t may have been prescient that Whitecap Resources Inc. CEO Grant Fagerheim was inducted into the Saskatchewan Oilpatch Hall of Fame at the 2017 Saskatchewan Oil & Gas Show in Weyburn.
He鈥檚 liable to be spending a lot more time in Weyburn now, as Whitecap announced on Nov. 13 it had bought the Weyburn Unit from Cenovus Energy Inc. for $940 million cash. Whitecap plans on resuming drilling and expanding the operation.
Cenovus took to selling off assets in a big way to finance its $17.7 billion purchase of ConocoPhillip鈥檚 50 per cent interest in jointly owned oilsands venture and deep basin conventional assets, announced March 29. Since then, it鈥檚 targeted $4 billion to $5 billion in asset sales to cover part of the purchase. The Weyburn Unit went on the block.
The Weyburn Unit is one of Saskatchewan鈥檚 most significant oilfields, producing for over 60 years. Their introduction of a carbon dioxide (CO2) miscible flood enhanced oil recovery (EOR) scheme near the turn of the century dramatically enhanced the field鈥檚 expected producing life, to the point where Cenovus stopped putting an estimate on its longevity.
The field initially only took CO2 from the 20-inch Souris Valley Pipeline running from the Dakota Gasification Company at Beulah, N.D. Since 2014, it has also been receiving CO2from the SaskPower Boundary Dam Unit 3 Integrated Carbon Capture and Storage Project, near Estevan, a contract that has seven years of life remaining.
The previously announced sale of Cenovus鈥檚 Pelican Lake assets closed on Sept. 29, and the company still anticipates the previously announced sales of its Palliser and Suffield assets to close later this year.
鈥淲e鈥檙e pleased with the progress we鈥檝e made in delivering on our divestiture plan to optimize our portfolio and deleverage the company鈥檚 balance sheet,鈥� said Alex Pourbaix, Cenovus president and CEO. 鈥淣et proceeds from the Weyburn asset sale, combined with the other three divestitures announced earlier this fall, will position us to retire the entire $3.6 billion bridge facility associated with the ConocoPhillips asset purchase by the end of 2017.鈥�
For Whitecap Resources, it鈥檚 another significant addition in southern Saskatchewan in recent years, as other, larger players move out. In May 2016, Whitecap purchased 11,600 barrels of oil equivalent (boepd) assets from Husky in southwest Saskatchewan as that company, too, sought to divest itself of much of its widespread assets to have a more concentrated focus on thermal heavy oil projects.
While it was the operator of the Weyburn Unit, Cenovus has many partners with minority shares in the unit. The agreement is for Cenovus鈥� interests.
The acquisition includes a 62.1 per cent operated working interest in the Weyburn Unit (14,600 boepd) and 200 boepd of production from minor assets in southeast Saskatchewan. Whitecap described the Weyburn Unit as a world class CO2 enhanced oil recovery development with a low base decline rate of less than five per cent, high operating netback of $31.86/boe, and significant short and long-term development and expansion opportunities. The assets also include extensive infrastructure in place to facilitate future development plans.
Strategic rationale
In a press release on Nov. 13, Whitecap said, 鈥淭he acquisition is a continuation of Whitecap's strategy to enhance our existing portfolio with assets that exhibit lower production declines, high operating netbacks and significant growth opportunities with strong capital efficiencies to further enhance our future free funds flow.
鈥淭he unit is a self-sustaining operation that generates strong free funds flow even in a low commodity price environment and requires minimal capital investment to maintain production volumes and associated funds flow.
鈥淚n 2018, our base case assumptions are to invest 35 per cent of the net operating income from these assets to maintain production at 14,800 boepd which we anticipate will result in significant additional free funds flow of approximately $112 million.
鈥淲e estimate that over the next five years, the base assets have the potential to grow to approximately 17,700 boepd and generate cumulative free funds flow of $459 million using a flat operating netback of $31.86/boe.鈥�
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Drilling to resume
Whitecap noted there has been minimal development of this asset over the last few years with only 12 infill wells drilled in 2015 and one CO2 expansion phase added in 2014. Due to low commodity prices, capital spending has been limited to production maintenance over the last few years. A drilling rig that worked in the unit for decades was released during this time.
Whitecap anticipates spending approximately $60 million in 2018 on the unit, which represents 35 per cent of anticipated net operating income from the assets, to maintain a flat and stable production profile.
The unit is anticipated to be a multi-decade source of self-funding growth and annual free funds flow with meaningful near and long-term growth opportunities. There are significant optimization and expansion opportunities within the unit including:
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Thirty-four waterflood and EOR area infill drills;
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Reservoir optimization of the mature EOR patterns to minimize decline and improve CO2 utilization;
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Eight identified and planned CO2 expansion phases which include the drilling of 93 (57.8 net) production and 62 (38.5 net) injection wells; and
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Recovery of hydrocarbons liquids from recycled CO2 stream prior to reservoir reinjection.
Whitecap said the eight EOR expansion phases are conservatively booked to an ultimate recovery factor of 31 per cent compared to an average ultimate recovery factor of 54 per cent booked on the existing 13 phases. To date, the 13 existing phases have recovered on average 42 per cent of the original oil in place (OOIP) with some of the more mature phases recovering over 60 per cent.
The eight expansion phases will develop a significant portion of the remaining 44 per cent of the Unit area that has yet to benefit from the CO2 injection. The hydrocarbon liquid recovery from the CO2 stream, prior to re-injection, is also expected to provide an extremely stable and significant source of free funds flow.
There are also material expansion opportunities identified immediately offsetting the existing CO2 scheme which are in the preliminary planning stage. These include vertical and lateral expansion of the existing CO2 EOR scheme of which the combined opportunity set is unbooked and could represent incremental gross reserves of 109 MMbbls and a peak incremental gross production increase of over 13,000 boepd.
