Cardium Full Circle

What was once a depleting play with its glory days long faded has suddenly resurrected itself as a compelling and growing story in the vanguard of North America’s unconventional oil revolution.

The Cretaceous Cardium has a long history of production in west-central Alberta: Pembina, Canada’s largest onshore conventional field, was discovered in the early 1950s. The super-giant accumulation occurs in a massive wedge of sediment that is a perfect stratigraphic trap, ranging in thickness from some 135 meters on its western side to a shaleout on its eastern edge.

Cardium sediments are a mix of conglomerates, tight sandstones and shales. The entire formation, which extends across some 400 miles (roughly between Grand Prairie and Calgary), is estimated to have contained 12 billion barrels of original oil in place, according to Canada’s Energy Resources and Conservation Board. About 1.5 billion barrels have been produced through conventional, vertical wells, mainly from higher permeability conglomeratic streaks and coarser-grained sandstones.

Pembina Field’s production peaked in the early 1970s at some 200,000 barrels of oil equivalent (BOE) per day and declined steadily thereafter. However, beginning in 2009, operators began to ply horizontal drilling and multi-stage fracturing technologies in the tight-sand intervals in the Cardium. These portions of the formation had excellent storage capacities but limited permeabilities; the new technologies suddenly unlocked that stuck oil.

Now, estimates by Hart Energy and Rystad Energy are that the Cardium could again be producing close to 200,000 BOE by 2025.

Today, the mix of operators busy in the Cardium play includes home-grown Canadian firms Penn West Exploration, PetroBakken Energy, Bonterra Energy, Whitecap Resources, NAL Energy and ARC Resources. Mega-independents such as Talisman Energy, Canadian Natural Resources, ConocoPhillips and Devon Energy have positions as well.

A flurry of recent deals has highlighted the industry’s strong interest in Cardium assets. The newest announcement involved the merger of RockBridge Resources Inc. and Crimson Energy Ltd. The combined entity will have interests in 10 sections of land in the greater Pembina area. Just prior to that news, Pengrowth Energy Corp. and NAL Energy, an active Cardium driller, revealed that they were combining. Pengrowth noted that NAL Energy’s inventory of light-oil locations was a primary consideration in its business combination.

In February, top Cardium players Whitecap Resources and Midway Energy Ltd. also merged. Whitecap gained 144 net Cardium locations in the Garrington area of the play, along with 5,400 BOE of daily production. The Midway assets nicely complement Whitecap’s existing Cardium leasehold in the Pembina area.

Of course, the biggest deal involving Cardium to date was Daylight/Sinopec. Announced in November 2011, the $2.1-billion acquisition of Daylight’s Duvernay and Cardium asset base by Chinese state firm Sinopec underscored the international allure of Canada’s light, tight oil plays.

Certainly, Cardium economics are solid.

Active operators are reporting well costs between $2.1- and $4.3 million, with 30-day average initial production rates of 150 to 250 BOE per day. Estimated ultimate recoveries are thought to range between 120,000 and 240,000 BOE. Production splits run about 45% light-gravity oil, 40% gas and the remainder condensate and NGLs. According to Hart Energy’s North American Shale Quarterly Service, breakeven prices average $47 per BOE for the play. At that oil price, Cardium wells can achieve a 7.5% internal rate of return, net of operating expenses, royalties and taxes.

With that, I’m switching to a personal note. This column will be my last for Oil and Gas Investor, as I am taking on new challenges within Hart Energy. In the dozen years I have been writing columns in this space, I have had the pleasure of covering exploration-related topics at home and abroad. I’ve been able to indulge my interests, and at the same time hopefully entertain and enlighten some of you. It’s truly been a privilege!

Next month, I invite you to enjoy a fresh perspective by Hart Energy’s Richard Mason, chief technical director, upstream. I am confident you will be pleased.