DENVER – Bakken wells in Canada are shallower and have shorter laterals than U.S. Bakken wells and thus cost a lot less. Most of the Bakken wells in Canada are found in localized pools, while the U.S. play is much more widespread. That means estimated ultimate recoveries (EURs) in Canada are a lot lower, said Gibson Scott, director, energy research, ITG Investment Research.

“I have found a common thread among many of our clients in their beliefs that all the Bakken is created equal. Operators tend to represent the Bakken as one play type, and as a result investors are often misinformed about the differences between the U.S. and Canadian plays,” he told participants at the Hart Energy DUG Bakken and Niobrara conference in Denver on May 30.

“The difference is because the oil found in Canada was in fact generated on the U.S. side of the border and migrated updip to structural and stratigraphic traps,” he explained. “If you think about it, billions of barrels of oil escaped the kitchen or the oil-generating window millions of years before the U.S. banned oil exports in 1975.”

And the differences are striking. At the Viewfield field in Saskatchewan, which is the largest horizontal Bakken development in Canada, the wells cost an estimated $2 million each, average EUR is 110,000 boe, average true vertical depth (TVD) is 1,500 m (4,950 ft), and average lateral length is 1,500 m. Completions consist of 18 stages.

On the U.S. side, everything goes up dramatically. Wells cost an average of $10 million and have EURs of 500,000 boe. The wells are 3,000 m (9,900 ft) TVD with 3,000 m laterals. There are 28 stages in each completion.

“Obviously, the Canadian play is much less prolific, but it is also a lot cheaper to drill. When you combine the aerial extent of the U.S. play with the outsize productivity per well, its total deliverability dwarfs that of the Canadian Bakken,” he continued. “This flood of light oil has pretty significant implications not only for the pricing of U.S. and Canadian Bakken oil, but also the pricing of all Western Canadian Sedimentary basin and PAD IV crude oil.”

The differences in the Bakken plays is shown in production. Total production from the U.S. play has surpassed 800,000 b/d while the Canadian Bakken is only around 100,000 b/d. “More importantly, annual production growth out of the U.S. play has averaged about 53% during the past three years, while the Canadian Bakken play has only grown by about 7% per year,” Scott emphasized.

Geology Plays Major Role

In studying the Bakken within the Williston Basin, it is clear that depth and structure both play important roles in terms of well costs and productivity. The majority of wells producing from the Bakken are within the Williston Basin, which is regionally extensive and is being targeted as far away as the Horn River Basin and the Alberta basins, he continued.

“The Bakken in the Williston Basin is bounded to the north, east, and south by its zero edge. To its west, it is bounded by an uplift associated with the Sweetgrass Arch. Major structural features on the U.S. side like the Nesson Anticline provide natural fracturing to the Bakken as the formation is draped over these irregularities,” he said.

The U.S. play is largely found within the hydrocarbon-generating window of the Bakken play. This is within the Bakken shales and is thermally mature, thus producing a lot less water than wells outside the U.S. play. The important distinction here is that much of the Canadian Bakken is found outside the thermally mature window.

“As you climb the walls of the basin you begin to leave the kitchen, and that changes the exploration model significantly,” Scott noted. “Most Canadian development occurs in isolated pools and is not widespread across southern Saskatchewan. Bakken wells on the U.S. side of the border produce oil but the distribution is much more regional in extent. Development is widespread across a footprint that covers 10 million acres.”

Economics Of Bakken Plays

Historically, activity in the U.S. Bakken was concentrated in the Sanish Parshall, where a better quality Middle Bakken rock allowed industry to do more with less. “Today, most of the activity is taking place west of the Nesson Anticline. The Middle Bakken is thinner and tighter in this area. The industry is really having to push the technical envelope to extract commercial quantities of oil,” Scott emphasized.

He pointed out that the most significant inputs to an economics model are wells costs and productivity, which are very different in Canada than in the U.S. As the industry marches west into tighter and poorer quality rock, it has had to adapt its completion design accordingly. In 2009, the average well in the U.S. play was drilled with a lateral length of 2,091-m (6,900 ft) and stimulated with 1.9 million pounds of sand in 16 stages at a cost of $6 million. In 2012, the average U.S. Bakken well ran 2,818-m (9,300-ft) laterals and was stimulated with 3 million pounds of proppant in 30 stages for an expected well cost of more than $9 million.

On the Canadian side, costs have risen from about $1.6 million per well two years ago to about $2 million now. Crescent Point and PetroBakken, the two dominant operators in Canada’s largest two Bakken developments, have had to change drilling and completion designs as well. The former switched completion methods in 2011 to 25-stage, cemented liners. As a result, costs climbed to about $2 million per well.

“PetroBakken has gone through several iterations of drilling and completion design. Today, the company employs a dual-lateral well with each leg stimulated in about 15 stages at a total well cost of about $2.9 million,” he said.

“While wells in the U.S. Bakken can cost five times more than the Canadian counterparts, the U.S. wells also deliver a lot more oil. The most productive wells are along the eastern margin in the U.S. Bakken in the Sanish Parshall fields. In Canada, the most productive wells seem to hug the U.S.-Canadia border where the Bakken is found at greater depths compared to further north,” he added.

Scott explained that his company could use well cost estimates by region and over time to estimate the West Texas Intermediate (WTI) price required for the wells to break even. The lower drilling and completion costs of the Canadian Bakken wells result in a much more favorable ranking among the various areas.

“As it turns out, lower productivity is more than offset by lower well costs. On a production-weighted basis, the average break even of the Canadian Bakken is about $60/bbl WTI compared to $65/bbl for US Bakken crude on average,” he emphasized.

“Not all Bakkens are created equal. The Canadian Bakken is superior to the U.S. Bakken in terms of economic returns. However, the pool of public equities is much greater south of the border, and investors may need to look at the U.S. Bakken to find underappreciated investment opportunities,” Scott concluded.

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