April 18th, 2012 
Category: 
The Viking is an established oil play that has produced oil and gas from conventional reservoirs since the 1950’s. From a geological point of view, the play has been delineated by more than 8,000 vertical wells. This is a low risk light oil resource style play with a large amount of original oil in place that is second only to the Cardium and has one of the lowest recoveries estimated at ~4%. The formation covers a large part of western Canada and extends over most of Saskatchewan. It is mostly gas bearing with oil production restricted to west-central Saskatchewan in the Kindersley-Dodsland area. This light sweet oil play deserves to be highlighted along with notable Viking oil companies.
The Viking Oil Trend
The Viking formation consists mainly of fine to coarse grained sandstone sandwiched between 2 marine shales. It is divided into 2 zones: an upper zone that ranges from 2-3 meters in thickness where oil has been produced from vertical wells and a lower zone that is 3-9 meters thick which has been uneconomic to produce from until the advent of new technology. Government estimates for the upper zone suggest 2 billion barrels of OOIP exploitable with vertical drilling. However, the Viking oil pools have been “widened” with the advent of horizontal drilling and multistage fracking completion, the industry now estimates up to 6 billion barrels of OOIP as a result of tapping into the previously uneconomic lower compartmentalized zone. Horizontal development has unlocked massive oil reserves and is expected to increase recovery factors up to 12% potentially exceeding 20% through secondary recovery techniques such as putting Viking oil pools under waterflood.
Only 4% recovered to date
Compared to other unconventional plays, the Viking is shallower at only 700-750m in depth. A shallower depth results in lower costs for drilling and completing a well and lower pressure which translates into less prolific production rates relative to other light oil plays such as the Cardium formation or the Slave Point. Most of the players have been optimizing their completion techniques and have brought their costs below $1 million per well improving returns on the play and well results. It now takes a Viking well less than 28 days from spud date to on-stream date. Several players in the industry have even started to successfully employ 16 well/section spacing in the Dodsland area which materially augments the scope of their opportunity base.
Viking oil from West Central Saskatchewan is 35° – 39° API light sweet oil. Each barrel fetches Edmonton Par pricing less ~$4.00/bbl . Saskatchewan offers an extremely attractive royalty system whereby Viking horizontal wells qualify for a 2.5% royalty rate on crown lands and 0% production tax on freehold lands for the first 37,700 barrels of cumulative oil production. This would equate to about half of the expected ultimate recovery (EUR) of some producers.
Attractive royalty rates coupled with low production costs result in extremely attractive netbacks. At $95 Edmonton Par, Viking oil producers can net between $64 and $68 in profit per barrel which means an excellent recycle ratio for each dollar. Viking oil wells IP30 (initial production rates for the first 30 days) range from 35-65 bbls/day with more than 85% weighting to light sweet oil. A Viking oil well’s production may contain anywhere from 0-25% of natural gas. Estimated ultimate recoveries range from 45,000 up to 75,000 bbls per well depending on the area and the completion method. The figure below by Renegade Petroleum provides a good example of the Viking type curve following 51 wells drilled in 2011 in West Central Saskatchewan. Westfire Energy recently achieved IP30 rates of 77 bbls/day by modifying its “hot frac” completion technique. (“Hot frac” means the frac fluid is heated to a temperature of ~55°C prior to completions (versus the reservoir temperature of ~23-25ºC); the frac fluid is pumped down hole and mitigates waxy buildup in the lateral portion of the well during initial flow back.)
Viking oil type curve
Production declines on these wells range from 50%-60% in the first year. This is normal for tight oil plays and in the case of the Viking at least the cost per well makes it less capital intensive to replace declines and increase production. These wells payout in ~1 year or less which also helps in recovering money faster and recycling it into new wells. There is a large number of oil companies operating in W.C. Saskatchewan both private and public. Let’s focus on the public companies which include junior, intermediate and senior producers:
|
Active Companies |
Symbol |
Net Acreage |
| 3MV ENERGY CORP | TSXV:TMV | 37 net sections |
| ARC Resources | TSX:ARX | 30 net sections |
| Baytex Energy | TSX:BTE | 48 net sections |
| Bonavista Energy | TSX:BNP | 240 net sections |
| Canadian Natrual Res. | TSX:CNQ NYSE:CNQ | 80+ net sections |
| Crescent Point Energy | TSX:CPG | 137 net sections |
| Enerplus Corp. | TSX:ERF NYSE:ERF | 98 net sections |
| Devon Energy | NYSE:DVN | 1400 net sections |
| Husky Energy | TSX:HSE | 500 net sections |
| Imperial Oil | TSX:IMO NYSE:IMO | 60 net sections |
| Invicta Energy | TSXV:VCA | 5 net sections |
| Novus Energy | TSXV:NVS | 121 net sections |
| Pengrowth Energy | TSX:PGF NYSE:PGF | 350+ net sections |
| Penn West Petroleum | TSX:PWT NYSE:PWT | 1170 net sections |
| Petro Viking Energy | TSXV:VIK | 10 net sections |
| Raging River Exploration | TSXV:RRX | 131 net sections |
| Renegade Petroleum | TSXV:RPL | 27 net sections |
| Twin Butte Energy | TSX:TBE | 121 net sections |
| WhiteCap Resources | TSX:WCP | 111 net sections |
| WestFire Energy | TSX:WFE | 232 net sections |
The Viking formation is also present in Alberta where it is deeper and thicker resulting in higher IP rates but this is a story on its own to be written later. Some of the acreage above includes land prospective for Viking oil in Alberta. Companies with no exposures to the Viking in WC Saskatchewan have not been included in the list.
The Viking oil play in Saskatchewan is repeatable and scalable with low operating costs and high netbacks. Only a handful of companies provide investors with a pure play exposure to the Viking from the list above, you can read about them at the following link.
Who would be your top pick from the list for Viking oil exposure?
This list was compiled by BeatingTheIndex.com from the latest presentations and company news releases. I do not guarantee the accuracy of the data so if you spot an error in the data or know of a company that I missed from the list, please do not hesitate to contact me.
[...] 5 junior oil producers listed above are highly leveraged to the Viking oil play because it constitutes the core of their development programs through 2012 and beyond. These [...]
Great Post!
Thank you CJ
I have some PGH, and have held PWE in the past. I might do so again. Husky is also a tasty prospect.
Usually when you own PWE you pretty much own land in the whole WCSB
That is quite the list. I must say I am not a huge fan of more oil rigs. I think we need to focus on other energy sources. Pretty soon everything is going to dug to the point of extinction. I guess the Saskatchewan economy would argue with me though. For them, this will be a big boost.
Until the other energy resources are ready to take over from oil, we need more rigs as this is an opportunity to generate collective wealth in North America.
[...] Big Cajun Man offered some financial fill-in-the-blanks for fun. Beating The Index provided an overview of Viking, an established oil play for those inclined. Preet Banerjee said Warren Buffett and Gordon Gekko [...]
[...] cranking out that dividend. PGH was recently featured in our friend Beating the Index’s analysis of the Viking oil formation in [...]
Hey,
Great article, enjoyed it. I’ve been a long term Novus holder and operationally I have been pleased but the share price has yet to respond. Haha. Just my luck. I was wondering what your thoughts are on Raging River? I’m pretty interested as they have a waterflood project that is close to yielding results. I have had fairly good luck with spin offs and recaps by proven management. Also unless I’m mistaken I think their most recent acquisition was with CPG. That would reinforce the track record of this team as being the forerunner for CPG to takeover.
Thanks for the article,
NLR
NLR, Novus would not be the only one that’s not getting any recognition in this market…
RRX is a pure bet on management with Neil Roszell at the head having just sold WSX to CPG. Add to that a nice Viking package and you can’t go wrong. However, the stock is trading at a premium in my opinion, not sure I would buy in giving all the other stocks that are on sale.
Glad you enjoyed the post and I always look forward to your feedback!
Cheers,
Excellent read for a young investor just dipping his feet in.. I am very interested in the Canadian Oil opportunities and this provided some exceptional insight. Thank you for this post
You are most welcome Timmeh, I also thank you for taking the time to provide me with your feedback and appreciation.
Cheers!
Have you looked at SURE as a Viking player? Their latest corporate presentation indicates 16855 bet acres of VKNG prospective lands in the Redwater trend.
Mjn, SURE will be included in the upcoming coverage of the Viking trend in Alberta. Their land is not in Saskatchewan.
Cheers,
[...] @ Beating The Index presents The Viking Oil Play in Saskatchewan – “The Viking oil play in Saskatchewan is repeatable and scalable with low operating [...]
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[...] at Beating the Index writes The Viking Oil Play in Saskatchewan. The Viking oil play in Saskatchewan is repeatable and scalable with low operating costs and high [...]
[...] part of our series covering oil production from the Viking formation; the first post covered the Viking oil play in Saskatchewan. Today’s post will cover the Viking oil play in Alberta along with the notable players [...]
[...] @ BeatingTheIndex writes The Viking Oil Play in Saskatchewan – The Viking oil play in Saskatchewan is repeatable and scalable with low operating costs and [...]
[...] The Viking oil play in Saskatchewan: With 26.5 net sections of land, the Viking provides a drilling inventory of 314 net sections assuming 16 wells/section spacing. The Viking is boring with IP30 rates of ~50 boed but it is a proven, low risk development resource play. The upside here lies in the potential for waterflood because it increases the recovery factors significantly for little cost. Through waterflood a company can harvest an extra 1 million barrels per section for a cost of $10 per barrel or less, pretty cheap barrels if you ask me. Water injection is expected to start in late 2012. [...]
[...] in highly attractive netbacks for producers active in the area. According to personal finance blog BTI, at $95 Edmonton Par, Viking oil producers are able to net between $64 and $68 in profit per [...]