Resource World Magazine

58 www.resourceworld.com a u g u s t / s e p t e m b e r 2 0 1 6 the oil patch report B r u c e L a n t z B ritish Columbians seeking a little good news in the oil patch don't have to look farther than the northeast. And this time they'd be looking at oil, not the natural gas staple that has fueled the BC economy – at least until recently. While the experts have debated the viability of the proposed liquefied natu- ral gas (LNG) projects that have grabbed headlines for years, oil is surfacing with the potential to make the northeast a sig- nificant oil producer. Leading the rush is Calgary-based ARC Resources Ltd. [ARX-TSX] with wells drilled in the Tower region midway between Dawson Creek and Fort St. John, British Columbia which have the prov- ince's crude production on track to hit the highest levels in a decade. With other companies in the area, such as Tourmaline Oil Corp. [TOU-TSX] and Crew Energy Inc. [CR-TSX], ready to join in, oil could soon be more of a player in an economy whose natural gas staple has suf- fered in recent years. That may benefit a province growing weary of BC Premier Christy Clark's 2013 election campaign claims that several LNG plants worth $30-plus billion each would be online by 2017, producing billions of tonnes of LNG, creating 100,000 jobs, wip- ing out the provincial debt and creating a $100 billion 'prosperity fund'. But while up to 19 companies have explored their LNG options, none have put shovels in the ground and Clark could be left 'holding the bag' of empty promises in next year's provincial election – largely due to sagging prices and ramped-up com- petition in the LNG sector. But on the positive side, BC's daily crude oil production is at a nine-year high and is expected to steadily increase, thanks in large part to the work ARC is doing in the northeast, which is seeing 60 wells produc- ing 10,000 barrels of light oil a day. "We're pretty happy with it," said ARC vice-president of capital markets David Carey. "To go from zero to 10,000 barrels a day in just four years, that's significant." That makes up 25% of the company's oil production. Producers drilling gas wells knew oil was there, at 1,600-2,400 metres, but they couldn't get at it without refining their horizontal drilling and well-fracturing techniques to target the oil and break up the tight rock so it would flow into a well. While it was a new concept for plays in the Montney area, ARC went after the oil when their geoscience identified the area as liquids rich. They started by acquiring Storm Energy in 2010 after that company had drilled a vertical well and swabbed oil but couldn't get it to flow. In 2012, ARC drilled a horizontal well there to see if it could flow oil and that was successful, albeit with a low flow rate, so they kept making improvements in the completion technology. "It's very, very light sweet oil," Carey said, "and very high quality, which is good." That plus the relatively low cost of pro- duction, works well with current crude prices now hovering around US $41 a barrel. The company can break even with prices as low as $30. "It's hard to say how significant this is, because the geology varies rapidly up there. So it's hard to say where this can go," said Carey. In the near future, ARC will focus on monitoring the wells that are in produc- tion, plus drilling more, said Carey. "We want to see if we can extend the production," he said, adding that the pres- ent infrastructure, including a connection to a Pembina pipeline and a gas plant at Parkland, is sufficient to their needs. "At this point, more is under consider- ation but we're being cautious. We don't want to overcapitalize." ARC estimates that it has about 9.7 billion barrels of light oil in place on its Tower lands, though only a fraction of that is likely recoverable. It's a "very good" play, Carey added, but not one that's likely to result in BC rivaling Alberta or Saskatchewan as Canada's chief oil producers. The Montney underground formation features several stacked layers – some con- taining mostly dry natural gas or natural gas liquids, and some that are predomi- nantly oil. The pool of oil extends about 100 km from east to west. BC oil production peaked at about 100,000 barrels a day in 1998 – still a frac- tion of Canada's total production of more than four million barrels daily – but it has fallen off since then as fields became depleted and investment dried up. Oil wells don't qualify for government royalty credits worth $1 million to pro- ducers spending about $2.2 million per natural gas well in certain areas in north- eastern BC. But that could change. Some analysts think the developing potential for oil resource development could bring with it some incentives from government that could include royalty credits to encourage more drilling. Much will depend on the price of oil; if it goes up, watch for more companies to give northeastern BC a look. n ARC Resources producing 10,000 barrels/day in northeast BC

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