Despite extremely sluggish drilling activity in Saskatchewan’s oilpatch, the Aug. 11 Crown land sale for petroleum and natural gas rights brought in $2.4 million. And Saskatchewan’s oil production has seen a slight rebound after a sharp dip due to the destruction of oil demand due to the COVID-19 pandemic.
The $2.4 million sale falls within the range of the six sales conducted over the last year, which varied from $3.4 million in December 2019 to $442,000 in the previous sale, June 2020. Indeed, the $2.4 million is higher than the average of $2 million per sale over the last year.
Land sales are posted several months in advance. Oil companies, typically through their land agents, will ask the Ministry of Energy and Resources to put a certain parcel up for bid (e.g. post it), and then bid competitively on that parcel. In the case of the Aug. 11 sale, the closing date for postings was April 14, a month into the COVID-19 crisis, and less than a week before West Texas Intermediate oil prices tumbled for one day into negative pricing territory.
While oil companies will often use land agencies to mask who is actually buying the parcels, some chose not to. In this sale, Villanova Energy Inc. was the most active with six parcels. Vermillion Energy Inc. picked up three. Buffalo Hill Resources bought two, as did Midale Petroleums Ltd. Aldon Oils Ltd. got one, as did Vital Energy Inc. and ROK Resources Inc.
The bonus bid per hectare ranged rom a high of $3,449.50, paid by Vital Energy, to $24.71, paid by Aldon Oils.
On Aug. 13, Minister of Energy and Resources Bronwyn Eyre said of the land sale, “It’s a reasonably strong result. And I think it shows that the sector sees opportunity here. And then, it's a sign of some economic recovery.”
She added, “In light of everything that we have faced, It's also positive in that Saskatchewan has performed well compared to our neighboring jurisdiction.”
Eyre said Saskatchewan had done better than Alberta so far this fiscal year. Saskatchewan still has attractive geology and a stable royalty regime, she said.
“It’s a cautiously good sign, and we’ll take it,” she said.
Five drilling rigs working
Over the previous five years, Saskatchewan would typically have 30 to 50 drilling rigs working in mid-August. That’s substantially less than 2010 to 2014, when there would be closer to 100 rigs. In August 2011, a record of 122 active rigs was set.
The impact of the COVID-19 crisis on oil demand has had a dramatic effect on drilling. Until mid-July, there was only one rig working in Saskatchewan, and it was drilling for helium, not oil. (Only two natural gas wells have been drilled in Saskatchewan in the last five years)
Eyre noted, “Since then, over the last few weeks, there has been a bit of an increase. There have been 18 wells drilled since mid-July, so again, a little bit of cautious, slow improvement,” she said.
On Aug. 12, there five drilling rigs working in Saskatchewan. One was drilling for helium south of Eastend for North American Helium. Of the four rigs drilling for oil, two were drilling in west central Saskatchewan, at Dodsland and Plato, for Teine Energy Ltd.
Prairie Thunder Resources Ltd. had one rig drilling on the outskirts of Macklin. The last rig was drilling near Carievale, for Fire Sky Energy Inc.
Asked if there is anything the province can or should do to incentive drilling, she said, “We are looking at things. So, we are engaging with sector stakeholders. We're looking at potential new initiatives, things we might be able to do to help accelerate new investments and employment as we move into this economic recovery. But that’s work that, in some cases anyways, was being done prior to the perfect storm, because we were looking at some potential areas where we could do something. We’re continuing that now, obviously.”
Eyre spoke of trying to maximize secondary recovery, a process known as waterflooding, within the province.
Eyre said Saskatchewan’s oil production had increased to 395,000 barrels per day (bpd) in June. That’s up from 361,000 in May, an increase of 34,000 bpd.
In March, Saskatchewan was producing 502,700 bpd, so the May numbers represented a fall of 28.2 per cent. June’s numbers were 21.4 per cent lower than March’s.
“Oil production levels are expected to climb in July and into the fall, as more shut-in and turned down production is brought back and new drilling occurs. So, I think the trend is seen as positive,” Eyre said.
Saskatchewan also has a higher number of drilled but uncompleted wells, which Eyre sees that as a positive. When oil companied do decide to eventually complete and bring those wells online, it will help production.
She also noted that gasoline demand is improving in North America, another positive sign.
NDP economy critic Trent Wotherspoon said, “The fact of the matter is that the sale's up a little bit at this time. But it's a tiny fraction of the land sales that we were experiencing back just a number of years ago, and it reflects that.
“This important industry to Saskatchewan is in a challenging situation. Hopefully, the modest increase shows that there's some daylight for this industry. Because the fact of the matter is that thousands of workers in the energy sector have lost jobs in the last number of years. And that's created real hardship for those workers that have lost jobs and it's created real hardship for Saskatchewan, with the loss of investment and the loss of royalties that flow in from this important sector.
Wotherspoon went on, “So it's an indication that this sector is in a challenging situation, and it should be also be a reminder and a wake up call to the government to do all it can to secure an economic recovery that works for people and creates jobs that folks can count on. And certainly that includes things like market access, but acting to eliminate the PST on construction labor to help fire up the economy, acting on renewable power like rooftop solar, as well, and utilizing a Sask-first procurement approach when we're building the infrastructure that Saskatchewan needs.”
As for drilling, Wotherspoon said, “The drilling activity, or lack thereof, is devastating for the workers who count on those jobs, and it reflects this industry that's in a really challenging spot. And so, it's a reminder why we need to do all we can now to secure an economic recovery that creates jobs for thousands of people across Saskatchewan.”