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Montney Basin sees only increase in Canadian tight oil production in past three years

FORT ST. JOHN, B.C. — According to a report released by the National Energy Board last week, the Montney Formation in Northeast B.C. and northwestern Alberta is the only formation in Canada that has seen increased tight oil production since oil prices fell in 2014.

Since mid-2014, Canadian tight oil production decreased from a peak of about 425,000 barrels per day to about 345,000 barrels per day at the end of 2016. The main reductions were seen in the Cardium Formation in Alberta, which fell from 85,000 to 50,000 barrels per day, and the Bakken Formation in Saskatchewan and Manitoba, which decreased from about 60,000 to 40,000 barrels per day.

A graph showing Canadian tight oil production by formation in the last ten years. An overlaid line series shows the year-over-year well count growth. Tight oil production grew from less than 9,000 barrels/day in 2007 to almost 445,000 barrels/day in 2014 before dropping to less than 345,000 barrels/day in 2016. This production came from various formations, led by the Montney/Doig, Cardium, Viking, and Bakken formations. Well count growth increased from 132 in January 2007 to 3,517 in December 2014, after which it declined to 798 in December 2016. Source: Divestco, National Energy Board.

The Montney Formation was the only formation that had its production grow since 2014, rising by approximately 35,000 barrels per day. This was largely due to increased production of natural gas condensate, which is considered a form of oil. Montney condensate is obtained from tight gas wells, and is in high demand for use as a diluent that allows bitumen to be shipped by pipeline. Consequently, condensate fetches a higher price than crude oil in western Canada.

A graph that illustrates drilling rig activity in western Canada from 2010 to 2016, broken down by horizontal or vertical drilling, and rigs targeting oil or natural gas. Rig activity in western Canada through the summer, fall, and winter from 2010 to 2014 varied seasonally between 300 and 425 rigs drilling at any time. In 2014, summer rig activity was about 350. In 2015, that fell more than 50% to about 150. In 2016, summer rig activity fell more than 60% from the 2014 figure to about 85. In the summer of 2016, more than 90% of all rigs were drilling horizontal wells. Source: JuneWarren-Nickles.

The overall decline in tight oil production is because of fewer new wells being drilled in response to decreasing prices. The NEB says that tight oil wells typically produce a large amount of oil in their first month, but decline quickly thereafter. That means that new wells must be continually added to maintain production levels. In 2014, the number of producing wells grew by over 3,200 per year. However, by 2016 less than 1,000 new wells were added.

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