In Canada's prairies, crude slump puts first oil patch in reverse

Wed Sep 9, 2015 11:07am EDT
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(This Sept 8 story has been corrected on paragraph 3 to clarify that number refers to barrels per day, not number of wells)

By Nia Williams

LLOYDMINSTER, Canada (Reuters) - Amid the corn and canola fields of western Saskatchewan, oil foreman Dwayne Roy is doing what Saudi Arabia and fellow OPEC producers are loath to do: shutting the taps on active wells.

Inside a six-foot-square wooden shed that houses a basic hydraulic pump, the Gear Energy Ltd employee demonstrates how shutting down a conventional heavy oil well in this lesser-known Canadian oil patch is as simple as flipping a switch. His company has already done so multiple times this year, making the Lloydminster industry among the first in the world to yield in a global battle for oil market share that has sent crude prices tumbling to six-year lows.

Gear Energy Ltd, has idled up to 500 barrels per day of production from its least efficient wells this year, many of them in the past weeks. Some cost of up to C$28 ($21.22) a barrel to operate. It costs another C$7 in royalty and transportation fees to get the crude, among the densest in the world, to regional rail hubs - where it was fetching barely $20 a barrel during last month's lows.

"We ask every day: is this well making money today? Will it make us money going forward?" says Roy.

Such questions have been nagging oil industry veterans since crude prices started sliding last year as a result of a supply glut caused by a battle between exporters' group OPEC and North American shale oil producers.

Energy firms around the world have responded by laying off thousands of workers and slashing spending by billions of dollars. But producers here are the first to do what the global market needs to rebalance: turn off the taps.

All told, at least 8,000 barrels per day (bpd) of local heavy conventional oil production has been idled by firms such as Gear, Canadian Natural Resources Ltd and Baytex Energy Corp this year.   Continued...

Sr. foreman Dwayne Roy checking tap for production at an active well site about 60 kilometres east of field office during a tour of Gear Energy's well sites near Lloydminster, Saskatchewan August 27, 2015. REUTERS/Dan Riedlhuber