 2023 financial and operating highlights:
Funds Flow. Full year and fourth quarter funds flow netbacks of $31.36 per boe and $30.16 per boe, respectively, were strong despite average 2023 WTI crude oil prices being 18 per cent lower and natural gas prices being 50 per cent lower than in 2022. Operating costs of $14.10 per boe were down 3 per cent from 2022, despite inflationary pressures persisting through the year. Full year funds flow of $1.8 billion equates to $2.94 per share, while fourth quarter funds flow of $462 million equates to $0.76 per share.
Drilling Program. Whitecap was the fourth most active driller in Western Canada in 2023, drilling 215 (189.0 net) wells, including 181 (158.2 net) wells in its East Division and 34 (30.8 net) wells in its West Division. Of the $954 million of capital expenditures incurred in 2023, 80 per cent was allocated to drilling and completions, while 17 per cent was directed to facilities spending, including initial work on its Musreau battery to support Montney production additions in 2024 as well as an expansion to our 3-27 facility supporting regional Montney and Charlie Lake development in the Peace River Arch.
Increasing Return of Capital. Whitecap increased its dividend for the seventh time in three years to $0.73 per share annually in October 2023. We have been focused on delivering a strong return of capital to shareholders since paying our first dividend at the start of 2013, returning a total of $1.8 billion in dividends over the past eleven years. These returns have been further enhanced by repurchasing over 76 million shares for $612 million since 2017. Total return to shareholders of approximately $500 million in 2023 demonstrates a continuation of this strategy, the company said.
Balance Sheet Strength. Year end net debt of $1.4 billion equated to a debt to EBITDA ratio of 0.7 times and an EBITDA to interest expense ratio of 27.0 times, both well within its debt covenants of not greater than 4.0 times and not less than 3.5 times, respectively. “We have significant financial flexibility with over $1.7 billion of available capacity on $3.1 billion of total credit capacity,” the company said.
OPERATIONS UPDATE
East Division
Whitecap said, “2023 was a very strong operational year for our East Division with outperformance across all four regions. We drilled 181 (158.2 net) wells during the year, which included 151 (134.9 net) light oil wells into the Cardium, Frobisher, Glauconite, and Viking formations that are characterized by quick payouts and high netbacks. With over 50,000 boepd of production under secondary and tertiary recovery, we also spent a total of $110 million on these assets in 2023. Approximately 60 per cent of this capital was directed towards drilling producing wells in areas under secondary and tertiary recovery while the remaining 40 per cent was directed towards injector drills and conversions along with base volume maintenance activities, to preserve our low decline rate of 20 per cent for the Division.
“In Eastern Saskatchewan, we drilled 46 (41.0 net) wells, primarily focused on the Frobisher formation. We have been utilizing open hole multi-lateral technology, drilling dual and triple leg laterals consistently since early 2021, and have incorporated longer laterals and additional lateral legs where viable. As a result, our average total lateral length increased by 45 per cent (700 metres per well) as compared to 2022. After providing for the impact of longer laterals, our 2023 program has been very successful, generating average IP(90) results that are 13 per cent above expectations. We have an active 2024 program underway with three rigs currently running in Eastern Saskatchewan with plans to drill 23 (21.1 net) wells in the first quarter.”
As for the other side of Saskatchewan, Whitecap said, “Our Western Saskatchewan region includes both low decline waterflood assets along with quick payout, high netback Viking light oil assets. On average, our 2023 Western Saskatchewan well results exceeded our expectations by 9 per cent on an IP(180) basis, which includes our Viking drilling program that averaged a capital payout of six months in 2023. The integration of the acquisition completed in late December is ongoing with combined production in the Elrose area now at 6,500 bpd which represents over 40 per cent of our total high netback, Viking light oil production. Our secondary/tertiary recovery enhancements and greater use of extended reach horizontal wells are some of the many inventory enhancement initiatives that our technical team has undertaken in Western Saskatchewan over the past several years.”
CONTINUED NEXT WEEK