Pipeline News March 2016

PIPELINE NEWS Saskatchewan’s Petroleum Monthly

March 2016

JUNIOR PRODUCERS

Canada Post Publication No. 40069240

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Volume 8 Issue 10

PART 1

Sask Headquartered Oil Producers A4

Wall Pitches Well Cleanup Proposal

A5

Oil Discovery in NE Saskatchewan A16

Bryant Ruda, left, and Chad Gottselig of Trinidad Drilling Rig 427 make a connection on a TORC well near Willmar on Feb. 18. TORC Oil & Gas Ltd. has continued drilling, even at a time when the Saskatchewan active rig count is down by three-quarters compared to two years ago. See story on Page A19. Photo by Brian Zinchuk Agricultural Equipment Technician

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PIPELINE NEWS March 2016

INSIDE SECTION A 4

Saskatchewan headquartered oil producers

13 Junior producers key part of Sask.

oil patch

5

Wall cleanup program pitched

15 Safety stand down on a

Crescent Point rig

6 Editorial 7 Opinion

16 Saturn Minerals announces oil

discovery in northeast Sask.

10 Fire Sky Energy closes

another acquisition

19 TORC Oil & Gas has continued to grow 22 Getting INTO the oilfield services

when others are getting out

11 'Now is the time to be acquiring': Epping

PIPELINE NEWS Saskatchewan’s Petroleum Monthly

JUNIOR PRODUCERS #2

April 2016 Focus

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PIPELINE NEWS March 2016

A3

TOP NEWS Wall talks low oil, well abandonments and pipelines

 By Brian Zinchuk Pipeline News Regina – On Feb. 8, Premier Brad Wall announced a new proposal in which it would like to see the federal government provide $156 million to assist the energy industry clean up and abandon wells. He spoke to Pipeline News later that day about this as of yet unfunded proposal, low oil prices, pipelines and carbon dioxide initiatives.

(See related story Page 5) Pipeline News: How is oil dipping into the $20s affecting Saskatchewan?

Brad Wall: There’s two main answers to the question. One, the economy, which is most important, because, of course, that’s people’s jobs and livelihoods that are at stake; and there’s the budget, which is also important, but not as crucial as jobs.

With respect to the jobs side, we saw the numbers come out on Friday from Stats Canada. I was surprised.

Even with the 1,900 jobs we’ve lost on the resource side, even with those included, we created net new jobs of 5,200 year-over-year. That speaks to some resilience and diversity in the economy. We also have the lowest unemployment rate in the country.

Today we had amazing agriculture/agrifood export numbers come out. We’ve already exceeded our goal. We set a goal in our growth plan that we would be at $15 billion in agrifood exports by 2020. Well, we exceeded it this year. The big star was lentils, but we’re limited in that. It’s the second year we’ve been the

number one agrifood exporter in the country out of Ontario.

All of that says the economy has been certainly affected and seeing job losses and slowdowns and some companies shutting down completely as a result of low oil. We take that very seriously. That’s why we’ve made the proposals for using some federal level support for abandoned well cleanup, to keep folks working. But there is comparative strength in the economy, in other sectors.

The other piece of the budget, much different story there; a very, very difficult budget. Oil is the reason, for the most part, although forest fires this year are part of it. But oil is reason for the most part we’re going to have a deficit this year, the current year, and, should we get elected in April, we’re going to have to have a modest deficit before we get back to balance in 201718.

P.N.: I’ve talked to several companies in recent weeks who have laid off half their staff over the past year. Is there anything the provincial government can or should do to help struggling oilfield businesses, or the federal government? That goes into your proposal today. Is that the only thing up your sleeve, or are there other things you may be working on?

Wall: In the budget, we knew we would be facing these challenges. The price of oil was sliding in all of 2014, so we implemented some new growth tax incentives in other sectors. We’re going to continue with our infrastruc-

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ture investments. If we’re elected, you’ll see some around that piece, as well as expanding it. That creates jobs and opportunities in other areas, to be sure, but the announcement today focused on the 1,900 to 2,100 that have lost their job directly in the energy sector in our province. They’re uniquely best qualified to help with well cleanup. We think this proposal to the federal government, (is) better than expanding Employment Insurance, which is fine, we know the prime minister has talked about that.

(This) will keep people working in the oil sector. A lot of independent contractors, who are technically still on the job, are working a lot less. So expanding employment insurance has a limited impact for those folks, whereas putting them back to work on oil well cleanup has, we think, a more positive impact.

P.N.: Is there a worry here that the orphan well program and the liabilities associated with if may not be enough to cover the fallout from what’s happened, and potential insolvencies?

Wall: That is a concern. As you know, as we lose more companies, the pressure on the remaining ones will get stronger in terms of assessment for the orphan well fund, never mind what you’re pointing to – the impact on their balance sheets. The small companies, especially, are trying to survive, with respect to their financers, who are looking at their new values and liabilities such as completed, or abandoned wells. It would have some help to offer companies that are facing those challenges, as well as putting people to work.

P.N.: Would there be any provincial money going into this?

Wall: No. We would say to the federal government that right now, Saskatchewan taxpayers are going to put in $500 million, half a billion, into the federal equalization program. That’s our per-capita share, in terms of our taxpayers. We would say, “Take it out of that.”

To have that much going into equalization and nothing coming back, when oil’s been in the ditch for quite a while, without a prospect of improving,

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I think it leads to a conclusion the feds could take on a program like this, or augment it, even, out of those dollars.

Alberta will be putting in about $2 billion.

P.N.: The Trudeau government is now going to ban tankers off the northern coast of B.C., effectively killing Northern Gateway. What are your thoughts on that?

Wall: Obviously, we’re all concerned about the coastline of the country. We’re concerned about environmental issues. We know there are technological ways to mitigate against oil spills from a pipeline and tankers.

I just have a concern that eliminating the option, in terms of moving our oil to tidewater. If the federal government believes the coastal protections are simply not there, (that) the technological protections are not there to guard against some catastrophe on the coast, then that makes Energy East even more important. We’ve got to move some oil, somewhere. We’ve got to get away from having just one customer. That’s what I’ve been saying. It just makes good common sense the prime minister would be a champion for the Energy East pipeline.

P.N.: The British Columbia government has rejected the Trans Mountain Expansion application to the National Energy Board. If it is killed, along with Northern Gateway, what do you think about losing the option to ship oil to the Pacific?

Wall: We’re mostly talking about Alberta. The impact would be on Alberta. Both the Kinder Morgan and Northern Gateway are Alberta bitumen, while Energy East (would have) Saskatchewan oil in it. However, it does hurt everybody that has oil in their jurisdictions, because if we can’t get oil to tidewater, we can’t get the Brent price. The differential is much smaller now, but it’s there, and it will grow.

We’ll never get that full value for our resource. That deprives not just industry, but the government. People own the resource in the first place. ► Page A7

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PIPELINE NEWS March 2016

BRIEFS Just $5.1 million in land sales

Saskatchewan’s first sale in the 2016 calendar year of petroleum and natural gas rights raised $5.1 million in revenue for the province. This brings final land sale revenues for fiscal 2015-16 to $44.0 million.

February’s sale averaged $444 per hectare, compared to Alberta’s latest sale that averaged $117 per hectare and British Columbia’s that averaged $76 per hectare.

“Oil prices continue to have an impact on activity across Western Canada, as industry exercises caution in increasing their land inventories,” Economy Minister Bill Boyd said. “At the same time, Saskatchewan lands are at a premium, reflecting our reputation as the top jurisdiction in Canada, and among the top 10 in the world, for petroleum investment attractiveness.”

The Weyburn-Estevan area led the way, accounting for 80 per cent of the total land salesl. Four parcels located west of Estevan received bonus bids totalling $2.1 million from Mammoth Land Services Ltd. The region has multiple zones of interest including, the Torquay and Bakken Formations along with the Midale Beds of the Madison Group.

Lloydminster had $415,783 in sales. Kindersley brought in $579,637, and Swift Current sold only one lease, at $4,861 for 16.2 hectares.

The highest price on a per-hectare basis was $5,006.

Mammoth Land Services Ltd. submitted a bid of $162,069 on a 32-hectare lease located south of Arcola.

Briefs courtesy Nickle’s Daily Oil Bulletin

Saskatchewan Headquartered Oil Producers: A voice for small, local oil companies

Saskatchewan oil producers now have their own collective voice, the Saskatchewan Headquartered Oil Producers. Caprice Resources, whose operations north of Estevan are seen in this file photo, is a member.  By Brian Zinchuk Estevan – For the past several years, a small group of junior oil producers in southeast Saskatchewan have banded together to form their own industry association, with the purpose of dealing with the unique issues facing Saskatchewan producers.

The group is called Saskatchewan Headquartered Oil Producers, or SHOP. “It’s a little bit loose at this point,” said Warren Waldegger, chairman of the organization, with regards to its membership.

“The only requirement is to be a producing oil company in Saskatchewan and to have headquarters, or at least senior management, in Saskatchewan.”

A secondary requirement is that members shall sit on government committees when asked.

Waldegger is the president and CEO of Fire Sky Energy, an Estevan-based junior producer with over 1,000 barrels of daily production. That’s a key point with SHOP – all their members are the heads of

their respective companies, not someone further down the ladder.

“It’s the head guys. We’re not necessarily delegating it to anybody,” he said. “That’s where we’re different from EPAC and CAPP. “We are hands-on operators and we understand the entire life cycle of our wells and facilities. We understand the cost, risk and return.”

The group currently has six operators – Estevan-based Firesky Energy, Midale Petroleums, Katepwa-based MC3 Resources and Weyburn-based Aldon Oils, Valleyview Petroleums and Caprice Resources.

The organization has, for the most part, been very low key. That’s in keeping with how most of these companies operate, eschewing publicity most of the time. “We haven’t made it overly public, but we reached out to others in our peer group,” Waldegger said. He added, “Government has recognized us.”

That’s very important to SHOP’s members, as it was one

of their key goals. They want to be part of the discussions when the Ministry of the Economy is looking at new regulations.

The organization is volunteer-based, with no full-time or even part-time staff. A key factor is finding time to get together, either as a whole group, or in committees.

“We might get together once a quarter as a group, and might meet with government officials a few times a year,” Waldegger said.

“We started as the Saskatchewan sub-committee of EPAC,” Waldegger said.

For many years the Canadian oilpatch has seen two large industry associations speaking on behalf of oil producers. The larger one, the Canadian Association of Petroleum Producers, or CAPP, represents the largest oil producers in the country and is now headed by former Saskatchewan minister responsible for Energy and Resources Tim McMillan. (Many of its largest members met with Prime Minister Justin Trudeau in Calgary on Feb. 4 to discuss the crisis

the industry is currently in).

Smaller oil producers, including a large number of “juniors” have been historically represented by SEPAC, the Small Explorers and Producers Association of Canada. However, in recent years SEPAC has evolved into EPAC, the Explorers and Producers Association of Canada, dropping the “Small” in the name.

And that change in focus, away from small, was a factor for these six Saskatchewan producers to raise their own voice.

In a manner, Saskatchewan producers were small fish in the very big Alberta pond.

“We’re all born and raised in Saskatchewan. We work here, live here, play here, and raise our families here,” Waldegger said.

Most of the member companies are long-term entities, and even those who are relatively new have long-term people.

“Our team isn’t going away,” Waldegger said of Fire Sky. “We’re all in Saskatchewan, for the long term. Whether it’s this group of wells or the next group of wells.”

Issues SHOP is concerned with the amount of influence from Alberta, especially when it comes to regulatory issues.

There have been times where they’ve seen draft regulations where the ministry hasn’t even gotten around to changing references to the (former) Alberta Energy Utility Board. While the Ministry of Economy has over the past several years worked hard to harmonize many of Saskatchewan’s regulatory requirements with Alberta, that’s not always the best for Saskatchewan producers, they feel.

“I don’t think it’s a onesize-fits-all industry,” Waldegger said. “Saskatchewan just seemed to be adopting all things Alberta. But be careful what you wish for. ► Page A8

PIPELINE NEWS March 2016

Why pay people to stay at home?

Wall pitches well cleanup program  By Brian Zinchuk Regina – With the Saskatchewan oilpatch reeling from oil prices that have dropped at times below US$30 for a barrel of West Texas Intermediate, Premier Brad Wall has asked the federal government for a targeted assistance program that would help out take some of the pressure off of oil companies’ well abandonment obligations, but more importantly, keep at least some oilfield service companies working.

Wall called it an Accelerated Well Cleanup Program (AWCP), although at this point, it is still an unfunded proposal.

Matt and Dan Cugnet, president and chair of Weyburn-based Valleyview Petroleums Ltd., had passed along the idea through their MLA, Minister of Health Dustin Duncan. In making the announcement, Wall thanked the pair, who were alongside at the Feb. 8 press scrum in the Legislature. He said the proposal would “help the energy services sector in this incredibly difficult time and also have an environmental upside.”

In January Wall informed Prime Minister Justin Trudeau in a “formal ask” that the federal government consider an investment in a well cleanup program.

“There are, across western Canada, a number of wells that are basically completed, but not cleaned up. There is an abandoned well program, of course, and companies are required to help makes investments into that fund to be dealt with. But there are literally thousands of wells that have not been cleaned up,” Wall said to reporters in Regina on Feb. 8 while making the announcement of the proposal.

“These are environmental issues, of course. There’s fugitive GHG (greenhouse gases) that come from there wells that are

Diamond Energy Services of Swift Current has been looking for well abandonment work, according to president Mike “Butch” Gering. If a proposal to accelerate well cleanups receives funding from the federal government, there could be a lot of that work coming up. File photo

completed but not yet sealed, not cleaned up. There is other habitat land issues with these wells as well.

“It was pointed out by Dan that the same employees who are not working where they would like to be working, in the energy sector, are best qualified to do these cleanups and do these cleanups on a regular basis,” Wall said.

“We would be able to clean up around 1,000 wells. There are many more to be done, but we could do about 1,000 wells with this investment, and about 1,200 jobs created directly and indirectly, and that’s probably a conservative estimate. These would be jobs directly in a sector that’s been affected by $30 oil.”

Wall said he appreciated the federal governments’ intentions to accelerate infrastructure dollars and extend Employment Insurance benefits.

He added, “But these are probably not quite right in terms of the solutions. They may be partial solutions, but they have their own problems.

In the energy sector, superficially, you have a lot of independent contractors who have been putting away money for a bad time, but maybe didn’t put enough away for this period of time. I’ve got neighbours I’ve chatted to about this very thing. Independent contractors are not eligible for Employment Insurance.”

He added that companies have been implementing measures to avoid layoffs, but that has often meant reduced hours.

“This particular initiative we think would have a more direct impact on those affected and put employees to work through a transition time, and we obviously hope this is a transition time,” Wall said.

Wall noted 7,000 to 8,000 wells (and possibly more) are in need of cleanup. Some are orphaned wells from insolvent companies.

“If the downturn lasts much longer, the number of orphan wells is going to increase, because these companies won’t be around. There’s bankruptcies happening today, in the sector,” he told reporters. “We think this

has an environmental upside. It could even be more aggressive.

When I chatted with the prime minister, I said might be just a start. You might want to work on a longer-term plan, where as the price recovers, there’s more of matching dollars from the companies themselves that are still in operation.”

To that end, Wall explained to Pipeline News that this proposal, if it goes ahead, would be entirely federal dollars, and not provincial. Oil companies normally pay for this sort of work, and there is an orphan well fund to look after wells that were “orphaned” by companies that no longer exist.

“Here’s a chance for us to actually put people back to work in the energy services sector and continue with the cleanup, perhaps at an accelerated rate,” Wall said.

He added Prime Minister Trudeau was “open-minded” about the proposal, as was Minister of Public Safety Ralph Goodale, Trudeau’s Saskatchewan lieutenant. ► Page A8

A5

BRIEFS Spring breakup comes early in drilling It has been the mildest winter in many years, but spring breakup seemed to be coming way too early for many in the drilling business.

February saw a steady decline of active drilling rigs in the province. On Feb 1 there were 43 rigs in operation and

by Feb. 22 the number had fallen to 25. At the same time in 2015 it was 48, and 100 in 2014.

Of those 25 working on Feb. 22, two were working for potash companies.

Typically drilling activity doesn’t drop sharply until the first week in March, but that has not been the case this year or last.

Crescent Point continued to dominate activity, with all but two of its 19 rigs in Canada working in Saskatchewan.

While there had been only one rig working in the northwest, near Macklin, it was now finished. Most drilling in the southwest has ceased.

A handful of rigs were working in the Viking play near Kindersley. Active drillers there included Teine Energy and Raging River, along with Crescent Point. Talisman also popped up with one rig, working west of Major, very close to the Alberta border.

Briefs courtesy Nickle’s Daily Oil Bulletin

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PIPELINE NEWS March 2016

PIPELINE NEWS

EDITORIAL

Mission Statement: Pipeline News’ mission is to illuminate importance of Saskatchewan oil as an integral part of the province’s sense of community and to show the general public the strength and character of the industry’s people.

Editorial Contributions: EDITOR Brian Zinchuk - Estevan 1.306.461.5599 Associate Advertising Consultants: SASKATCHEWAN & MANITOBA • Estevan 1.306.634.2654

Cindy Beaulieu

Candace Wheeler

Deanna Tarnes

Teresa Hrywkiw • Carlyle 1.306.453.2525

Alison Dunning NORTHWEST SASK. & ALBERTA • 1.306.460.7416

Harland Lesyk

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A junior producer’s idea could gain traction With the very real possibility that the Justin Trudeau-led federal Liberal government will soon back up Quebec’s failing aerospace giant Bombardier to the tune of a billion dollars, it’s hard not to ask for some help with our own struggling industry.

That’s precisely what happened in January, when Premier Brad Wall asked Trudeau about financing a program to accelerate well cleanup in Saskatchewan.

He came public with the proposal on Feb. 8, when Dan and Matt Cugnet, of Weyburn-based Valleyview Petroleums, flanked him as he presented the idea to reporters. The idea had originated with the Cugnets.

After the Quebec government has already thrown a huge pile of money towards Bombardier to help bail out its struggling C-series jet program, the chances of a Quebec prime minister saying no are slim indeed.

They may have already done so in the time between this edition goes to press and you get it.

So, if the corporate welfare is going around, shouldn’t Saskatchewan, and maybe Alberta, get a piece? After all, our energy sector is in serious trouble.

Wall’s pitching of the idea is sheer brilliance. If the funding does come through, great! The industry gets support, Wall picks up some credit, and Saskatchewan might not hate Trudeau as much as it did the day before, at least for a few days. And if it doesn’t go through, well, what did you expect from a Liberal government anyway?

But if it does go through, there can be a lot of benefit to this program.

For one, if you are running an oil company right now, you would be a fool if you did not apply for it. The plan, right now, is to allow companies to apply for up to 10 wells each. That’s 10 wells that could be stroked off your licensee liability rating (LLR), within this fiscal year.

It would make your company’s balance sheet look much more attractive, and could stave off having to pay into the orphan well fund. Those dollars, again, if approved, would be federal dollars. From what we’ve been told, your company would not even have to provide matching dollars! It’s as if you suddenly became Bombardier!

This proposal also raises a few uncomfortable issues.

There’s a tacit recognition that oil companies are going broke in the world of US$30 WTI oil, and that’s going to leave more wells on the orphan well program unless something is done to stave off these bankruptcies. It also acknowledges the orphan well program itself could push companies to insolvency due to their liabilities.

The proposal also raises the notion that there are some wells out there that need to be cleaned up and abandoned – a skeleton in the closet, as it were, that no one really wants to talk about too much.

Will this idea fly? It all depends on Ottawa. The provincial finances are a mess precisely due to the lack of oil revenue. Let’s see if the idea from a junior producer in Weyburn can make a difference for the whole industry in this province.

Did we mention our focus this month is junior producers? Turns out they can be pretty important, as seen here.

PIPELINE NEWS March 2016

A7

OPINION

From the Top of The Pile

By Brian Zinchuk

More than jobs and taxes I ran into Ray Frehlick today at a ribbon-cutting for the new computerized tomography (CT) scanner at Estevan’s St. Joseph’s Hospital.

I bugged him a bit about how I’ve seen him in almost every other media, since he’s been quoted numerous times in recent weeks with regards to the hardships the oilpatch around Estevan has been going through. “No one else is left,” he said with a laugh.

Indeed, it seemed in February the rest of the Canadian media woke up to the hardship our oilpatch has been enduring. The business editor from the Leader Post (who usually wears a suit to work, I wear jeans and steel-toed boots) was dispatched to Estevan.

Another writer for the Star Phoenix found their way to Kindersley. CTV sent a reporter to Lloydminster.

They asked me several times for a Skype interview, but I thought it would be better if they talked to people on the ground there, rather than interview another journalist like myself.

Several of these pieces were quite good, I thought.

Postmedia reprinted them in many of its publications.

But they seem a little late. I’ve been writing about the downturn for well over a year, now.

Yes, the oilpatch is hurting. Its time people noticed. But there’s something else to take note of.

The CT scanner saw leading donations from Ron and Shirley Carson ($500,000), Ray and Do-

ris Frehlick ($155,000), Kelly and Arlene Lafrentz ($100,000) and Mel Grimes and family ($100,000), all people who have been successful in the oilpatch, and continue to give back.

This is just part of what a healthy oilpatch does – it gives back. It’s not just jobs and taxes, but CT scanners.

I hope those other media folks pick up on that, too, when they leave the big cities to find out what it’s like out here. *** I just wanted to pass along a thank you and a good luck to our outgoing publisher, Brant Kersey.

Brant has been publisher of this publication since it was established back in the spring of 2008, when the Estevan Mercury’s Pipeline supplement (and formerly a stand-alone paper of its own in the 1980s) was merged with Lloydminster-based Pipeline News to become this provincial oilpatch newspaper. In many ways, he has been the father of this reborn publication.

(Peter Ng, now retired, would be the grandfather.)

Brant has allowed me to run all over the countryside, photographing, learning and writing about the oilpatch. He filled the publisher’s role to be a support, and occasional foil, to the editorial team, letting us basically do our thing and being there when needed.

His idea of a monthly focus was a stroke of ge-

nius. It provided a reason for Pipeline News to visit all segments of the oilfield, learning a little more about each along the way. That led to me knocking on many doors, first in the Lloydminster and Kindersley oilpatch in 2008, and then the southeast ever since. The monthly focus not only gave us a reason to visit people, it gave people a reason to want to be in the paper; to be a part of our Saskatchewan story. If our focus is on trucking this month, and you’re a trucker, you want to be a part of it.

In the spring and summer of 2015 he took several months off to buy and operate his own oilfield services company, Pride Upkeep Ltd., along with his brotherin-law, Dustin Ng. He returned to this newspaper for the fall and winter, but this March will mean he’s heading out, with the intention of spraying leases on a permanent basis. It takes a lot of courage to get into the oilfield services just when most people are looking for a way out. I wish them well.

Hopefully he keeps a copy of Pipeline News in his truck. Godspeed, good sir.

Brian Zinchuk is editor of Pipeline News. He can be reached at brian.zinchuk@sasktel.net.

Ray Frehlick, in blue, can be seen peering through the new computerized tomography (CT) scanner in Estevan’s St. Joseph’s Hospital during its Feb. 22 ribbon cutting.

Ray and his wife Doris donated $155,000 to the initiative, which is housed in the Ron and Shirley Carson Diagnostic Centre. The Carsons donated $500,000. Other oilpatch-related major donations included Kelly and Arlene Lafrentz ($100,000) and Mel Grimes and family ($100,000).

Photos by Brian Zinchuk

No carbon taxes here: Wall

◄ Page A3

The world’s greatest oil reserves are here in Canada, but we sure don’t act like it, because we don’t want to move it across our own country. The movement of other durable goods, chemicals, products, across Canada happens regularly and without harassment, it seems, compared to the energy sector. If the energy sector is feeling a little bit put upon, I understand why.

P.N.: You criticized Montreal-area mayors for opposing Energy East, which might be our last hope for export pipelines. What do we do now?

Wall: I don’t think it is. I guess cities can make presentations to NEB processes, but they’re not going to necessarily win the day for their own side. There’s every chance Energy East can succeed.

It’s really frustrating. The province of Quebec is a benefactor of equalization payments to the tune of $10 billion. Fifty-six per cent of the whole federal program goes to Canada’s second-most populous province that has a 400-year old economy. At least in part, the money’s been supported by strong energy sector that helps provide employment opportunities for all Cana-

dians from coast to coast to coast. It also helps support transfers by paying a lot of taxes. Transfers, in the case of equalization, go predominantly to Quebec. It’s very frustrating for Western Canadians so see mayors basically want to shut down a pipeline that represents an industry that has supported their city and province vitally over the last decade.

P.N.: Now that you’ve had some time to reflect on Paris COP21, what is the impact on Saskatchewan?

Wall: We’ll know more in March when we meet with the prime minister and have a discussion about what’s next for the federal government’s plan on carbon. As for us, we’re not going to be moving towards a carbon tax. In fact, I said at SUMA I don’t want to increase any taxes. That even means the carbon levy our greenhouse gas legislation allows for. Now is not the time. That will be my counsel in March. We can have discussions about the long-term, but Saskatchewan will be strongly opposed to any new tax, any new barriers to investment in our economy. The timing of that is simply very, very wrong right now, given the price of oil.

P.N.: Will Saskatchewan end up being the last man standing when it comes to coal-fired power gen-

eration? Is that realistic?

Wall: It is, if we continue to clean it up. January was the best month to date for Boundary Dam 3. We had about an 86 per cent capture and it ran the entire month. We’re on track to capture 800,000 tonnes, which is very close to what the objective was of a million tonnes per year, and cleaned it up to be much cleaner than natural gas. We’ve even had initial discussions with the federal government to do another project, whether it be Boundary Dam 4 or something else carbon capture. There’ seems to be an interest talking about it.

I think we better not give up on coal because, you know, in the last three years, in 2014, 2015 and this year, China will add 133,000 megawatts of coal in those three years. That’s just what they will have added. That’s our entire Canadian production – they’ve added it in just three years. Yes, they’re doing more renewables, and burning coal. So we think we have to find a solution around coal, or everything we do in this country, be it cap-and-trade or carbon tax, will be negated by the fact so many places in the world are going to continue to burn coal and build coal.

A8

PIPELINE NEWS March 2016

Well cleanup idea conceived by Valleyview Petroleums ◄ Page A5 When asked about fairness of having the federal government pay for some wells now, but not previous ones, Wall noted the program is not perfect, adding, “Thirty dollar oil is not perfect. We weighed those things. We contacted industry.”

A potential benefit would be to reduce liabilities and “stave off elimination” for some companies, he added, but that’s not the point of the program.

Small oil company perspective Dan Cugnet told reporters that while it is oil companies’ responsibility to pay to clean up these wells, “Hopefully the program will help more companies from becoming insolvent and then it won’t be a burden on the government.”

Matt Cugnet said that in the last couple years, “Valleyview had eliminated a significant portion of

its liabilities. We’re just a small, family company, but we spent in excess of $5 million ourselves to clean up liability. It’s really about what’s the best results or resolution to the province. A program like this gets people working. It does eliminate problem wells before they become a liability. In the province of Alberta, their orphan wells have gone from under 200 to, the last tally, over 700. There’s talk of another 1,800 from insolvent companies. This is attempting to correct the problem before insolvencies occur.

“In regards to manpower, on our average abandonment, we have an average between 20 and 45 people working, upwards of 90 eight-hour days. Of course, it can change with the activity level, but all told we had 972 employable hours, on average, for a typical, straightforward abandonment in the last three years.”

He added that industry is typically loathes abandoning wells, because opportunities with different economic situations and new technologies can breathe new life into old wells.

Wall added there’s currently 100 orphan wells left in the province.

After the press conference the Cugnets elaborated that if the federal government was looking to pay people to stay home as a result of Alberta’s request to improve Employment insurance benefits, “The idea is the government can get people working for that money and creating value by eliminating and cleaning up these wells,” according to Matt Cugnet.

They explained that wells that used to be economic and generating revenue for the oil company and government may not be economic at these prices. ► Page A9

◄ Page A4 “We’ve got heavy oil, uneconomic gas. In southeast Saskatchewan, primarily oil, we’ve got high water cuts. Saskatchewan resources and Alberta resource are very different.”

Many areas in the southeast will see water cuts (the percentage of water versus oil in the fluid coming out of a well) over 95 per cent. Ninety per cent is considered good, and many wells are produced above 98 per cent water cut. “This is a skimming operation,” Waldegger noted.

On regulation, he noted SHOP can help government understand the cost of compliance – not just the out of pocket expense, but the side effects of reduced exploration and development. “We want to ensure that increased regulation is understood by both sides and justified by risk reduction,” he said.

Regarding fair taxation, he noted municipal taxes on the oil industry far exceed those on personal prop-

erty and other industries. Taxes escalated as much as 300 per cent in a high oil price environment, yet there is no assurance of a reduction in a low-price environment.

On industrial infrastructure, Waldegger pointed out, “Corporations that own industrial infrastructure, such and plants and pipelines, have a duty to shareholders but this should be balanced with a duty to the public. The industry needs “fair” access to these facilities for the greater good. There are far too many flares burning and far too many trucks on the road due to a failure to meet the economic hurdle. This reflects poorly on our industry and our government.”

SHOP has accomplished its goal of getting the attention of the Ministry.

“The challenge is getting involved early enough to affect the outcome,” Waldegger said.

It probably started with the Ministry’s Process Renewal and Infrastructure Management Enhance-

ment (PRIME) Project, he noted. The multi-year program, nearing its completion, has the goal to modernize the business processes within the ministry.

These processes that affect producers every day. This was where those aforementioned references to the EUB stood out.

“Why change?” Waldegger asked. “What makes Alberta processes better than what we’re doing here in Saskatchewan? I’m not sure anyone was asking those questions.”

For multi-jurisdictional companies, and the industry associations that represent them, consistency is desired, he noted. But that doesn’t always work for those companies focused here.

As for the SHOP itself, he noted, “The challenge is to keep it small and focused, and still have enough clout. Our clout isn’t from our size, but rather that we’re from Saskatchewan.

“There are lots of challenges – less cashflow and increased regulations. Those things are colliding.

Regulation comes at a cost.”

On the day of this interview Premier Brad Wall announced a proposal, asking for $156 million from the federal government to accelerate well cleanups, and essentially, abandonments.

“We know this business is cyclical. You don’t necessarily want to abandon all these wells because of a downturn. We have 30, 40-year old wells still producing. They may not be economical at $30 per barrel, but maybe later.”

Proper suspension should be considered and decisions need to be based on risk.

He added, “SHOP applauds the Saskatchewan government for a stable royalty environment and for industry data management. Access to industry data is critical to investment decisions. Saskatchewan does a great job with access to timely data and our province benefits greatly with strong land sales, seismic and drilling activities.”

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A9

Anything that puts rigs to work is good, says service rig company ◄ Page A8 “It’s about being proactive and keep people working,” Dan Cugnet said.

Matt Cugnet added, “This is actually to accelerate the abandonment rate when things are slow to keep people working.”

The brothers pointed out that service companies have lowered their prices right now, and that makes it a good time to get the most “bang for the buck” to get this work done.

A typical abandonment, they find, can run $35,000 to $50,000 each, but can go into the hundreds of thousands.

Some details Ed Dancsok worked on the proposal. His job is assistant deputy minister, senior strategic lead, Petroleum and Natural Gas Development, Ministry of the Economy.

Asked if a large company can scoop up a large portion of the program, should it go ahead, Dancsok replied in order to ensure a large company doesn’t apply for 300 wells, every company would be limited to 10 wells.

The program, if it goes ahead, is intended to run in the 2016-2017 fiscal year.

He explained this proposal is meant to target Saskatchewan workers.

The existing orphan well program sees 60 to 70 wells per year “truly orphaned.”

“This (proposal) is about getting people back to work,” Dancsok said.

Dancsock said a well abandonment can range from $50,000 to $1.5 million. They worked with an average of around $100,000 per well, with lots of variability expected.

“A complex project can require 90 different people, from service rig to environmental monitor, Cat (operator) to grader (operator), to welders and cementing companies,” he said.

Asked what sort of bureaucratic lag exists within the existing orphan well program, he replied that licensee liability ratings (LLRs) are calculated monthly, and there’s a two-month lag within the system. While prices are moving rapidly, it’s still pretty accurate, he noted.

The orphan well program (separate from this proposal) calculates an oil producer’s ability to pay to clean up its fleet of wells. If the company’s When a company’s liabilities exceed their assets is when they are required to submit the security deposit, essentially a bond.

The difficulty is that when oil prices plummet, oil company’s fiscal capabilities go down while more and more of their wells become uneconomic, and they can be required to pay into the fund at a time when

they may have difficulty to do so, creating a negative feedback loop.

Dan Cugnet pointed out that in Alberta, whose orphan well program was the inspiration for Saskatchewan’s program, “The LLR has killed a lot of smaller companies.”

“At current economics, no well is economical, so it pushes them all to the LLR and into insolvency,” Matt Cugnet added.

“At some point, you’re basically pushing companies into an insolvent position, and you’re creating issues for the orphan fund. This is about heading it off before it comes something of that nature,” Dan Cugnet said. Wells that are liabilities show up as on oil company’s balance sheet.

Service rig perspective Mike “Butch” Gering of Diamond Energy Services in Swift Current told Pipeline News, “Anything that puts rigs to work will help us.”

“Every abandonment takes a service rig for a minimum of a couple of days. We do some of them now, but since the downturn, the oil companies have taken all their money and downsized their capital, and there’s no money for abandonments right now,” he said.

According to the Cugnets, the vendors involved with an abandonment include the service rigs, wireline, packers and bridge plugs, cement, fluid hauling, engineers, dirt movers, hydrovac, environmental clean-

up, industrial landfills, environmentalists, consultants and administration. Usually the farmer will provide topsoil for remediation.

Indeed, Gering said they were currently looking at doing some orphan wells, and he expected a couple days on each of them. If there are problems with the well, a service rig might be there for a week.

“I’m glad to go out and do some of them,” Gering said, noting they have 24 service rigs, but four are parked due to the current market.

Asked if oil companies should already be doing this, Matt Cugnet said, “They are. Companies like Crescent Point and CNRL and Valleyview are doing this. But it’s a function of accelerating that rate. We can do more of it now.”

When oil was $80 to $100 a barrel, a lot of marginal wells were economic, but at $30, that’s no longer the case, Dan Cutnet noted.

“Guess what? If we’re still at $30 a barrel in three years, there’s going to be a lot of these wells that are going to need to be abandoned, because they’re not productive, they’re not profitable.”

As for Valleyview, they’ve already gotten most of their liabilities off the books beforehand. Matt Cugnet noted they were a mature company with a lot of wells on their books. They recognized they wanted to lower their LLR, so they just went and did it. They’ve reduced the number of wells they have to deal with down to two.

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PIPELINE NEWS March 2016

Fire Sky Energy closes another acquisition Estevan – When prices are low, that can be a good time to buy. That’s exactly what Fire Sky Energy Inc. did recently, closing a private acquisition on Feb. 1.

Fire Sky Energy Inc. was a spin off from T. Bird Oil, a privately-held Estevan-based junior oil producer owned by Ron Wanner. The president and CEO of Fire Sky is Warren Waldegger, who had been the first full-time employee of T. Bird Oil Ltd. He explained, “The inception of Fire Sky came about with T. Bird being a one-shareholder company. How do you attract professional, top-quality staff, competing against companies with stock options?”

Fire Sky was a new vehicle which allowed Waldegger to attract the people needed, providing incentives for them to take part. It was also something of an exit strategy for Wanner, allowing T. Bird to eventually be sold, but providing a home for its staff in a new entity.

Fire Sky would be an opportunity for the staff to grow and participate.

“All our employees have a stake in the business,” Waldegger said.

It’s privately held, with about 70 shareholders, including some investors.

Regina-based PFM Capital has also made investments through two of its funds, SaskWorks Venture Fund and Apex Investment Fund.

“We’re over 1,000 boe per day, and we just acquired the assets of Highmark Exploration in Manitoba,” Waldegger said. That company was based in White

City.

The newly acquired production is primarily in the Elkhorn area, roughly 180 bpd in total.

“We’ve grown steadily, focussing on conventional Mississippian horizontal development projects,” he said.

Fire Sky purchased its first assets from Daylight in 2011. In 2012 they acquired Bryant production undeveloped lands and partner interests from T. Bird.

The following year Fire Sky acquired Tyvan Oils Ltd., K&S Investments Ltd. and Black Rider Resources Inc. All corporate and asset acquisitions focused on Elcott, including proprietary seismic. This created a new 100 per cent operated area at Elcott. Fire Sky also successfully developed Macoun properties and tied in production to its 100 per cent owned Bryant facility.

In 2014 it purchased Phase Energy Ltd. for cash and shares. That property is in the Manor area. They successfully developed View Hill and initiated an acquisition strategy in the area.

Bryant North was developed as a new field in 2015 within the Bryant/ Macoun core area. Other land and wells were also acquired.

Most recently they’ve drilled a successful development well in their new area of Willmar. Fire Sky is also now substantially compliant with new industry regulations.

Life at $30 oil As for the current industry environment, now over a year-and-a-half

Fire Sky Energy production foreman Brad Clow, left, and project co-ordinator Matt Garagan stand before Fire Sky Energy’s View Hill battery, north of Estevan. The battery was constructed in the past few years.

into the downturn, Waldegger said, “Most of us are trying to figure out how to retain what we have. It is difficult at these prices generate enough cash flow to retain your best pieces of land.”

He added Fire Sky has “fairly significant undeveloped land,” at over 65,000 net acres. That is mostly in southeast Saskatchewan and southwest Manitoba. Their main production area is the Bryant and Macoun areas north of Estevan. They also have production north of Elkhorn, Manitoba, and at Elcott and Willmar, Saskatchewan.

“We’ve drilled four wells in the fall

and winter, the end of 2014 and 2015,” he said. As of early February, they were considering some more drilling before this year’s breakup.

As for those 18-plus months of downturn, he said, “It hasn’t been a whole bunch of fun. The key for any business is the balance sheet. Ours is pretty strong. Overhead is another concern. We don’t have to add one person to add those 180 barrels per day.”

Fire Sky has 14 full-time employees, all in Estevan and a handful of contractors. ► Page A11

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PIPELINE NEWS March 2016 ◄ Page A10 Working under the current price structure, with oil hovering around US$30 per barrel, Waldegger said, “We’re definitely doing less. Everything we do is being quoted. The pricing is competitive.

“It all depends on long-term pricing. I don’t think our industry is going away. How do you make money on $30 oil?”

The impacts are felt from oil producers to housing, he noted. “Can we go back 10 years? I don’t know.”

As for Fire Sky, he said, “I think we’re always looking for ways to grow. It’s shareholder value. It’s not just growth for growth’s sake. We want to grow our core areas, use existing infrastructure, batteries

and flowlines as much as possible.

“We look at all the land sales. We’re constantly scouring around our assets for a good fit.”

Waldegger said, “We’re an industry that recycles cash flow. There’s simply a fraction of the cash flow we are used to.”

That means prioritizing the best projects.

“No one wants to sell in this environment,” he said.

But will there be opportunities, perhaps from liquidations or land returned from expired leases?

Waldegger replied, “I think the banks have been reluctant to pull the pin. If you flood the market with assets (for sale), they’re hardly worth anything.”

T. Bird Oil was sold to Crescent Point Energy Corp. in August 2014, before the slide really took

A11

hold.

“That was good timing,” he said. By that point, T. Bird was a separate entity but with a common management group.

Despite the hard times in the industry, Fire Sky is still active in supporting the community. Recently it made a $12,525 donation to the Saskatchewan Summer Games to be held in Estevan this July. In 2014, it donated $22,000, matched by Ron Wanner, to Smile Services, a local group which provides transportation to the disabled.

“We do promote community involvement,” Waldegger said, adding many of their staff members serve on boards or are coaches. “We very much encourage our staff to be involved in the community.”

‘Now is the time to be acquiring’  By Brian Zinchuk Alameda – A phone call to Brent Dunnigan, CEO of Epping Energy Inc., asking if he wanted to go for lunch, came with a surprising result.

“Sure,” he said. “I was just out looking at some land.”

And while Dunnigan is as much a farmer as he is an oilman, with chickpea samples in his office next to land maps, he wasn’t looking for a place to plant quinoa. No, what he would like, would have roots over a kilometre deep.

That’s right – when everyone else is ducking for cover, Epping Energy is on the hunt, looking for land. He sees the current conditions, with depressed oil prices, resulting in depressed land prices, as a time when smaller juniors can get back in the game.

“I’m finally seeing the opportunity coming back for the smaller producers,” he said on Feb. 4, citing reduced land, mineral and service costs.

But that doesn’t mean now is the time to start spudding new wells to bring on new production via the drill bit. A well’s best production is in its early days, and bringing one online during these times of very low prices would be almost giving it away.

“We’ll try to hold back our production. We’re not going to give away our oil at this price,” he said.

Dunnigan graced the front page of Pipeline News in March 2011 in our previous focus on junior producers. A few months later he was one of two people named Southeast Saskatchewan Oilman of the Year.

Five years ago in February, he had a rig drilling just north of Alameda.

Not this time, however. Right now, the strategy is to get land in place, then drill when the time comes.

Epping’s last new well was drilled in the fall of 2014, near Pierson, Man. Now is a good time to be looking for land to develop Dunnigan feels.

“Now is the time to be doing acquisitions, not drilling,” he said, adding it’s cheaper to buy production than drill for it.

“Now is the time to be acquiring.”

While in hot areas, like the View-

field Bakken and Oungre area, land prices will still maintain some value; in other places, the price is more reasonable.

Thus, he’s been looking at the Crown land sales results, which happened to be announced earlier that day.

Why the focus on land? In recent years, smaller players like Epping have had a hard time finding land that’s available, as much of it had been locked up by larger players. The bigger oil companies weren’t inclined to let go of any of their properties. ► Page A12

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PIPELINE NEWS March 2016

While most have their heads down, Epping Energy is looking for opportunities ◄ Page A11 “Larger players have made it really tough on us. We’re able to deal with them now,” he said.

That change has only taken place in the past few months. As recently as last fall, when his daughters were on the swathers and combines, Dunnigan had expressed frustration over the inability to get larger oil companies to loosen their hold on some land.

“We saw a shift this fall, in October, November,” he said. “They had been buying and holding.”

What it all comes down to, however, is capital.

“It doesn’t matter unless you have the capital to deploy, develop and put in the infrastructure,” he said.

Epping Energy Inc. is a joint venture with 70 to 80 investors between Alberta and Saskatchewan. Epping is head-

“I’d like to see a resurgence of small companies again. I really would. I think it would really help the environment of the Saskatchewan oilfield and economy. From (2008) until now, there’s a lot less of us left” - Brent Dunnigan, CEO, Epping Energy Inc. quartered in Alameda and Calgary.

Asked how the last 18 months of the downturn have been, he replied, “I didn’t believe it would get this low.

We’re prepared. We can survive in a downturn market. We’ve had to do some different thinking – out of the box, nonconventional ways of doing things.”

As an example, he said, “We basically bought our own tank truck for hauling emulsion.”

That truck, in turn, was bought from the Big Eagle bankruptcy

auction.

Epping’s production (whose volume he is shy to disclose in print) has remained flat.

“We’ve been fairly blessed. We’ve remained fairly stable,” Dunnigan said.

Dunnigan has spent the winter since October, preparing in earnest and looking for deals. They’ve exercised a couple of private deals already with more in the works.

As for Epping’s position, he said, “We’re holding our own. I would say healthy, making the right moves early.

“I think most of the

people who have gone through this before are in good shape, but that’s 10 to 20 per cent.

He noted the 2009 downturn was a little bit of a blip, and most were able to hold their own.

“I would say the critical time will be after spring breakup and the summer of 2016, both for producers and service companies. The service companies are going to be hurting sooner than the oil companies, by six months. Hopefully there’s an agreement worked out between the provincial and federal governments on an ac-

celerated well cleanup program.”

One of the factors, Dunnigan noted, was how old companies were.

Newer ones are not as secure as older ones. “I feel for the service companies, as I spent over 25 years in the service business myself, including during 1986.”

Looking to the end of 2016, he said, “We’ll see higher oil prices, a slow recovery.”

Does that mean we’re at the bottom of the market now?

“I’d like to think so.

We’ll see some floaters, some bounces up and

down. You’ve got to have a minimum of confidence of three or four months at US$50 per barrel for WTI.” “You would see probably workovers and production rejuvenation before consistent drilling,” he forecasts. That would likely take place for three to six months before drilling picks up again.

When the Bakken boom hit southeast Saskatchewan, the region was, by-and-large a hodgepodge of small, junior oil companies.

However, consolidation in recent years has dramatically reduced the number of those small oil companies.

“I’d like to see a resurgence of small companies again. I really would.

I think it would really help the environment of the Saskatchewan oilfield and economy. From (2008) until now, there’s a lot less of us left,” Dunnigan concluded.

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PIPELINE NEWS March 2016

A13

Junior producers key part of Sask.oilpatch  By Brian Zinchuk Regina – Just what are junior producers, and how important are they to Saskatchewan’s oilpatch?

Saskatchewan’s oil production, according to figures obtained from the Ministry of the Economy, shows that two companies, Crescent Point Energy Corp, and Husky Oil Operations Ltd., dominate our oilpatch, with average daily production of 111,935 and 102,658 barrels of oil per day, respectively.

There’s a big drop to number three, Canadian Natural Resources Limited, at 28,469 bopd. The next slots of the top ten are Cenovus Energy Inc. (24,223), Northern Blizzard Resources Inc. (20,130) and Penn West Petroleum Ltd. (14,567). But that’s when we start getting into junior producers that have grown into what are, technically, considered intermediate producers – Raging River Exploration (12,188) and Teine Energy Ltd. (11,654), both active players in the Kindersley area. Baytex Energy Ltd (11,400) Lightstream Resources Ltd. (9,646) round out the top ten.

Assistant Deputy Minister Ed Dancsok, senior strategic lead for Petroleum and Natural Gas Development in Saskatchewan’s Ministry of the Economy, explained that an intermediate producer is a company whose production averages between 10,000 and 200,000 barrels of oil equivalent per day, companywide.

In other words, you don’t have to go down very far on the list of oil producers in this province to get into what are considered “junior producers,” especially when you consider there are over 500 licensed producers in Saskatchewan. Sure, a few, like Apache Canada (4,785) and ConocoPhillips Canada Resources Corp.

(2,555), obviously have more production elsewhere.

But for the vast majority of the oil companies operating in Saskatchewan, small operations are the order of the day.

Terms like “junior” and “intermediate” are often used in the news and investment community, but to the government, they’re all the same.

“We treat all companies the same – big, medium or small,” Dancsok said. “The oil industry in Saskatchewan was built on the backs of junior companies. They are more nimble and able to move into areas and develop plays and fields at a quicker pace, making themselves attractive to larger companies to swallow them up. That’s been the genesis of southeast Saskatchewan, (and the) southwest and Kindersley area that have these smaller companies. They become attractive and a bigger company buys their production.”

Southeast Saskatchewan used to have a number of major oil companies like Shell, Imperial Oil and British American Oil (Tin toy trucks with the B/A logo could be seen at a recent toy show in Yorkton, for instance.) However, over the years, these companies have left the region.

“There’s a lot of family-run operations in southeast Saskatchewan. They keep on working away. Their production doesn’t get too big, but they keep surviving.”

Junior producers, like other oil companies, have been feeling the heat from the downturn. However, there haven’t been as many companies shutting down as Dancsok said he might expect, given the circumstances.

“It’s always a time thing. You can maybe weather the storm for six months, maybe a year. We’re 18 months into the cycle now. Sooner or later, the chickens come home to roost,” Dancsok said.

Different juniors are prominent in each area of the province. In the northwest, Black Pearl and Rock Energy are two of the active players. Rife Resources is another, according to Dancsok. Rife is controlled by a pension fund for railroad employees, and has been

Spartan Energy Corp. is Saskatchewan’s 13th largest oil producer, according to 2015 numbers, when its production averaged 8,746 barrels of oil per day in Saskatchewan. Photo by Brian Zinchuk

around for decades.

“They keep plugging away. Black Pearl is one.

They’re working at the Onion Lake reserve. They’re up to 4,500 barrels per day,” he said.

In the Kindersley area Teine and Raging River have been two of the most active drillers, often having two drilling rigs each, according to Rig Locator (riglocator.ca). Dancsok noted they are in a growth mode, and have grown well over the 10,000 barrel per day threshold. “They were juniors at one time. I think we almost have to call them intermediate companies now.”

In the southwest, Surge Energy is one of the few companies, besides Crescent Point, that has still been drilling over the last year, according to Rig Locator.

Surge sold much of its southeast production to Torc Oil and Gas over the past year. ► Page A14

A14

PIPELINE NEWS March 2016

Gov't hears from small, local producers ◄ Page A13 Jarrod Oils is a local southwest company with a long history, he noted.

In the southeast, Midale Petroleums had been climbing the list of producers, but divested about half of its production in the past year.

Several small southeast oil companies have told Pipeline News over the last month that they are actually looking for opportunities during this down cycle.

“When I talk to some of these guys, they stick to their bread and butter kind of plays. They don’t get extravagant and chase the Bakken or higher cost plays.

They stick to the good old, reliable, the straightforward Mississippian plays they know. They know their locations, they know their techniques. They’re not doing too bad at all. Steady as she goes. They might not make as much money as before, but they’re still making money.”

Dancsok noted that many of these oil companies have been doing cost cutting.

They have been through downturns before, and know how to adjust and find efficiencies.

“One of them said to me the other day that $50 dollar oil will become the new $100 oil,” Dancsok recalled.

Service companies have reduced their prices, he noted, but acknowledged that the price for electricity from SaskPower to run pumpjacks is not going down.

“There’s going to be casualties. You know there are. I hate to be harsh about it, but sometimes the pruning of the bad wood overall is good for the overall industry.

It’s a harsh thing to say. It’s people’s livelihood and investment. People can lose a lot over it. But it happens in any sector, with any kind of downturn. Companies that were weak to begin with just can’t weather the storm as well as some that are better positioned and strategic about how they move forward,” he said.

One of the casualties has been the business model to build small junior producers quickly and then flip them. However, with the current price of oil, Dancsok thinks build-and-flip is on its way out. He noted that on the regulatory side, those companies have been problematic in the past, cutting corners to get production up.

SHOP In recent years, a few southeast oil producers have banded together into their own industry association, Saskatchewan Headquartered Oil Producers, or SHOP. Dancsok noted that when Small Explorers and Producers Association of Canada dropped the “small” portion of their name, those producers that are now part of SHOP felt they needed their own organization.

“When we do our industry consultations, such as through the development of IRIS (Integrated Resource Information System), we included SHOP in all those

efforts,” he said. “It’s good to hear from CAPP, it’s good to hear from the intermediates, from EPAC, but we always include SHOP in our deliberations as well.

“They’re the pragmatic guys, boots on the ground, let's get ’er done crowd.

Sometimes they’ve got some pretty pragmatic, common sense solutions to things we’re trying to walk through.”

SHOP has concerns with Saskatchewan adopting and, essentially, rubberstamping many Alberta regulations. Asked if there’s too much Alberta influence within the ministry, Dancsok said, “We struggled with that. We certainly had that as part of our thought process bringing this in.

“I was just in Calgary, talking about this very thing, the new directives we’re bringing in. They’re modelled on Alberta, but they certainly have a Saskatchewan slant to them. That is because of the feedback from the Del Mondors and some of the others.”

Del Mondor is owner of Aldon Oils and a SHOP member.

Dancsok continued, “We certainly have to modernize our regulatory framework. Some of that is around ‘why reinvent the wheel?’ Alberta is there. They’ve got this stuff developed there and accepted by industry. In Saskatchewan, we recognize we’re not Alberta, and we have a different flavour of operators, both large and small. I think we took care to have a Saskatchewan flavour to these regulations.”

An example he used is the new Directive 17, which covers oil and gas systems and measurements. It will be implemented on April 1.

20152015 Top Oil Producers in Sask.

Top Oil Producers in Saskatchewan Position 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Well Operator CRESCENT POINT ENERGY CORP. HUSKY OIL OPERATIONS LIMITED CANADIAN NATURAL RESOURCES LIMITED CENOVUS ENERGY INC. NORTHERN BLIZZARD RESOURCES INC. PENN WEST PETROLEUM LTD. RAGING RIVER EXPLORATION INC. TEINE ENERGY LTD. BAYTEX ENERGY LTD. LIGHTSTREAM RESOURCES LTD. NAL RESOURCES LIMITED WHITECAP RESOURCES INC. SPARTAN ENERGY CORP. TORC OIL & GAS LTD. ARC RESOURCES LTD. LEGACY OIL + GAS INC. CALTEX RESOURCES LTD. APACHE CANADA LTD. BLACKPEARL RESOURCES INC. SURGE ENERGY INC. ENERPLUS CORPORATION ROCK ENERGY INC. TWIN BUTTE ENERGY LTD. RIFE RESOURCES LTD. FEDERATED CO-OPERATIVES LIMITED NOVUS ENERGY INC. CONOCOPHILLIPS CANADA RESOURCES CORP. ISH ENERGY LTD. VERMILION ENERGY INC. CREW ENERGY INC.

BOPD 111,935 102,658 28,469 24,223 20,130 14,567 12,188 11,654 11,400 9,646 9,485 8,993 8,746 6,319 6,084 6,034 4,818 4,785 4,596 4,258 4,242 3,925 3,818 3,514 3,100 3,004 2,555 2,468 2,303 2,295

Source: Saskatchewan Ministry of Economy

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PIPELINE NEWS March 2016

A15

Safety stand down on a Crescent Point rig North Portal – A few miles north of North Portal, in an area called “Pinto,” Stampede Drilling Rig 3 has been punching holes for Crescent Point Energy. On Feb. 4, they took a short breather.

It was safety stand down day.

Crescent Point drilling engineer/ superintendent Adam Praski came out from Calgary to visit the rig. He’s a petroleum engineer who studied at the University of Saskatchewan.

Praski originated from Gronlid in northeast Saskatchewan, near Nipawin.

During his university years, Praski turned wrenches himself, saying, “I worked on a service rig in 2004 in the Lloydminster area.”

“There are five groups of us out today,” Praski said, referring to management teams conducting safety stand downs. Normally he personally monitors three to five rigs. In this case, there are three within a few miles of each other. His responsibility includes Stampede Rigs 2 and 3, Alliance Rig 7, Ensign Rig 360 and Red Dog Rig 4.

“We do areas on the same day,” he said. The Shaunavon area was done one day, Manitoba on another.

In this case Les Leis is the wellsite supervisor on Stampede Rig 3. He’s worked with Crescent Point ever since they took over their own drilling program in 2008.

Stampede Drilling management, including Bill Devins, Jackie White and Garnet Hodgins, also attended.

“Our biggest success, going on this

last year, is the efficiencies we found, in all the areas, all the rigs,” Praski said.

“Specifically in the drilling side, we’re coming a long ways and we’re getting better all the time. It’s mandated by the low price of oil. If you want to keep going, you’ve got to make things more efficient and quicker. That’s a good thing about downturns in oil is it demands finding efficiencies.”

He added the crew should pat themselves on the back for that.

Community respect and involvement are important. That includes respectful driving in the field. Praski noted the office got an appreciative call from a farmer in that regards.

Leis said that the rig will shut down if there is a whiteout due to a winter storm.

“If there’s a whiteout, blizzard, and the highways are not in driveable conditions, please don’t feel you have to drive them. We’ll do what we have to to get by,” Praski said.

“Above all is your safety. I want you to hear that from me, and I want you to know that comes from the top of our company management. Safety is first.

Everything else, including efficiency, is after. That truly is the most important thing to us.”

The number of safety incidents is down, he noted, even compared to years that were less busy.

“There is absolutely zero tolerance for alcohol on location,” he added.

Praski said, “We can’t control the price of oil. There’s a lot of stress in the

Adam Praski, in red, is one of Crescent Point Energy Corp.’s drilling engineer/superintendents. He led a safety stand down on Stampede Drilling Rig 3 on Feb. 4.

Photo by Brian Zinchuk industry right now. You can feel it, even in the coffee shops, going for lunch.

It’s a tough time. We can’t control that.

The only thing we can do is focus on what we’re doing. Please don’t worry about things like that, how much work is going to be in the future. Our drill schedule is changing every day, right now. There’s no control over that. Keep your head in the game. When you’re thinking about something else, other than the task at hand, that’s when you can get hurt.”

Leis said, “The most important thing is consistency. Rigs with the most consistency are the most successful.”

Praski would visit two other rigs that day, carrying the same message: safety is number one. He told Pipeline News, “Coming out from Calgary show our field team support for safety. We want them to hear that message.

Aaron Hirsch, Stampede’s rig manager for Rig 3, said, “We’re grateful to be working. We’ve got families to feed, bills to pay. This is a big deal for us.”

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A16

PIPELINE NEWS March 2016

Saturn Minerals announces oil discovery in northeast Saskatchewan  By Brian Zinchuk Porcupine Plain, Vancouver – Lying in bed. Staring at the ceiling.

Waiting.

It was a long night for Stan Szary, CEO of Saturn Minerals Inc., on Feb. 8-9. He was lying in bed, in Vancouver, waiting to hear the results of his company’s third exploratory well in northeast Saskatchewan. The first two got relatively close to the target before encountering what he called “sheer hell.” Now, the drilling rig, Savanna Drilling Canada Rig 440, was expected to pull up the core sample from their target zone. A project that had its roots in a coal play in 2008 would be having its reality check. Did it strike oil, or not?

Welcome to the world of a wildcatter, one of the few wildcatters working in Saskatchewan these days.

Wayne Slemp was their wellsite supervisor (i.e. company man) on this well. He tends to call when there’s bad news.

“I went to bed at 10:30. I stayed awake, the whole night, because I knew, next morning, we were either going to be good or bad,” Szary said.

“At 7:02 a.m., my time, there’s a phone call. It’s Wayne Slemp. Wayne usually calls if there’s a problem. He’s a very old-school guy. He doesn’t want to say if it’s great. If there’s a problem, he

wants my opinion. So, it’s him calling, I didn’t know if I wanted to answer,” Szary told Pipeline News on Feb. 12.

“I’ve got good news and bad news,” Slemp told Szary.

“Give me the bad news first,” Szary said.

“Remember you told me you may have a lot of work for me?” Slemp said.

“Well, that’s the bad news.”

“Then he told me about the core,” Szary said.

They had found oil.

In the words of their news release, “Saturn Minerals Inc. (TSX.V: SMI) is pleased to announce that the company has made a new oil discovery in three separate potential pay zones at its 100 per cent owned 9A-5-44-8W2 well (‘9A-5’) on its Bannock Creek project located near the town of Hudson Bay in northeast Saskatchewan. The discovery has been made in conjunction with technical teams from North Rim Exploration Ltd. and Axiom Exploration Ltd., both of Saskatoon, Saskatchewan.

“Drilling of the 9A-5 well had commenced on Jan. 7 and had reached a total depth of 583 metres before technical difficulties related to wellbore stability and lost circulation were encountered. In consultation with its technical team, the company elected to redesign the casing configuration and drill process. The second well was

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spudded on Jan. 29 and reached a target depth of 740 metres in eight days without incident, including 1.5 days to core and log. A total of 27 metres of core was cut with full recovery through all target zones.

“Saturn is very pleased to announce that within the target Herald and Yeoman formations, three separate intercepts displayed pronounced and uniform oil staining and fluorescence under black light. These intercepts were subsequently cross-referenced to match down-hole resistivity logs and porosity logs greater than 12 per cent. The discovery was made in three separate formations: the Herald, the Upper Yeoman and the Lower Yeoman for a cumulative potential reservoir thickness of 8 meters. The presence of these stacked pay zones supports the company’s exploration model of a stacked target, 4-way closed anticlinal potential oil reservoir.”

Getting to this point, however, took many years.

Wildcatter area of interest Northeast Saskatchewan has seen sporadic wildcatting activities over the years, and an increased level in recent years, according the Ministry of Economy’s Oil and Gas InfoMap. Two wells were drilled between Kelvington and Lintlaw in 1950 then 1970, the first for Sohio Petroleum Company and the second for Hadson Ohio Oil. In 1954 Imperial Oil drilled north of Okla.

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drilled a well near Stenen. Canadian Reserve Oil and Gas drilled in the area as well.

Miami Oil Producers drilled north of Lintlaw in 1966.

Dome drilled a well near Danbury in 1967.

In 2006, Cenovus drilled just southwest of Preeceville, followed by Panterra Resource Corp.

In 2007-2009, Hunt Oil drilled a string of wildcat wells from Swan Plain westward. When Pipeline News called Hunt to ask about the project, they told us in no uncertain terms they were a private company and did not need to talk about the project. Harvest Operations Corp. is listed as having held the licenses on those wells.

Some drilling near Preeceville by Panterra during that time caused some waves locally when the propane gel frac flowback was flared off within sight of Main Street. Some people thought the flared off propane indicated a big well.

Saturn has looked into the prior work in the area. Szary said they found historical notes from archival evidence they found in a box of a discovery in the town of Hudson Bay back in 1920 at about 500 metres.

“There’s a lot of dribs and drabs, here and there, poking around. Chevron drilled a few strat wells in the area.

They pulled out, I think for the same reason we had. They never got past 620 metres,” Szary said.

Saturn isn’t the first to say they’ve found oil in the area. ► Page A17

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PIPELINE NEWS March 2016 ◄ Page A16 Nordic Oil and Gas has been pursuing some drilling near Sturgis in 2012. Their most recent press release on that play, on Nov. 29, 2012, stated they were planning to bring a service rig back to shut off the lowest of the four intervals that were previously perforated. Furthermore, they were also contemplating fracking the other three perforated zones.

A month prior to that, they announced the well had been put on production and a pumpjack had been installed. But little has been said of that project since, until Saturn made its announcement. Indeed, Nordic picked up on Saturn’s announcement, putting out a press release on Feb. 12 stating talking about their efforts in the area, starting in 2001 and drilling a well that found oil in 2011.

Diamond quest leads to coal leads to oil Saturn found oil at Bannock Creek, near Porcupine Plain, southwest of Hudson Bay. The entire play began as a coal project.

Saturn has been around since 2004, noted Szary. “In early 2008, there was a coal discovery just a little north of Hudson Bay, by a company called Goldsource Mines Inc. They were actually exploring for diamonds. They had some good geophysics for diamonds. They encountered two pretty good coal intercepts, looking for diamonds.”

Coal was a very good price at the time, he noted.

Goldsource’s stock went ballistic, and it created a stampede of staking in the area by approximately 68 companies. “It was staked for coal a little bit from the Manitoba side, all the way to Alberta. The impression was there was a massive coal discovery in the spring of 2008.

At the time Saturn was in a minerals project in British Columbia. Goldsource’s “nebulous news release that they didn’t find diamonds, but they found coal,” as Szary noted, peaked his interest.

“I looked at that and talked to a friend of mine who has some knowledge of what they were doing.

The market being what it was, I thought this might be a good thing to have a look at.”

His son, Stefan, is very good at staking, and this is “paper staking.”

He explained, “You have to submit four pages for every 800 acres. You have to submit it in Regina and pay the fee.

“This was on (a) Thursday when they put out the news release. I thought this might turn into a big play.

I just had that hunch, you know what I mean? Having been in the business a long time, you get a sniff of these things. So, I got my geologist and Stefan to look at it, and we made a decision.

“Stefan flew to Regina on Friday. He spent the entire weekend, up 48 hours, on the phone with my geologist and looking at maps, writing down, by hand, every 800 acres. On Monday morning he walked into the office in Regina with about a foot-and-a-half of submissions, and about $200,000 in a bank draft for that.

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“We were there, I would say, first. We put that in, and got there real quick. It was a gamble. Either that afternoon or the following day, Goldsource made a comprehensive news release. Their stock went ballistic.

“On Wednesday, we issued a press release that we had acquired a couple hundred thousand acres of coal claims surrounding them, and everything went just absolutely nuts. Every company on the exchange basically had people staking for coal.”

The thinking at the time was there was a “big pancake” of coal between Goldsource’s two intercepts.

Saturn had 30 million shares outstanding, and they traded 30 million in one day, with the share price tripling and quadrupling.

“It was a very hectic time,” he said.

They put together an exploration program and raised $3 million to explore east and northeast of Hudson Bay. By September of 2008, the understanding of Goldsource’s discovery looked like it was two “pots” as opposed to one pancake. At the same time, the global economic crisis hit. Saturn’s stock fell from 80 cents to 10 cents, and Goldsource went to next to nothing.

Most other companies pulled out, but they stuck around and picked up some better ground, for coal, across the Manitoba border. That property is called “Overflowing” In late 2010, markets recovered and they put together a drill program. “In March 2011 we made a massive coal intercept of 89.6 metres near surface, on our Overflowing property, called the Karolina discovery. It was really good, high-grade thermal coal. The

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seam was continuous, from top to bottom, 90 metres of solid coal, and coal at that time was about $80 a ton.” ► Page A18

Saturn worked on the same hole for over three weeks before pulling out and drilling a new hold right beside it.

Photo courtesy Saturn Minerals

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A18

PIPELINE NEWS March 2016

USTOMS ROKERS Initially looking for coal, then oil ◄ Page A17

However, the price for bituminous coal declined to $40 a ton now, and this project is only economical at $60.

Since then Ontario has shut down its coal-fired power generation and Alberta intends to do the same.

Where coal leads to oil Szary said, “The one thing we noticed during all the coal exploration we did was we kept coming up with really interesting stuff in our core that smelt like oil. In fact, we intercepted one, about six metres, fairly shallow, about 60-70 metres down, it had clear signs of

oil in it. We sent it to Loring Labs and they confirmed oil had passed through this core recently, (although) geologically a long time ago.

“Just about all the coal we found on the Saskatchewan side smelled like gasoline. It reeked like gasoline. Oil was moving around. It smells like a duck, looks like a duck, walks like a duck.

“At that time, we didn’t announce that yet. We applied for two very large blocks of special exploration permits.”

Those permits would be for five years, and could be extended to seven or eight years. The permits were issued in 2011.

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“We put a bid in. Nobody competed with us. We worked closely with First Nations. They supported our bid.

They sent letters to the government in support of our bid.”

One is called Little Swan, about 100,000 hectares, the other is called Bannock Creek. Little Swan covers much of the land between Hudson Bay to north of Swan Plain. Most of this land is provincial forest. Bannock Creek is west of Hudson Bay, south of Highway 3, and covers 50,000 hectares.

It’s at the northern end of the Willison Basin, and only a few hundred kilometres from the edge of the Canadian Shield.

“Once we acquired the ground, we did another aerial survey, to determine basement depth and stuff like that,” Szary said.

Being a small company, and with poor equity markets, he said, “You raise a little money, you do a little work.

Finally, we got around to doing some seismic in 2013 on both properties.

Seismic looked good, some bumps, but especially on Bannock, it looked really good.”

It was a 120-kilometre 2D program over three years. They saw interesting things on Little Swan, but better prospects on Bannock.

The final program they did was the winter of 2014-2015, confirming a four-way closure, which they drilled.

The first hole, 9-5 was drilled in May 2015.

Hell is 583 metres deep “We had nothing but trouble. We

got stuck, in the end, and we had to abandon it before reaching target.

“We had to pull out. It was pretty disappointing for a little company.

We’re day-to-day on cash, right? So we went back to our shareholder base, and fortunately they supported us in our efforts. Persistence should pay off.

“We made a deal with North Rim, out of Saskatoon. I wanted this to be local. I’m a Saskatchewan guy, from Wadena, so I wanted to keep it home.

These are really talented people.”

North Rim manages exploration programs, primarily in potash, but also oil and gas. They had helped Saturn with their coal program. Axiom Exploration would be the geology firm.

Saturn wanted to drill last fall, but it was very wet, and thus would have increased costs.

Slemp would be the company man, and Randy Hellmer would assist in putting together the program.

“We were able to spud the re-drill of this well on the 7th of January,” he said.

By the end of January, they were still working on the same vertical wellbore.

What had they hit at 583 metres?

Szary put it succinctly. “Hell.”

He can’t disclose too much, noting that if other companies want to find out what’s down there, they can do it on their own dime. But Saturn found “sheer hell.”

The Jan. 7 well was just 20 lateral metres from the May 2015 well. ► Page A19

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PIPELINE NEWS March 2016 ◄ Page A18 Szary explained, “Bottom line, we had lots of circulation loss, some issues with cement. So here we were, the end of January, at 583. We could keep trying to get down, with all these plugs, and try to reach the target, and it may or may not work. We had a meeting with Scott (Newman, CEO of Axiom), Randy, Wayne and we said we’ve got three things we can do. We can pull out, go home. Not a choice, for me anyway.

“We can keep trying, and we may or may not get there. We’d spend another bunch of money and not be successful, or we can try again, with redesigned casing.

“If we’re going to be persistent, we

might as well be persistent to the point of insanity and try it one more time with a new casing design which Randy and Wayne put together,” he said.

“We’re going to be heroes or zeros, so we decided to go all in.”

“This is terrifying for us. We’re not Chevron. Money really matters.”

Their shareholders were supportive, but there’s a limit to everything.

“Persistence paid off in the end, and we were able to announce the discovery, which, so far, looks pretty good. We’re finalizing the lab data. We’re putting a completions program together. We’re looking to tie in the seismic with the logs to see how we can go forward.”

He described the Bannock Creek block as a gopher field. “We found one

TORC Oil & Gas has continued to grow

Bryant Ruda, left, and Graham MacNaughton throw on the tongs on Trinidad Drilling Rig 427 on Feb. 18. This rig has been punching holes for TORC Oil & Gas Ltd, a growing junior who is actively drilling in the southeast. This well is near Willmar.

Photo by Brian Zinchuk

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evaluating future vertical and/or horizontal wells in order to maximize the exploitation of known reservoirs, as well as to further assess additional undrilled targets on the 120,000 acre Bannock Creek project.”

Szary said the core had a high concentration of oil and it was high API. He didn’t expect to see much, if any associated natural gas.

There are other targets in the block they find interesting from their limited seismic data. However, he added 80 per cent of the block has had no exploration yet.

“Our strategy is to walk this thing very methodically.”

So how did it feel when he knew they found oil?

“A great sense of relief, more than anything else. It’s been a real test of perseverance. Now we can think about the other side of the ledger,” Szary responded.

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 By Brian Zinchuk Calgary – Brett Herman’s resumé of building, developing and selling junior oil companies in Saskatchewan could fill many pages. Some of those included Bakken pioneers StarPoint Energy Trust and TriStar Oil & Gas Ltd. But in recent years the world of junior producers has changed, and he and his management team have been focused on TORC Oil & Gas Ltd. for the last five years.

Herman doesn’t talk to media that often, declining interviews from several other media outlets over the years. However, he did speak to Pipeline News by phone, from Calgary, on Feb. 16. It was his first media interview since TORC was formed.

Asked if now was a good time to buy, Herman replied, “We’re always in the buying mood, but you have to be disciplined. Just because something’s cheap, doesn’t mean you should buy.”

“We’re the third largest producer in southeast Saskatchewan. Crescent Point is number one, and Cenovus, with the Weyburn unit, is number two.”

“Our production in southeast Saskatchewan is in excess of 12,000 barrels per day,” he said.

TORC’s 2015 third quarter results, the most recent posted on their website, show production at 17,709 boepd, of which 15,181 barrels per day was crude oil.

“TORC was started privately just over five years ago, really with a focus of our expertise of getting into oil plays early,” he said. “If you recall, we’re the team that got drilled the original wells into the Bakken in southeast Saskatchewan, we’re still the same technical team that was early into that play. ► Page A20

"We Dispatch for the Oil Patch"

gopher hole. There’s going to be more.”

“We certainly have more work to do. We’re either very, very lucky to be one-for-one (to hit the target formation) on a rank wildcat, or we’re in a really good area.”

At this point, it’s a vertical play.

Szary expects it would take six-to-eight days per well. With one well drilled, 3,200 acres are now secured.

The drill core has been sent to Core Labs of Estevan, Saskatchewan where a full analysis of the discovery, including permeability, porosity, oil saturation and API, will determine a comprehensive completions program. Saturn’s press release noted, “Results (were) expected by mid-February following which the company will announce a completions plan that will include test production and an additional well site to further assess the 480-acre anticlinal target which was the focus of this drill program. This additional well will aid the company in

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Starting a junior oil company today, expect to have a longer commitment: Brett Herman ◄ Page A19 “We started TORC privately five years ago with that same mindset: to be early entrants into a number of different plays. We did that for a couple years, and told our shareholders to be

patient for a couple years.

We would drill wells more for science’ sake, more than production’s sake. But after those two years, look for us to provide some form of liquidity event, through going public or sale of the company,” Herman

said.

“Twenty-three months later, we went public off a company called Vero Energy.

We recapitalized Vero, focused in Alberta, in the Cardium trend. This was an area and play trend we knew quite

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well from recapitalizing Result Energy a previous company we ran prior to TORC. We were also early entrants into a play called Monarch in southern Alberta.

“Monarch has similar characteristics to the Bakken play in the U.S. – similar pressures, similar depths. We started testing the concept, but what we found out was, we needed a bigger cash flow base to help fund the success we were having. Being well-astute in Saskatchewan, we were successful in negotiating a transaction with Pengrowth in the summer of 2013. We basically ‘white-mapped’ them, or purchased all their southeast Saskatchewan conventional production from them, approximately 6,000 barrels a day.

“That was our entry back into Saskatchewan for TORC, going back home we called it. We were 15,000 barrels per day in southeast Saskatchewan with TriStar, and going back further, to StarPoint, we had sizeable production there as well,” Herman said.

Understanding the assets as well as having the right teams, both in Calgary and Estevan, were important. Jim Larter, production manager in Estevan, for instance,

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has a long history with the team.

In 2015 they ‘whitemapped’ Surge Energy out of Saskatchewan, purchasing their conventional assets in southeast Saskatchewan (but not their southwest assets).

This resulted in just over 4,700 barrels per day in production added to TORC. “Today, TORC is sitting with 70 per cent of our production base in southeast Saskatchewan – a very, very proud producer in the area,” he said.

That acquisition included Surge’s southwest Manitoba assets near Waskada.

He added, “If I could have all my production in Saskatchewan, I would.”

Role of juniors Asked what the role of junior producers in the Canadian oilpatch, he said, “Clearly, the role has changed over the years. If you step back many years ago, when the royalty trust era was here, the role of the junior oil and gas company was to really to take exploration land, prove it up, and roll it back into those trusts.

The trust would develop those assets and spin out that free cash flow and pay dividends.

“Over the last number of years, I don’t think you see as many junior oil and gas companies come to life as you would have if the royalty trust structure still existed.

“I think the days of starting a junior oil and gas company and growing it, to 1,000, 2,000, 5,000 barrels a day and flipping it are gone, particularly in this

environment where the commodity price cycle is not participating,” he said.

“The goal has always been to develop new exploration lands and continue to grow. I think the vision today, all things remaining equal, is that once you start a junior oil and gas company, is to grow it on a long-term basis. That exit cycle doesn’t exist as frequently as it once did previously.

You have to be, on a commitment-level basis, more committed to grow the company than you had been previously,” Herman said.

Southeast Saskatchewan used to have major oil companies like Imperial Oil and Shell active in the region, but in this century it has largely been a play with numerous junior oil and gas companies (some headed

by Herman) making up the business landscape.

That landscape, in the past few years, has come to be dominated by one company now, Crescent Point, which has acquired many of those juniors, including some of the assets once headed

by Herman.

Asked about the transformation of the business landscape, Herman said, “We’re drilling the same pools found in the 50s and 60s by Imperial. The Enbridge pipelines were built specifically back then for those pools. Our goal is to increase the recovery factors.”

The major oil companies were drawn to Alberta’s gas plays, according to Herman. ► Page A21

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PIPELINE NEWS March 2016

Brett Herman, CEO of TORC Oil & Gas Ltd., was the keynote speaker at the Redvers Oil Showcase several years ago. File photo

◄ Page A20 “You saw a lot of guys exit Saskatchewan to pursue gas. It presented opportunities for companies I was involved in to come into Saskatchewan. A big company mentality is not to have an area or play that’s just 5,000 or 10,000 barrels a day. They’re looking to turn an area into 50,000 to 100,000 barrels a day.

That does pose an issue for some of the bigger guys to get into the province of Saskatchewan.

“You know the Bakken, no one truthfully believed it would be as successful as it was back in 2005, 2006, because the technology just didn’t exist back then. The packer systems, fracking and completion technologies didn’t exist to

move that play forward.

Really it’s been in the last roughly seven or eight years that technology improved.

“As a result, most of those guys who exited the area didn’t have an opportunity to get back into it. Similarly it presented opportunities in the Shaunavon and Viking in all those areas. Where those guys exited, for the most part, junior companies came in and used that technology to start getting sizeable production from those areas. For some of those companies, it was almost too little, too late,” Herman said.

“Crescent Point has done a good job, we’ve done a good job, over the years of consolidating in those types of plays.”

Asked where the room is now for the little

guy, he said, “There is competition in the area, as there always is in high quality plays, but competition also creates opportunities for companies like TORC to come in and compete.”

In dealing with a downturn of this magnitude he said, “We, as a management team, have dealt with these down cycles before. The key to survive these types of cycles is to be consistent and disciplined. You have to be disciplined in a very strong environment, which will help you in a very tough environment.

If you’re not consistently disciplined in all price environments, your weaknesses show up as a result.

“As an example, TORC is a dividendpayer. We had ample opportunities to bump the dividend in 2014 when crude averaged over $90. We could have levered the company up by believing the commodity price cycle would be over $90 for an extended period of time.

We remained disciplined in that environment, protected the balance sheet, prepared for a rainy day.

“Today it’s not only raining, it’s storming right now. But as a result of showing that discipline, our balance sheet remains strong, which is absolutely key,” said Herman.

In Saskatchewan, he noted a major factor of TORC surviving this down cycle is the quality of their assets.

“With 70 per cent of our asset base in Saskatchewan, we’re very highly confident we’re going to be one of the

guys to survive this.”

Core values At the Redvers Oil Show several years ago, he spoke about the importance of following core values. How have those core values stood up for them in this time of adversity, and have they made a difference?

“Accountability, professionalism, still re-

main an extremely high focus for us. We have 79 staff members at TORC. We employ 15 full-time staff out of Estevan’s field office along with 35 contract operators. We also employ numerous contractors and consultants.

“Each one of those individuals in Saskatchewan, the Alberta field

A21

staff, and those in head office in Calgary, are all treated with a high level of professionalism and respect. In return you expect honesty and integrity. We have very high standards here all the staff adhere to. That’s one of the reasons why we believe we’re successful in the downturn. ► Page A22

A22

PIPELINE NEWS March 2016

'All we want to do out here is work hard' ◄ Page A21 “I was in Saskatchewan just before Christmas time, and one of our field staff members said to me, ‘Brett, all we want to do out here is work hard.’

“When someone says that, you know you’ve hired the right team and are taking the right approach,” Herman said. “Because that’s what it takes to get through this down cycle, a bunch of hard work.”

Tight oil As a pioneer in tight oil plays, how does Herman think tight oil plays can survive in oil around $30 WTI? “To be honest, that’s a tough question to answer.

What we’ve seen is a shift in service costs and a trend down, obviously, over the past year-and-a-half. It’s never fun to watch some of your friends and business colleagues go through the pain some are experiencing today,” he replied.

“We can still drill economic wells. That’s one

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“In a $30 dollar environment, there’s no question, it’s excessively tough. Sometimes the solution for low oil prices is low oil prices. We’ve lived these cycles up and down and have seen this before. The price environment is excessively tough right now. Oil declines though. At some point that decline will be enough to get us out of this cycle. Supply and demand will dictate prices will go back up and everyone will be working again, hopefully in the near future,” he said.

Actively drilling TORC is involved in several conventional pools

that they are currently drilling. In the last two years they have been involved in the Torquay/Three Forks play close to Hoffer and Oungre. “We also have fracked Midale potential on our land, as well.”

However, they are not involved with the Bakken, as that play has been largely consolidated by Crescent Point and Lightstream.

TORC is also one of the few companies still drilling in late February as the active drilling rig count continued to decline.

“Right now, we have one rig going. The plan in the province is to drill 23 conventional wells and five Torquay/Three Forks wells,” Herman said.

Roughly, they’re looking at about 10 in the first half of 2016, and the remainder later in the year.

“We want to continue to keep the service companies busy and we want them working for TORC,” he said.

Getting INTO the oilfield services when others are getting out Estevan – Not many people would get into the oilfield services business as the worst downturn in the industry in decades took hold, but the new owners of Pride Upkeep did just that last year, and are now preparing for their second year in the field.

Estevan-based Pride Upkeep had been owned by Nathan and Barb Dunford, and based on their farm just north of the city.

In May 2015, it was purchased by Dustin Ng and his brother-in-law Brant Kersey.

“We control vegetation on oilfield sites,” said Ng

on Feb. 8. “We go lease-to-lease and spray herbicides.

On organic land, we weed-whip and mow.”

Asked about buying into an oilfield business during the middle of a downturn, Ng said, “I was crazy enough to want to work on my own, for myself. We just felt like we were open to a change.”

Prior to that he had spent the last two years working with a local insurance firm. And before that, Ng spent several years day trading, something he still does during the off-season from spraying. ► Page A23

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Pride Upkeep

Dustin Ng, seen here, and his brother-in-law Brant Kersey took over Pride Upkeep last year.

◄ Page A22 Both Ng and Kersey have long ties to the newspaper industry, as Ng’s family had owned and operated the Estevan Mercury for decades and continued to do so after its sale to Glacier Media.

Ng has done a little bit of everything in that business, including layout for this newspaper for several years.

Kersey has spent most of his career in newspapers, and was publisher of Pipeline News and Estevan Mercury until the end of February 2016, when he left to pursue operation of Pride full-time. (He had taken several months

off in 2015 during their summer spraying season.)

In keeping with Pride’s roots, it is still a family operation. Ng’s wife Mel, and his sister (and Kersey’s wife) Jennifer, are both involved in the administration aspect of the company.

When it’s possible for a team of sprayers to visit nearly 100 wells in a day, there’s a lot of paperwork involved, tracking what work has been done for which company. “It’s quite extensive, actually,” he said.

“It’s a family business,” Ng said. Indeed, the previous owners are cousins of Dustin and Jennifer.

For their first year in

operation, the Dunfords assisted and mentored the new owners.

“They stayed on for a full season, mentored and trained us on their method,” he said. “It was nice to have. They operated as a team. Now we will. We were very fortunate to have a great deal of training and expertise throughout the entire 2015 season. We learned a lot.”

Ng said their second year in business is “just getting rolling now.”

The very nature of the work is seasonal. But lining up work begins early in the year, long before spring breakup.

“I’ll begin the process of contacting our customers

in February and March,” he said.

Getting into the lease maintenance business was a big change for Ng, who had spent his entire working career in offices.

“I’ve always had a desire to work outside and be out and about, but life never took me in that direction,” he said. “I was always an office guy.”

So, when he started spraying for a living, he got bugged a bit about “Finally putting in an honest day’s work,” with muddy boots and rubber gloves at the end of the day.

The job itself is very physically demanding.

Ng characterized it as

“extremely long days, extremely weatherdependent, and naturally, seasonal.”

Sixteen-hour days are common. A typical day they are at the shop by 5 a.m. and head out to locations within a 200-kilometre drive of Estevan. They are out on sites until either wind or lack of sunlight shuts them down. If the wind dies down in the evening, they head out again.

Pride currently operates three units, each with two people. Most of the work is done by using very long hoses from their trucks and walking all over the lease, spraying. It’s a tremendous amount of walking, but it’s a lot quicker than loading and unloading a quad at every site. The net result is they literally can cover more ground in a day. Last year, Barb Dunford’s team visited a whopping 109 sites in one day. Ng’s highest was in the high 90s.

For the formerly office-bound Ng, “It was an eye-opener, for sure,” he said.

“Crazy hours were something I wasn’t used to, but I was excited for.

After 12 days of great weather and 14-hour days, I found myself hoping for some wind.

“Last year, the weather was really good.”

The biggest challenge for Ng was in understanding the demands of oilfield work. “I didn’t have any background in labour,” he said.

But by the end of the season, he had lost at least 15 pounds.

With oil prices in February plumbing the lowest depths seen in 13 years, what impact will that have on Pride?

“We are affected like all the services have been. I try not to dwell on it, just do the best you can with what’s available. We always need to remember everyone’s in the same boat. This isn’t a Pride downturn. It’s an oil downturn. It’s the whole town. We’re in it together.

“Keep your head down and focus on quality. That’s all we can do,” he said.

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