Calgary 鈥� Husky Energy鈥檚 continued shift from cold heavy oil production with sand (CHOPS) to thermal production in the Lloydminster region was laid out in the company鈥檚 Dec. 13 conference call outlining its 2017 capital expenditures.
At the very end of the call CEO Rob Peabody laid out a little nugget with regards to the company鈥檚 thoughts on CHOPS.
Asked about how the company will deal with increasing operating costs as oil prices go up, Peabody spoke about how the company鈥檚 shift towards thermal projects, and away from CHOPS, is key.
A journalist inquired about how they will keep their costs low if activity levels across the basin pick up next year. Peabody said, 鈥淚 think the main thing is that the majority of the work we鈥檝e done in driving our costs down over the past six-plus years is structural, as opposed to just driven through procurement. While we鈥檝e realized a lot of procurement savings, it鈥檚 more moving to projects with lower F&D costs and lower operating costs.
鈥淭he most extremely good example of that is in heavy oil, where the majority of our production used to come from CHOPS, or cold heavy oil production with sand, and we鈥檝e moved that to thermal. In doing that, we鈥檝e moved our F&D, or finding and development costs. Where they were sitting in the range of the upper $20 a barrel in F&D costs, we鈥檝e moved that down to about $12 a barrel in terms of F&D costs.
鈥淎nd our operating costs that were approaching $20 a barrel. We鈥檝e moved that to under $10 a barrel. In both cases, we鈥檝e done kind of a 50 per cent-plus cost reduction. That has nothing to do with procurement. That has to do with the technology we鈥檙e deploying in developing that oil.
鈥淲e鈥檙e doing the same sort of things in Western Canada by moving to resource plays where we鈥檙e able to use this manufacturing approach to production.
鈥淚 absolutely anticipate we will see cost pressure as prices go up, because I do think the service industry is, on balance, in aggregate, under water at the moment. I think we鈥檒l be in a good position to be on the right side of the curve, because most of these have been structural cost savings.鈥�
Peabody鈥檚 statements have been borne out by the company鈥檚 usage of drilling rigs in the Lloydminster region over the last two years, and especially over 2016. Their rig usage, as indicated by Rig Locator (www.riglocator.ca), has been greatly reduced compared to previous years, during the boom. Typically in the last year they would have just one or two drilling rigs working in the Lloydminster area, usually on SAGD projects near Edam. There have been very few new wells drilled by Husky in CHOPS production areas.
Yet in the same call, Peabody noted Husky has now identified 18 new thermal sites capable of producing 10,000 barrels per day, and is moving to develop three of them.聽
