Canadian conventional oil and gas profitability the same today at $50 WTI as it was at $90
Canadian conventional oil and gas profitability the same today at $50 WTI as it was at $90: Analyst
By Deborah Jaremko
Nov. 4, 2016, 7:42 a.m.
The economic return on conventional oil and gas drilling in many of Western Canada’s plays is essentially the same today as it was when oil was $90/bbl.
That’s according to Cormark Securities institutional equity analyst Amir Arif in a presentation made this week to the 2016 Industry Insights Forum held by the Petroleum Services Association of Canada.
On average, the internal rates of return (IRRs) for Canadian oil and gas producers are actually four percent higher at US$50/bbl WTI than at US$90/bbl two years ago, he said.
This is driven by “currency, royalty changes, industry service cost reductions, reduced drill times, completion improvements/higher frac intensity, operating cost reductions and high-grading.”
As oil recovers—slowly—he says approximately half of the capital efficiency improvements that have been achieved should be retained from a combination of pad drilling, longer laterals, less days to drill and higher frac intensity.
“Companies best positioned to take advantage of [the] sweet spot of current economics and current service costs are those that have actively cleaned up their balance sheets,” he said.
Here’s a chart comparing current IRRs with 2014 IRRs.
Source: Cormark Securities