When oil prices recover-and plenty of analysts think the climb back up
will start soon-Canada's western frontier of Saskatchewan and neighboring
Alberta will 'still
have the edge', according to a report from TD Economics.
Depressed oil prices may have skewed the view from Canada's oil-producing
west, but this will be one of the better places to bet on the oil rebound.
Saskatchewan remains the last highly accessible onshore North American oil
frontier and it is home to part of the prolific Williston Basin.
And as the industry gears up for the Williston
Basin Petroleum Conference(WBPC) on 28 April, the message is clear:
Saskatchewan is still alive and kicking.
Those companies who overleveraged themselves based on $90-$100 oil may be
in trouble, but those who prepared for the possibility of an oil price
downturn, and those who have made acquisitions on this downturn are poised
for bigger long-term gains.
And companies are still buying up land. The April sale of petroleum and
natural gas rights in Saskatchewan raised $5.3 million in revenue for the
province, bringing 2015 land sale revenues after two sales to a total of
$22.8 million.
The highest price paid for a single parcel was $558,280. Prairie Land
& Investment Services Ltd. acquired the 1,036-hectare lease north of Gull
Lake. The highest price on a per-hectare basis was $6,312 and is shared by
two parcels.
The next sale of Crown petroleum and natural gas rights will be held on
June 8.
One indication of the continued optimism surrounding the potential of
Saskatchewan despite the current oil price environment was the late
March sale-at 'full price'--of Beaumont Energy Inc. to Whitecap Resources
for $587 million.
At the end of the day, Whitecap paid 2.5 times Beaumont's value at current
oil prices. Analysts were, of course, shocked.
For Beaumont, which had purchased the Saskatchewan Kerrobert area light
oil resources in 2012 for only $110 million-the March sale price was
brilliant.
More than anything, this deal demonstrates that Saskatchewan is still on
the savvy investor's radar, and good management can see past current oil
prices and prepare for the rebound.
"The key is to watch out for companies that are making fundamental
acquisitions based on present-day oil prices and valuation metrics-companies
that didn't overleverage themselves based on $90 oil," says Andrew Rees,
President of Canadian explorer WellStar Energy, which also swooped in with a Saskatchewan
acquisition in February-under current oil prices.
What most are eyeing in Saskatchewan is the province's portion of the
prolific Williston Basin, which extends from the oil-bearing formations of
North Dakota and Montana into Canada.
While the Williston
Basin already produces over 1 million barrels of light crude oil per day,
projections are that it could be producing double that as new wells come on
line over the next few years. The Williston basin's top Bakken producers are
Whiting Petroleum Corp. (NYSE:WLL), Hess Corp. (NYSE:HES) and Continental
Resources (NYSE:CLR).
And as Rees points out, this is a well-developed thick Bakken sand trend.
"In Saskatchewan, investors and the bigger companies are looking for
the smaller players who can deploy capital to low-cost, low-risk development
opportunities that can immediately increase production," he said.
"When oil prices start to rebound, those who made smart Saskatchewan
acquisitions will be well ahead of the game."
At the other end of this equation, the debt-hobbled producers in the
'Saskatchewan Bakken' and Pembina Cardium-such as Lightstream Resources Ltd.
and Penn West Petroleum-will have a hard time going forward in the current
price environment. Both companies have severely curtailed activity, according
to the Globe
and Mail.
Only a year ago, companies such as these were riding high on three-digit oil
prices and attracting tons of capital, pumping it all into massive drilling
and new acquisitions. Since June 2014, however, oil prices have plunged 60%
and these companies are now in trouble.
The weeding out of the good deals from the bad deals has now begun to
restore a balance to Saskatchewan, which maintains the promise of a highly
attractive final frontier in which smart management makes all the difference.
And as TD economics opined in its recent report: "Our long-term view
has not been altered by recent events in the global oil market. The West will
again be the best."
