Calgary – Over the winter drilling season Crescent Point Energy Corp. not only led drilling activity for Saskatchewan, but also for the entire country, with as many as 25 rigs working at a time.
Ryan Gritzfeldt, Crescent Point’s vice president of engineering and business development east (southeast Saskatchewan and southwest Manitoba) spoke to Pipeline News on April 10 by phone from Calgary about what their plans are for Saskatchewan after road bans end.
Pipeline News: Where is Crescent Point going after spring breakup? Are we expecting much activity from you folks on the drilling side?
Ryan Gritzfeldt: We’re staying active. Activity levels won’t be quite as high as Q1 (the first quarter of the year). We had a really busy Q1 in southeast Saskatchewan. After breakup, we’re staying very busy, not quite at the levels as Q1, but similar levels to what we’ve had in other years.
We’ve been working hard with our service providers to reduce costs. We want to keep companies busy in the areas we operate, but not at the sake of hurting our balance sheet. We’ve been working hard to reduce costs to get through this downturn together and come out the other side strong so we can continue on into the future with active programs.
P.N.: There obviously was some resentment that Crescent Point, the big player, would say, “Hey, you’ve got to cut rates.”
But the flip side of that is at least you guys kept working, because all the other companies pushed back from the table and said “We’re not doing anything.”
At one point you had 18 of 25 rigs working in this area.
Gritzfeldt: I know. It will be interesting to see what that stat will be after breakup, too.
We were kind of through it in 2009, when say, for example, our Bakken wells cost about $2 million. Through the downturn we were able to work with our service providers to get those down to $1.5, $1.6 million a well. We’re looking to do the same thing here so the balance sheet stays strong so that when prices do rebound, we’re still strong and we can keep everybody working, just as we have for the past several years?
P.N.: Have you heard of the term of a “fracklog?”
Gritzfeldt: A fracklog?
P.N.: It’s something that’s happening in North Dakota right now. A lot of Bakken and Three Forks producers there are drilling the well, but because of the surplus of oil, and no one wants give away oil at $50 a barrel, they are drilling them, but not completing them. They have a backlog of fracking. They’re putting a hole in the ground. They’re not completing it. When things pick up, then they will go in and complete it and put that well into service.
Gritzfeldt: Yup, I’ve heard of some companies doing that.
P.N.: Have you been doing that?
Gritzfeldt: No. We haven’t been doing that, and we won’t be doing that. By doing that, you’re stranding a lot of capital without getting your production on and helping the payout period, right?
You have to remember, too, in North Dakota, their netbacks are a lot lower because of higher royalty rates. We’re drilling in Saskatchewan where the economics still meet our hurdle rates. We choose to bring our wells on production as soon as we can to help with that payout period and keep our production growing.
P.N.: (In Q1) You had a total of 25 drilling rigs active Canada-wide, which was, by the way, the highest in all of Canada. Did you think about that much at all?
Gritzfeldt: In 2014, we were the top driller by metres drilled. It’s kind of an interesting stat. It speaks to the assets we own. We’re fortunate we’ve consolidated great assets with good economics, high netback. But with the downturn in oil price here, we have to stay disciplined. We’re well-hedged, and try to keep the balance sheet strong.
P.N.: Do you ever think, “Hey look we’re ahead of everyone else! Oh crap! We’re ahead of everyone else? Maybe they know something we don’t?”
Everyone else has pulled back. Have you ever had second thoughts that, “Maybe we shouldn’t be at such a high activity level, when all the other people have pulled back?
Gritzfeldt: I don’t know. Obviously we are cognizant of that. We have a five-year plan where we have our drilling activities planned out. We always shock the plan not just $90 or $100 oil like it was a year ago. We always look at it if it was $60 or $50 or $40 oil. We’re trying to stick to our five year plan.
We have to be cognizant of prices, but also remember we are well-hedged, which is different than a lot of companies. For example: even though oil is at $50, we have half of our production locked in at $90. So that helps us get through the downturn.
P.N.: How long is that for?
Gritzfeldt: We always hedge out three years. As of right now, a different percentage of our total production is hedged out every year. Since the inception of our company, we’ve always had a very active three-year hedge program.
P.N.: At some point that’s going to run out, though.
Gritzfeldt: Yeah, but as time goes on we keep layering on hedges where we try to have 50 to 60 per cent of current year production hedged at a certain price.
P.N.: Have you been maintaining your production levels around 150,000 barrels per day?
Gritzfeldt: Yes. Our target production guidance for 2015 is 152,500 boepd corporately.
P.N.: You’re also drilling near Kindersley. Can you talk about that?
Gritzfeldt: Kindersley? The Saskatchewan Viking play? You bet.
We got into that several years ago now, and there have been great results. We’ve done acquisitions there now for the past couple years. We’ve been increasing our drill program. It’s definitely an area we’re excited about and hopefully (we’ll) continue looking for consolidation opportunities and applying all the technology that we’ve learned fracking wells in different areas. What we’ve learned in different areas, we’re applying there now as well. Looking forwards, (we’re) looking at that property to be an opportunity to consolidate and increase our drill activity.
P.N.: Are you drilling in the “halo” of the Viking (the outer edge of what was developed decades ago with vertical wells)?
Gritzfeldt: I think that’s what you’re finding. A lot of plays, this multi-stage, horizontal fracking technology has opened up a lot of areas that were previously undeveloped because it wasn’t proven to develop on verticals. Now with horizontal, multi-stage fracking you can access these reservoirs that were previously uneconomic.
P.N.: Is that a tight reservoir you frack?
Gritzfeldt: Yeah, you frack that as well.
P.N.: Crescent Point has locked up most of the Viewfield Bakken, most of the Flat Lake play, almost all of the Shaunavon play. Are you looking for the same thing in Kindersley?
Gritzfeldt: I think same with every other play we get into, we look for opportunities. If we’re happy with our own drilling results and we think we can apply the technology we’ve learned from other areas into the area we’re operating in and get better results, those are always areas we’re going to look to consolidate as per our long-standing company strategy of acquiring large resources in place assets with high netbacks and lots of upside, whether it’s through in-fill drilling or waterflooding, or applying new technology.
P.N.: I noticed when you had 25 rigs going, only one was in Manitoba, only one was in Alberta. Why so much in Saskatchewan? Was it our royalty regime or our fiscal regime? There’s obviously a reason almost all your eggs were in the Saskatchewan basket.
Gritzfeldt: That’s a good question. We started out with conventional properties in southeast Saskatchewan. There are still lots of conventional opportunities, too. When you get a good conventional well, it’s still the best economics in the company.
But we got into the Viewfield, got into the Shaunavon, consolidated those properties. Definitely Saskatchewan attracts a lot of investment because of the royalty holidays and royalty regime. But that’s a great thing. Look at the capital investment the province has attracted over the past several years. I would say it’s a combination of all those.
P.N.: I’ve been saying to a lot of people that Saskatchewan was largely spared the 2009 downturn for two reasons: One, the Bakken play was still very hot, and that was largely due to you guys, and I spent two years writing stories about what I called “refugees from Stelmach.”
Gritzfeldt: Look what happens when you do change a regime. Part of our planning is if you can plan out your programs where you know what your economics are going to be, whereas Alberta changed their royalty regime and look what happened.
Also, too, again the Bakken, Shaunavon, Viking, Flat Lake, all the conventional pools – they’re not super-deep, either. There a million to two million bucks to drill, which is what most of our inventory is. It’s not the $10 million drills in northern Alberta, B.C. or North Dakota. It’s kind of the assets we look to in our inventory.
