Calgary, Weyburn – For the first time in its 63-year history, the Weyburn Unit will have an entirely new operator, as Cenovus sells its 62.1 per cent operating interest in the field to Whitecap Resources Ltd. On Nov. 17, Whitecap president and CEO Grant Fagerheim spoke to Pipeline News by phone about their plans.
Pipeline News: What does this mean for the community of Weyburn?
Grant Fagerheim: We hope the city of Weyburn will be as excited to have Whitecap coming in to the community as we are about coming there. We expect to continue to have strong community involvement, from the exceptional staff that we have there that work in the Weyburn Unit, as well as from the Whitecap corporation.
P.N.: Your press release noted an ambitious plan for drilling and expansion, and how the years of the downturn had basically lead to stagnation. Previously, Precision Drilling Rig 275 literally made a career, working decades in the Unit. Now it’s racked at Stoughton. Can you expand at all on your plans, in particular, what sort of timelines we’ll see?
Fagerheim: We expect to work closely with the very experienced professional and support staff with a long history with the asset, to drive the most effective long-term capital plan possible. This will be done over coming weeks, once the personnel and corporate strategies emerge with our new direction. They have a very good team out there, as well as in Calgary.
We’ve made some assumptions of a capital spending program, but we want to make sure we draw on their experience as well before we finalize that.
P.N.: Do you think you’re going to be drilling this winter season?
Fagerheim: Yes, we do. We don’t close this transaction before Dec. 14, so it will be some time in 2018.
P.N.: The Weyburn Units saw a lot of cuts in its workforce and activity in the downturn. Will we be seeing some hiring now, both organically, and with contractors?
Fagerheim: We expect to be more active on the asset, of course, then perhaps Cenovus was for various different reasons – whether it was downturn, pricing, or attention on the asset. This would obviously lead to the requirement of additional workers on the asset.
P.N.: While the names have changed, historically the operator of the Weyburn Unit has been an evolution from the predecessor company. Is this the first complete change of ownership? What does this mean? And do you intend on maintaining 62.1 per cent ownership?
Fagerheim: I think it’s a complete change of operatorship. It wouldn’t be a change of complete ownership, but operatorship.
We believe this world-class asset is as a result of the exceptional people. The work on the asset, we feel, along with the current staff and expertise, that we’re able to bring, along with additional capital, ideas and culture, that we will enhance the project even further.
As for the ownership level, we are always interested in getting to the highest working interest possible in the assets that we operate.
P.N.: The Weyburn Unit didn’t really fit in with Cenovus’ other operations, and wasn’t a big deal for them, in comparison to their oilsands operations. Proportionally, this is a big deal for Whitecap?
Fagerheim: This is a significant transaction for Whitecap. It’s an important one for our long-term sustainability. It increases our oil weighting, which has always be a defined strategy of ours. It reduces our decline rate, which is, again, a defined strategy. It adds about 25 per cent to our base production. It improves our operating netback and cashflow slightly. Overall, it improves our long-term growth and sustainability profile, along with our free cashflow.
This takes us to approximately 73,000 to 74,000 barrels a day, for 2018. We’re currently 58,000 to 59,000 barrels a day.
P.N.: For the past few years, we’ve consistently heard oil had to be over US$50 WTI for a few months to see things start to pick up. We’ve now seen that. How much was that a factor in this deal?
Fagerheim: Crude oil pricing is an important factor, for sure. With crude oil prices looking to have a higher floor, compared to the last couple years, this provides a higher level of confidence for Whitecap to make substantial funding commitments, as we have just done when we bought this asset, as well as to the province of Saskatchewan. So you’ll look to see us to continue to put higher levels of commitment with strengthening prices, if they continue to strengthen.
P.N.: Will you maintain your contracts with SaskPower and Dakota Gasification for CO2 supply?
Fagerheim: Yes, we will be maintaining both the Dakota Gasification Company CO2 contracts.
P.N.: SaskPower has another seven years?
Fagerheim: That’s correct. DGC is an annual renew, so we can renew it each and every year, so we’ll continue with that. The primary term of that contract is completed. So it’s just an annual renewal we’ve undertaken.
P.N.: Carbon capture and storage has been a hot potato, politically speaking. Obviously, you like the concept, but can you explain why? Do you see Whitecap furthering this concept beyond Weyburn?
Fagerheim: We do believe carbon capture technology is an important part for, not only now, but into the future. Therefore, (we are) wanting to continue to further our understanding of carbon capture and further develop and expand into assets beyond Weyburn.
This is not going to just stop at Weyburn. Because of what they have been able to do, Cenovus, with their very strong technical people, we think this can be furthered on a go-forward basis.
P.N.: Are you talking about outside of this region, Alberta or western Saskatchewan?
Fagerheim: Potentially. You have to look at where the CO2 sources are, of course. But for sure, we’re looking at different areas, not only in Saskatchewan.
P.N.: Is there anything you would like to add?
Fagerheim: We’re excited about taking on this world-class carbon capture project, with world-class technical personnel, in a great province of Canada. So we’re excited about it.
P.N.: Have you gotten another invitation to move your head office yet?
Fagerheim: (laughs) That’s always standing, that’s always out there, for sure.