Oilfield service companies seeking customers can benefit from new data on every “drilled but uncompleted well” (DUC) in Alberta and Saskatchewan – wells that, if left untouched for more than one year after drilling, will incur millions of dollars in LLR-related liabilities.
For each DUC, the relevant data for service companies includes the location, operator, current operating status and historical production of surrounding wells. The data identifies which operators are at greatest risk of contravening LLR regulations if they don’t act on the DUCs. It also identifies other parties that could be indirectly affected by non-compliance.
This new data is part of CanOils Assets module.
Based on LLR regulations in Alberta and Saskatchewan, currently by November 2017 a total of Cdn$330 million of abandonment and reclamation liabilities, covering more than 3,600 licenses, will impact Canada’s E&P players’ LLR positions.
Why? Because LLR liabilities attached to new wells come into effect a year after drilling (see note 1). This is true for all wells – whether they are producing, suspended or uncompleted.
Source: CanOils Assets (see notes 2 and 3)
One way to offset this LLR risk for Canadian E&P players is to act upon DUCs – by either completing or abandoning/reclaiming them. This opens up a potential multi-million dollar market for oilfield service companies.
The number of DUCs in Canada multiplied during the price downturn, because companies have been reluctant to waste the most prolific production period of any well – the first few months – on low margins. They have been waiting for an increase in price. In some cases, keeping higher numbers of DUCs, and therefore larger values of proven non-producing reserves on the books, may have been deemed necessary to boost attractiveness to potential investors or acquirers.
But DUCs that remain uncompleted one year on from drilling obviously bring no production to the table and have a negative influence on an operator’s LLR position. For more on how service companies can identify opportunities using LLR-related data, click here.
Alberta currently has Cdn$21 million of LLR liabilities attached to DUC wells that will hit the 12-month threshold before the end of March 2017. If an operator has a sufficient quantity of these DUCs to take its LLR rating below 1.0 and does not act upon them, it would need to provide a security deposit or face greater scrutiny from the AER on far more aspects of day-to-day operations. Also, companies in Alberta would be unable to complete any M&A acquisition with a rating below 2.0.
Source: CanOils Assets (see notes 2 and 3)
The good news for oilfield service companies is that operators can complete and tie-in DUCs to boost overall production and in turn boost LLR ratings, or indeed reduce their LLR liability by abandoning and reclaiming DUCs. The sheer volume of liabilities involved in leaving wells untouched indicates a huge opportunity within the oil services sector.
1) Year-long well exemptions are only applied in Alberta and Saskatchewan, not in British Columbia. CanOils Assets has LLR-related data for every single well in all three provinces. For Alberta wells, the year-long exemption begins at final drilling date. For Saskatchewan, it begins at the spud date.
2) For the purpose of this article, every well without any production in its lifetime that is over a year old or approaching a year old in the given time parameters has been included as a DUC. CanOils Assets has the data and granularity to support far more detailed DUC analysis across the Alberta and Saskatchewan oil and gas markets.
3) The data includes all wells apart from certain well types, which are always exempt from LLR evaluations. In Alberta, this list of well types includes oilsands evaluation wells. For more information on well type exclusions in Alberta, visit the AER.
In Alberta, the LLR program is part of the overall LMR (liability management rating) program, which also includes the OWL (oilfield waste liability) and LFP (large facility program). CanOils focuses only on LLR calculations by individual well, but also has the overall corporate LMR/LLR ratings by province. In British Columbia, the program is also only referred to as the LMR program. The LLR rating system takes into account liabilities related to wells, facilities and pipelines. CanOils Assets is focused ONLY on the well component of the calculation.