Are multi-laterals the next big thing in oil?

Saskatchewan bets heavy on it with new incentive program. Largest change in oil royalties in decades hoped to incentivize activity and production.

BY BRIAN ZINCHUK

REGINA – What is the “next big thing” in Saskatchewan’s oil and gas development?

Revolutions like horizontal drilling have universally benefitted the industry to the point where next to no vertical wells are drilled anymore. Multi-stage fracking fueled the “Bakken Boom,” although there’s a lot less of that going on these days. Polycrystalline diamond cutter bits dramatically improved drilling. The progressing cavity pump allowed cold heavy oil production with sand in northwest Saskatchewan, but that has been surpassed by thermal projects using steam-assisted gravity drainage. (SAGD). But what is the next big thing, beyond all of these, and something that could be applied all over?

It might just be multi-lateral wells, and the government of Saskatchewan is betting heavily on just that.

Multilateral well drilled in Saskatchewan by Lycos Energy Inc. in northwest Saskatchewan. The 29 leg frond design well targets a 5 metre thick Sparky sand and drains almost half a section from over 16 km of open hole. Image courtesy Chinook Geosteering Services, using publicly available data

A little over a week before the provincial budget was announced, a new “Multi-Lateral Well Program” was announced on March 11. Further details were released in the budget on March 20. Pipeline Online spoke to Energy and Resources Minister Jim Reiter in depth about the program at the Legislature on March 21. It’s the largest change in oil royalties in Saskatchewan in decades.

And that’s significant, since one of the hallmarks of the Saskatchewan Party government has been to not mess with royalties at all. But instead of increasing them, they’re reducing them, but only in very specific circumstances, in a drive to increase production and activity.

What is a multi-lateral well?

First of all, what is a multi-lateral well, and what’s new? Multi-lateral wells have multiple horizontal legs going into the target formation. The concept had been around a long time. Even as far back as 2009, PetroBank’s standard Bakken well had two legs. Three legs are pretty common, too. But this new generation of multilaterals takes it up considerably. And it’s not just large companies doing it, either.

Here’s the program’s eligibility criteria, according to the Ministry of Energy and Resources:

Eligible oil wells include MLWs drilled on or after April 1, 2024, and on or before March 31, 2028.

If the MLW is of a pitchfork configuration, or a variation of the pitchfork configuration, the well must contain a minimum of three laterals, including the initial wellbore, of 500 metres or longer to qualify for additional volumetric incentive.

If the MLW is of a fishbone configuration, or a variation of a fishbone configuration, the well must contain a minimum of ten additional laterals, off the main wellbore, of at least 200 metres in length to qualify for an additional volumetric incentive.

Basically, it’s a well with a lot of horizontal legs. The more legs, the more incentive provided, up to a point.

So far, there has been some experimentation with these sort of wells in Saskatchewan, prior to any incentive program being publicly announced.

According to Chinook Geosteering Services, using publicly available data, In southeast Saskatchewan, Cache Island Corp. was one of the first to start developing this idea in the Corning area, followed shortly by Crescent Point Energy (soon to be Veren Inc.). Several other companies have been trying it out as well.

But in northwest Saskatchewan, Lycos Energy Inc. has been going to town, with as many as 39, yes, 39 legs. According to Chinook Geosteering Services, using publicly available data, the company has drilled seven wells Britannia to Cut Knife and Manitou Lake that each had between 28 and 39 legs. They look like palm fronds, in what is referred to as a “fishbone configuration.”

Baytex Energy has drilled 19 and 13 leg wells. Aldon Oils has a 16 leg well at Browning, near Lampman. Cenovus Energy Inc. drilled a 12 leg well at Turtle River and a 10 leg at Mervin. Canadian Natural Resources Limited, Novus Energy Inc. and Rife Resources Ltd. have all drilled wells with ten legs in northwest Saskatchewan in the last year.

Clearwater play influence

Saskatchewan is just starting to ride the multi-lateral wave that really took off in the Clearwater play of northwest Alberta. There, multi-lateral wells with massive numbers of legs have become the norm. Baytex’s operations there went from zero in 2021 to over 16,000 barrels per day today. And what’s clear from well maps is that there are so many legs being drilled, at certain resolutions of a map, it looks like a kid took a crayon to fill in the section.

Indeed, Crescent Point released its March 20 Investor Day presentation the same day as the provincial budget. It showed its Bakken multilaterals near Corning have gone from a total of four legs going through each section to 32, from 400 metre horizontal spacings to 50 metres.

One thing is clear: The net result is dramatically more contact with the reservoir. Again, their map also looked like colouring the square with a crayon.          

Scott Saxberg, chief executive officer of Cache Island, told Pipeline Online by chat on March 25, “I would say that the rationale for the multi-legs in the Bakken was to get away from fracking into the Lodgepole above and in the long term for water flooding the Bakken. This opened up an area that was not economically prospective before. The royalty (incentive) expands the size of the pools and allow for long term reserves through water flooding.”

And keeping up with Alberta is a key consideration for the Saskatchewan government, which does not want to be left behind when it comes to investment.

Minister explains

Several years ago, the Saskatchewan Party government set a goal of increasing oil production by roughly a third by 2030, from roughly 150,000 barrels per day to 600,000 barrels per day.

Premier Scott Moe told Pipeline Online on March 21, “What we are trying to do is ensure that we have the most attractive regulatory investment environment for that industry provincially so that we can do what we can pull the strings that we can to attract that investment to achieve our growth plan target. And I think we can go beyond that.”

Asked about the 600,000 barrel per day goal, Reiter said it’s not the only effort the province is making, as they’ve been doing other things like trying to help companies raise capital. “But this is going to be a key part of it, the multilateral.

“As technology changes, basically, what it amounts to is we’re not getting the number of holes drilled a year that we want. And we need to, frankly, be competitive with our neighbors and friends in Alberta. That’s where a lot of it’s been going. That’s what we’re hearing from industry, is that the incentives they have in place there, while we’ve had some multilaterals, developed, it’s not a lot. And we’re being told by industry, ‘You’re going to have to be competitive with the Alberta structure.’

“We think this is going to do that.”

As for where the idea came from, Reiter said it was “discussions with industry.”

“I do a lot of meetings with industry. We do a lot of roundtables with them. And I started to hear that over a year ago, and I just heard it more and more, because my question for industry is, ‘What do we need to do?’ We’re trying to be competitive. We’re trying to be business friendly. We’re not getting the kind of development done that we want. What do we need? And this was kind of front and center that we were hearing from industry.”

Asked how much additional oil production the government thinks might come of this, Reiter said, “The estimates that the Ministry of done, they’re talking about 50,000 barrels per day they think this is going to add to. The timeframe is a little hard to tell. It depends how much of the pick up. But, you know, I’m optimistic within the next few years that it’ll get up to that level.”

For perspective, Saskatchewan’s oil production is currently 463,000 barrels per day as of December, a level that has been largely consistent for nearly two decades. It did rise to around 537,000 barrels per day in December, 2014, just as the seven-year oil downturn started to take hold. Also, the “Bakken Boom,” as it were, saw Bakken production rise from a few hundred barrels per day to around 70,000 barrels per day at its height.

Inspiration

Reiter clarified that this is not a royalty holiday program, but a royalty incentive. It is a reduced royalty rate until certain volumes of production are met for a particular well. “There’s still a two-and-a-half per cent charge they’re going to be paying.”

Once the volumetric limit is met, royalties revert to usual levels. Saskatchewan royalties are price- and volumetric-sensitive.

There is differentiation for type, depth, number of legs, development versus appraisal wells. But the program does not have a specified limit to how many wells, how much per company or how much overall. It’s agnostic to all of that. It applies anywhere in the province, any formation.

That’s a little different from the Oil and Gas Processing Investment Incentive (OGPII), which has increased by $130 million to $500 million, and the Saskatchewan Petroleum Innovation Incentive (SPII), which has increased by $70 million to $100 million in overall limits. These amounts go until 2029. The Multi-lateral Well Program does not have an overall limit on dollar value allowed.

This program is in addition to existing incentives.

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