Kim Lindsay looks up at the gleaming steel of Precision Drilling Corp.’s (PD-T10.50-0.05-0.47%) Rig 560, dusted in snow and towering above the North Dakota prairie, and smiles. “This is hot off the press – been out a month,” said Mr. Lindsay, a U.S. manager with the company. The yellow paint on the rig’s Caterpillar engines is unsullied. The technology is state of the art, with a driller operating a joystick in front of rows of flat-panel monitors that look like something out of NASA mission control. Built in Canada, the rig was trucked across the border to drill for oil.
By March, Precision intends to have 33 of these rigs running – their drill bits aimed at a lucrative payload nearly three kilometres beneath the earth. It is the Middle Bakken formation, known to most as simply the Bakken, a reservoir jammed with so much oil that companies have flocked from all over the world to profit from it.
That includes a growing cadre of Canadian companies that are using the Bakken – and a series of oil and gas plays like it in Arkansas, Pennsylvania, Ohio and beyond – as a springboard to expand their presence beyond Canada. And while they’re brought here by the scent of opportunity, they’re also cashing in on the serendipity of proximity: Williston lies just 1,000 kilometres from Calgary, and an easy day’s drive from Edmonton for the flow of men and machinery that have been dispatched here.
That’s not the only perk – there’s also winter experience, an important distinction compared to U.S. service companies that tend to be based in more southerly latitudes.
Take Precision, for example. The Bakken has become “one of our biggest focuses,” chief executive officer Kevin Neveu said. “For us as a Canadian company, understanding the cold weather and the relative remoteness of the drilling there, we have a huge advantage compared to the local southern-based contractors.”
That’s not to say there aren’t downsides to operating in the Bakken. Foreigners aren’t always welcome in the United States, and at least one worker spoke about drivers flipping him the bird after seeing his British Columbia plates. Bringing Canadian labour to the U.S. is also difficult and hiring local workers is tough in North Dakota, where the work force is already dramatically overstretched. That’s kept away companies like Trican Well Service Ltd.
“Not saying we won’t ever be there, but we’ve kind of stayed out because the labour market has been so tight,” CEO Dale Dusterhoft said.
But the enormous spending on the Bakken, which is attracting drilling worth billions a year, is a major draw. Part of the allure is the expectation that money will be flowing into – and out of – the Bakken for a long time. People in North Dakota talk about an oil play that could last a generation, or longer. That’s especially attractive for a company like CCS Corp., a privately-held Calgary business that does a variety of oil patch environmental services, including cleaning up the fluids used in drilling.
Part of the company’s work requires a long time horizon – like building facilities that take two or three years to permit. The sense that the Bakken won’t vanish overnight has convinced CCS to apply on a series of new facilities, including injection wells to dispose of saltwater waste, plants to treat oil field waste and landfills to sequester it. For CCS, the Bakken forms the cornerstone of significant strategy south of the border.
Roughly three-quarters of CCS’s work in the U.S. today is in the Bakken, which is in turn about 10 per cent of its overall business.
“With the growth strategy and other acquisition targets, the plan is to take the U.S. to be 20 per cent of CCS,” said Phil Vogel, president of the company’s U.S. subsidiary. “CCS has spent 30 years mainly in Alberta, and if you want to continue to grow, we had to look toward the U.S. sector of the market.”
And the opportunities in North Dakota are broad. Canadian-headquartered camp services companies, including Black Diamond Ltd., PTI Group Inc. and Atco Ltd., have set up sprawling temporary accommodations. Pallets of wood from West Fraser Timber Co. Ltd. and Tolko Industries Ltd. sit in lumber yards.
Several Canadian oil producers are there, too: Enerplus Corp. (ERF-T25.850.230.90%), Crescent Point Energy (CPG-T44.90-0.10-0.22%), Baytex Energy Corp. (BTE-T56.970.270.48%) They were drawn for a different reason: Until recently, land in the U.S. Bakken was far cheaper than in Canada, where a similar reservoir has also drawn substantial work. When Baytex headed south, for example, land was going from $2,000 to $10,000 an acre in Saskatchewan. In the U.S. Bakken, it paid $700 to $800.
North Dakota was “where in the end we felt the best potential and the best value was at that time,” Baytex CEO Tony Marino said. The company now has roughly 125,000 acres in the area. Enerplus, the first Canadian company in the area, has 75,000 net acres and expects to grow its production from 7,000 barrels a day to 20,000 – a figure equivalent to a quarter of its current output.
“We were attracted to the Bakken because of the scope of the resource,” said Ian Dundas, executive vice-president at Enerplus. But, he added, “we see opportunity throughout the U.S.”
But the scale of the Canadian holdings – and production – pales in comparison to U.S. players. Continental Resources Inc., for example, boasts 900,000 acres.
For Canada, then, the biggest opportunity likely lies with service companies, following the mantra that the richest person in a gold rush is the one selling shovels. That’s what has brought in Sanjel Corp., Packers Plus Energy Services Inc. and Calfrac Well Services Ltd. (CFW-T28.500.100.35%)
In a year, Calfrac has grown from one North Dakota frack crew – a team that uses massive pumps and other equipment to make oil flow from the wells – to three, with another on the way. In Canada, much of the frack work is in natural gas, a commodity where prices have been low. Moving into the Bakken is a chance to diversify into oil – and, more importantly to use a U.S. boom to grow a Canadian company.
“We’re pretty bullish as to where it’s going, and as far as our overall U.S. presence,” said Tom Medvedic, senior vice-president of corporate development with Calfrac.
Back at Precision’s Rig 560, the drill bit continues to power deep into the earth, preparing the way for the next rush of new crude oil. Mr. Lindsay takes a moment to consider it: In just over a year, Precision’s fleet will grow from 16 to 33. Some have been trucked in from across the continent. Eight will be new, built specially for the Bakken.
“This is turning into a big find,” Mr. Lindsay said.
Original Article
Source: Globe
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