While the drop in oil prices effectively means no drilling for now in Canada’s biggest shale reserves, we’re looking at some of the cheaper, smaller plays that can move forward despite the slump in Saskatchewan’s Northern Williston Basin, with a four-well drilling plan getting under way as early as this month at Bannock Creek and land values set to skyrocket with the first discovery.
Saturn Minerals (TSXV:SMI) and its JV partner are defying the oil price slump by launching a four-well conventional drilling program after successful 2D seismic pinpointed 10 locations for potential light oil traps in the stacked Red River, Winnipeg and Deadwood Formations in the basin.
At the end of the day, we’re looking at a potential estimated production rate of 100-150 barrels per day, per well.
Bannock Creek is in Saskatchewan’s section of the prolific Williston Basin, which already produces 1 million bpd. And Bannock Creek isn’t the only permit Saturn has here—its sleeper play is Little Swan, which will be a future target. Together, the two permits span 376,800 acres. Not only does this make it one of the largest permits in Saskatchewan, but it’s also sitting right next to some very large and very active drillers, including Whiting Petroleum Corp (NYSE:WLL), Hess Corp (NYSE:HES) and Continental Resources (NYSE:CLR).
But the real story here is the potential for land value to sky rocket. Saturn holds hundreds of thousands of acres in this area and the closest producing well is around 300 kilometers away. This means that land is cheap. But it also means that the minute any discovery is announced in this area, the land value will sky rocket, and Saturn is sitting on the biggest piece of property so it would be the primary beneficiary.
In the meantime, we’re looking at cost and we like the idea of getting back to the conventional—especially in this area. The Bannock Creek wells are shallow and vertical, and will reach under 1,000 meters in depth. This is why it can survive in the current price environment, where Canada’s shale plays cannot as the drilling costs are significantly lower.
While oil and gas explorers targeting horizontal drilling and multi-stage fracking in the same area will drill down 4,000 meters and pay up to $17 million for a well, the shallow, vertical wells at Bannock Creek will only cost about CAD $830,000 to drill, tie-in and complete.
This math makes room for some impressive netbacks, and adding to the lure is the fact that Saskatchewan is known for having some strong producing shallow plays.
Not only is the production rate estimated to be around 100 to 150 bpd per well, but the net backs will be around $35 per barrel at current oil prices, making for some sound returns on investment.
Management is always the key, and from this perspective we see that Bannock Creek is one track. Seismic has come through as promised, and drilling is on track as well. If Saturn can fast-track Bannock and Little Swan and see success, and then move forward with new exploration for more growth in North America’s hottest wildcat venue, we could be looking at a company that defies low oil prices and brings the conventional back to the forefront of the oil and gas game with high-yield returns.
“We’re going back to the way things were done in the early 90s in the Western Canada Sedimentary Basin. We’re back to the conventional game,” Saturn consultant Craig Boland said in a recent in a video interview with smallcappower.com.
In May, the company also completed a $450,000 non flow-through private placement, with 2,500,000 units at a price of $0.18 to help boost the four-well drilling project.
So while Canadian media seems stuck on forcing the potential of the country’s biggest shale plays, we view this as presently unrealistic. Getting back to the basics for now will be key for investors looking for real returns in this market, and Saskatchewan’s cheap shallow plays are the only hope in this venue.
What investors should really be latching onto here is Saturn’s huge acreage package and the potential for land value per acre to explode with the first discovery, rendering the four-well drilling plan even more exciting.
By James Burgess of Oilprice.com
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