In Premier Christy Clark’s vision of British Columbia’s economic future, natural gas is the headliner as the province gears up to export billions of tonnes of liquefied natural gas from proposed West Coast projects.
But the premier may have to make room on the bill for another fossil fuel — thanks mainly to a Calgary-based company drilling in the northeastern part of the province, B.C.’s daily crude oil production is at a nine-year high and expected to steadily increase.
Oil analysts at Raymond James in Calgary say B.C. is becoming an emerging oil basin thanks to wells drilled by Calgary oil-and-gas producer ARC Resources (TSX:ARX) in the Tower region, about 40 kilometres south of Fort St. John.
“Now that ARC is getting some pretty phenomenal results, watch for them to build out the infrastructure,” said analyst Jeremy McCrae, explaining pipeline takeaway capacity is a limiting factor for growth.
“And what you may see is some other operators start to drill and do more test wells themselves, get some comfort in the area, then they will build their infrastructure.”
McCrae added that given current oil prices, the boom won’t be as pronounced as some that other oil basins have experienced.
“But if oil prices start to come back here, especially given some of the results, watch for this play to have more growth than other areas.”
Crude prices closed at almost US$50 a barrel on Wednesday, its highest level since October.
The Montney underground formation in northeastern B.C. is composed of several stacked layers, some containing mostly dry natural gas or natural gas liquids and some predominantly oil, McCrae said.
The pool of oil extends about 100 kilometres from east to west and could ultimately prove to be as prolific as the best oil plays in Alberta and Saskatchewan, he added.
B.C. oil production peaked at about 100,000 barrels per day in 1998, statistics from the province show, but has fallen off dramatically since then as fields were depleted and investment dried up.
In 2014, ARC started producing light oil from its first eight-well pad at Tower. It has added two pads since then and is now contributing about half of the province’s total crude output of more than 26,000 barrels per day, Raymond James notes.
The B.C. production is a small fraction of Canada’s total oil production of over four million barrels per day.
ARC’s CEO, Myron Stadnyk, did not return a call requesting comment on Wednesday. But on a conference call in February, he said that three of the Tower Montney wells ARC drilled in 2015 were closing in on cumulative production of 100,000 barrels of oil.
The wells are expected to cover costs and become profitable in less than a year at current prices. They break even at Cdn$30 per barrel, according to an ARC presentation.
ARC estimates it has about 9.7 billion barrels of light oil originally in place on its Tower lands. Only a fraction of that is likely to be recoverable.
Hamed Sanei, a Calgary-based research scientist for the Geological Survey of Canada, a division of Natural Resources Canada, said B.C. is mainly a dry natural gas producing province because of the depth and temperature at which organic materials were buried in prehistoric times.
Deeper burial means higher temperatures, thus creating more dry gas.
“When we go toward the east, we are in the right temperature zone that we could have light oil and liquid gas such as condensate,” he said. “As we get more data now, we can assess the thermal maturity and map this area better around Fort St. John.”
He said producers drilling gas wells knew the oil was there in a zone between 1,600 and 2,400 metres deep but needed to refine their horizontal drilling and well-fracturing completion techniques to target the oil and break up the tight rock underground so it would flow into a well.
McCrae pointed out that natural gas wells in certain areas in northeastern B.C. cost $2.2 million to drill but they can then earn about $1 million in B.C. royalty credits designed to encourage exploration to feed LNG plants.
Oil wells don’t currently qualify for those credits but, in its report, Raymond James says it expects recent oil growth could result in provincial government incentives and potential royalty sweeteners to encourage more drilling.
In B.C., oil regulation falls under the Ministry of Natural Gas Development.
A ministry spokesman said he could not comment on whether new oil incentives are planned.
Follow @HealingSlowly on Twitter