City moves to next phase of energy growth strategy

By Collin Gallant on June 22, 2018.

cgallant@medicinehatnews.com @CollinGallant

The City of Medicine Hat’s petroleum division will move to a second, more focused phase of production growth strategy this year, while returning to a traditional oil play and seeking out acquisitions that make economic sense.

That was announced at Thursday’s meeting of the energy and utility committee at Medicine Hat city hall, where petroleum general manager Brad Maynes said significant challenges for natural gas are still hurting the bottom line.

Offsetting some of that pain, oil production and pricing is up, and liabilities have been shed, he said.

In 2016, the division announced it had authored a drilling plan that could boost oil revenue from new projects in the region, bolster the bottom line, and perhaps recreate a pool similar to the Glauc C formation east of the city limits.

That didn’t happen, though the city will be part of new drilling in the actual Glauc C, and focus on only a handful of oil drilling projects in the region.

“We didn’t find a 30-million barrel field, but we found oil gas and helium, and will move forward at a slower, more deliberate pace,” said Maynes.

The strategy, which laid aside $45 million for new drilling and exploration, is on budget, he said, and allowed the city to acquire “significant” acreage — thus far, 13 projects from near Hanna to the Montana border and from Swift Current, Sask. to Bassano.

A “minor amount” of helium was also discovered in one well, though the volume and quality of the find, as well as the economic viability of extracting the noble gas, is still being evaluated.

Going forward the division hopes to drill fewer wells and focus at just several undisclosed locations.

That land discount — up to 90 per cent compared to 2014 — is the result of little interest in conventional production projects in the southeast, said Maynes. The same pricing stress on natural gas producers is bringing wells and properties onto the market for sale as steep discounts.

“For the first time in years we may consider an acquisition,” said Maynes. “We will when we believe if it’s in close proximity to our operations and it can be a good value-add.”

“Sometimes big companies have small opportunities in our area that can be good value for us,” Coun. Jim Turner said.

In the Glauc C, which the city is in partnership with Enerplus — the private sector explorer is planning to drill three to five wells this summer to boost production in existing wells. The costs and proceeds are one-third the responsibility of the city, and Maynes projected 200 to 400 barrels per day of added production. The city’s current daily production is about 1,300 barrels.

Chair Coun. Phil Turnbull said proven profitability in the field was encouraging, as well as Enerplus’s activity, considering they retained only the Glauc C interests in Western Canada after selling blocks of dry gas last year.

Another bright spot for the city is a new five-well field known as Denzil, west of Kindersley. Maynes called it “a rock -solid producer” for the city.

North American prices for crude oil are in the mid US$60 range, though the city’s prices are based on Western Canada Select.