Winnipeg, Virden – It would be no exaggeration to say that Tundra Oil & Gas Limited employs in excess of half of the Manitoba oilpatch. Over the years, largely through organic growth, but more recently through some key acquisitions, Tundra is by far the largest producer in the province, being the most active driller and employing the most people.
On July 17, Tundra Oil & Gas Limited president and CEO Ken Neufeld spoke to Pipeline Newsby phone from Winnipeg. He started with the company in 1989, and was its chief financial officer for a number of years prior to his current appointment.
Tundra Oil & Gas stands out from many of its industry peers in that it is privately owned. It is owned by the Richardson family through James Richardson & Sons, Limited which is part of the same business conglomerate that includes Richardson International, Pioneer Grain, and Tundra Energy Marketing Limited (TEML).
“As of July 1, we removed the Partnership label and moved back to being Tundra Oil & Gas Limited,” Neufeld said, “Also, effective July 1, Tundra Energy Marketing Limited, is no longer a subsidiary of Tundra Oil & Gas and now reports directly to its parent company, James Richardson & Sons, Limited. “While we have a common shareholder, we are two separate businesses with two separate board structures.”
Company-wide, Tundra Oil & Gas employs just over 300 people. Principle operations are based in Virden, Man., where it directly employs roughly 200 people. It has a technical office in Calgary, consisting of reservoir engineers, geologists, geophysicists and land admin people. Their head office resides in Winnipeg. And make no mistake about it, there’s a reason Tundra’s not headquartered in Calgary. The company very much has a Manitoba focus and commitment. Roughly 85 per cent of their production is in southwest Manitoba, with the remainder in southeast Saskatchewan.
Indeed, several oilfield service companies over the years have told Pipeline Newsthat if they wanted to do business with Tundra in Manitoba, they were strongly encouraged to set up shop there, something Neufeld acknowledged.
“We prefer to work with suppliers that have a local presence,” he said, adding that it makes for much better contact and face-to-face service. Product delivery times are shorter. It also means shorter travel for crews, which can also be a safety consideration. “We just think it’s a better way to conduct our business.”
“We have a lot of technical people in our field office in Virden as well.”
Tundra is an intermediate producer. “We’ve been as high as 30,000 barrels per day, but with a reduced drilling program over 2015 and 2016, we’re producing approximately 25,000 barrels per day right now.”
Presentations given over the last decade by the Manitoba Petroleum Branch to the annual Williston Basin Conference have shown that, historically, Tundra has been, by far, the largest player in Manitoba. Neufeld said, “And with acquisitions in 2014, 2015 and 2016, today probably more so.”
Waskada area acquisitions
In the past few years, Tundra acquired much of the Waskada field from the two dominant players in the area – EOG Resources and PennWest Exploration. A few years earlier, EOG had built a pipeline from Waskada to the Enbridge mainline terminal at Cromer, Man., and PennWest used another line, of which Tundra had a share.
“It was a combination of opportunities,” Neufeld said, noting that in the fall of 2014, oil prices declined from US$100 per barrel for WTI to US$50 per barrel, almost overnight.
“EOG, which is Houston-based, for a number of reasons, had started their exit from Canada, selling all of their Canadian oil and gas properties prior to the price collapse. We weren’t interested in the properties they had further west which was out of our wheelhouse of expertise. But we did tell them we’d be interested in the Manitoba assets.
“We gave them a number. It took them a couple months to get back to us, to say, ‘Okay, we actually have a buyer for the non-Manitoba assets, so if you’re interested, let’s talk.’
“We concluded a deal in late 2014. It was a bit opportunistic, in a sense. Prices were coming off and everyone was a little gunshy in terms of taking a longer-term view and stepping up. But also, Manitoba doesn’t have a lot competitors; it’s not an area of operations for many oil and gas companies .
“It was the biggest transaction to date in the history of Tundra.”
The acquisition added roughly 6,000 bpd at the time.
EOG’s pipeline was purchased by TEML prior to Tundra Oil & Gas’s purchase of their Manitoba production. It was TEML’s first acquisition of a pipeline from a third party and, together with the Waskada pipeline and Tundra’s own Sinclair pipeline, got TEML going as a significant pipeline operator in the province.
The EOG purchase closed in November 2014. By July 1, 2015, Tundra closed the acquisition of the PennWest Waskada properties at a time when PennWest was rapidly shedding assets to deal with its debt issue. That created an opportunity for Tundra, which added roughly 1,800 bpd at the time.
In 2016, Tundra purchased Arc Resources’ property at Goodlands, east of Waskada. That brought in an additional 1,000 bpd of production.
With the downturn, drilling in the Waskada area all but came to a halt, but Neufeld said they are more active there this year, having drilled seven wells to date of a total of a dozen planned for this year.
“We’re starting to understand the reservoir a little better. We do see it as an opportunity through unitization and waterflood projects.”
Each year, when recently-retired director of the Manitoba Petroleum Branch, Keith Lowdon, would make a presentation to the Williston Basin Petroleum Conference, he would typically show a series of slides showing the phenomenal growth of the Sinclair-Daly oilfield which runs just east of the Manitoba/Saskatchewan border and centres around Cromer, which just happens to be the oil hub that receives southeast Saskatchewan and southwester Manitoba oil for shipment on the Enbridge Mainline.
“Sinclair was certainly our biggest discovery, that came about in 2004. A lot of it has since been unitized. While Sinclair remains our largest single area, the Daly field is also important to us and, with the acquisitions from PennWest, EOG and Arc, the Spearfish play in Waskada is significant as well. However, the Sinclair field remains dominant. It changed who we were and our growth trajectory like nothing else has, but I wouldn’t consider us a one-trick pony,” Neufeld said.
During the heady days of the oil boom, Tundra had as many as seven drilling rigs going at a time, but more commonly five or six, according to Neufeld. As of July 17, they had two Trinidad Drilling rigs working for them at Sinclair and Hargrave.
“I think we’re going to be able to execute our (drilling) program for the year with just two rigs.
He noted 120 wells are planned this year. That’s down slightly from 145 wells originally planned due to two recent acquisitions in the Daly area – Interwest and Paradise Petroleum. As Tundra is committed to managing within its cashflow, funds allocated to those acquisitions resulted in a small reduction in its drilling program.
The Sinclair field is largely Bakken and Lodgepole production. At Waskada, the target formation is the Spearfish, also referred to as the Lower Amaranth by the Manitoba Petroleum Branch.
As southwest Manitoba is the edge of the Williston Basin, well depths are generally shallower than what you would see in southeast Saskatchewan and much more shallow than North Dakota. While this means reduced drilling costs, it also means less reward. Tundra’s wells in the Sinclair-Daly field are often around 900 metres deep. A Bakken well in the Viewfield area, in comparison will run around 1,600 metres deep.
“As you get further updip, towards the edge of the reservoir, you’ve got less reservoir energy and maybe less oil in place,” he said. Effectively, it costs less to drill, but you get less as well.
Drilling efficiency has also been key in dealing with lower oil prices. Horizontal wells that used to take eight days now take four days to drill.
Dealing with downturn
When the downturn hit and oil prices fell, the way the industry was drilling wells and conducting business wasn’t profitable with the lower oil prices. “The whole industry had to re-gear. The reason we could run a different business at US$100 is because virtually all drilling was profitable at that point. But when things change, you have to look at all aspects of your operations to deliver profit to your shareholders.
“It forced everyone to tighten up. I think there was room to do that. The profit margins were good on the supply side. Services were in demand, with very little surplus capacity in the drilling and completions area, which meant suppliers could charge extra. At the time, E&P companies like ourselves could afford to pay it, so that’s how the business ran. But when we ran into the wall in 2014, we said, ‘Hang on here, we can’t be the only ones taking a hit.’
“In order to continue our programs, like many of our peers we approached our suppliers with the message that they, too, had to share in the downturn.”
Neufeld added, “I think you always want to be aware of the fact that these are relationships, and they’re longer term. We still need competition among suppliers. So to starve these folks, there’s no benefit in that. We have to be in this together.”
He noted that they had some long-term drilling contracts when the downturn hit, but the driller was willing to work with Tundra to get through the slowdown and keep as many rigs working as possible.
“We saw a number of responses like that that made us feel we had good alignment, and mutual goals to keep the iron moving, so that we’d both be there when things picked up again,” Neufeld said.
Asked when vendors can start increasing rates, Neufeld said that’s a tough one to answer. “I would say suppliers are going to need to increase price when there’s enough activity where they need to retool and re-attract labour and can justify the costs involved. If they have equipment they’ve always had on hand, that’s kind of a sunk cost. If they have the rig people, the operators, the labour… Clearly, in 2016, with US$26 oil in February … when the price was slow, just about everyone pulled back on their drilling programs. Tundra went from 200 wells a year to 38 wells last year. So nobody was busy and everyone was looking at a way to pay the rent.
“So, when is that going to reverse itself? I guess, when we see sustained activity. It’s still a bit choppy; it’s still volatile. There’s still a lot of E&P companies that aren’t really making any money. Some are growing. Some have value in the public market place, but profitability is really not there.
“I think we’ve got to recognize we’re in a new day and everyone has to find ways to be more efficient and survive at these prices,” Neufeld said.
He feels a sustained US$50 price for WTI is a tipping point for more activity, both economically and psychologically. That applies to their company as well.
Tundra’s community project support is typically done through the Richardson Foundation. “We were a major contributor to the Virden Rec Centre in the past, which carries our name. We thought that was a big win for the larger region. It can host major tournaments and events. It wasn’t just about Virden, but also about surrounding communities,” he said.
In 2016, Tundra, through the foundation, made nine donations totally $99,000 in the region, and 10 donations, to date in 2017, totalling $131,500.
Around the time they bought the EOG property in Waskada, they also contributed to the rink rebuild there.
“We try to be a good corporate participant on many fronts,” he said. For instance, Tundra has been extremely active during the downturn, abandoning wells and cleaning up uneconomic sites. Many of these were inherited as part of recent acquisitions. Tundra is committed to cleaning up these properties and restoring the land to its original condition. “In 2016, we would have done close to 200 downhole abandonments; a record number for Tundra. We also completed and obtained landowner signed offs on over 100 site restorations. We’re proud of those things too, even though they don’t add a lot to the bottom line. They’re a reflection of our long-term commitment to sustainability.”