It’s all about triage now for big oil companies in western Canada, and ‘maintenance’ is the code word for taking a drilling break. But the smaller players here can actually benefit from lower costs, faster production ramp-ups, higher prices for crude, and—even in this dismal atmosphere—promising new discoveries.
With expensive shale drilling at a standstill, investors are starting to look at attractive land plays, zeroing in on Saskatchewan’s little known Bannock Creek in the prolific Northeastern Williston Basin, where a junior explorer is drilling a well that may surprise us all.
Canadian-based Saturn Minerals (TSXV: SMI) is drilling on the company’s Bannock Creek project, in the prolific Williston Basin. It expects to have the wildcat well completed within a few days and a successful discovery would be very exciting for this little wildcatter, particularly as it has amassed a giant land position in this new exploration area.
On 27 January, Saturn announced that it has reached a vertical depth of 583 meters. The next days, Saturn expects to reach and evaluate potential light traps it identified earlier in the stacked Red River, Winnipeg and Deadwood Formations.
So while the bigger operators are hanging up their drill bits, the smaller players like Saturn are raising land values all around them and setting the stage for a run on some of this prime exploration property, where drilling costs are low enough to survive the slump.
Junior Saturn has demonstrated some impressive staying power. When many halted drilling in western Canada over the oil price slump, Saturn launched its conventional drilling program in the Northeastern Williston Basin.
The Williston Basin already produces 1 million bpd, and forecasts are that it will be producing 2 million bpd when new wells come online.
The Land Game
Bannock Creek and Little Swan are in Saskatchewan’s section of the Williston Basin, and both are prime properties spanning 376,800 acres. Right now, land is still cheap because the closest producing well is some 250 kilometers away.
Any discovery here should have an immediate impact on Company and land valuations, so this is a more than anything a land game in an area where Saturn holds hundreds of thousands of acres.
In fact, Saturn holds the largest total acreage in the area.
“We all know about the proliferation of sizeable oil deposits in the Williston Basin. Saturn’s mission is to confirm that the oil migrated up to the Bannock Creek area,” according to Saturn CEO Stan Szary. “A discovery in that region would change the geological map for that part of the Williston Basin, because to date the closest oil production is about 250 km away.”
Last year, Saturn identified the Bannock Creek wildcat well location using 2D seismic, which confirmed potential light oil traps in the stacked Red River, Winnipeg and Deadwood Formations of the Northeastern Williston Basin. The data confirmed the anticlinal four-way closure of a drillable prospect at Saturn’s 120,000-acre Bannock Creek property.
Not only could land values skyrocket and position Saturn for major gains, but it all makes sense economically—even in today’s depressed oil price environment.
The Bannock Creek wells are shallow and vertical, and will reach under 1,000 meters in depth, which means that drilling costs are significantly lower. And Saskatchewan is known for its strong producing shallow plays.
While oil and gas explorers targeting horizontal drilling and multi-stage fracking in the same basin will drill down 4,000 meters and pay up to $17 million for a well, the shallow, vertical wells at Bannock Creek will only cost about CAD $830,000 to drill, tie-in and complete.
The Silver Oil Lining
While painful oil prices show no sign of easing, the shale and oil sands giants operating in Canada have had a tough time of it and the disappointment is palpable.
In the worst cases, taps are even being turned off. Canadian Natural Resources (NYSE: CNQ) in Western Canada has cut back heavy oil output by 5,600 barrels per day. Oil sands producer Connacher Oil and Gas Ltd (TSX: CLL) has announced the start of maintenance at its Great Divide project, and will lower output in accordance by about 3,000 barrels per day. Baytex Energy Corp (NYSE: BTE) has also taken 2,400 b/d offline. More are expected to follow suit.
Not so for Saturn, which has continued to drill steadily towards a discovery, further serving as testament to the fact that the smaller operators targeting cheaper new conventional plays stand to gain as the giants flounder.
This market defying junior is looking at a potential windfall that will extend across its massive play and make its hundreds of thousands of acres the hottest land in the region.
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