Updated March 2018
Table 1.5 [HTML] summarizes the estimated supply costs for conventional crude oil by Petroleum Services Association of Canada (PSAC) area based on 2017 capital and operating costs and representative production profiles.
Capital costs in 2017 compared with 2016 rose on average by 3.8 per cent, but for some representative wells increased by as much as 6.3 per cent. The increased capital costs were primarily due to increased drilling, casing, and completion costs. Despite increased capital costs for most of the representative wells in Table 1.5 [HTML], producers found ways to remain competitive by implementing cost-saving measures and were supported by higher crude oil prices as the Canadian Light Sweet crude oil price averaged an estimated $60.53 per barrel (bbl) for light-medium oil in 2017. PSAC Area 4 representative heavy oil wells had the lowest supply costs in 2017, which, combined with the Western Canadian Select heavy oil price of $37.81/bbl, made these wells economical.
Higher capital costs are generally associated with wells that have longer total measured depths, notably those in PSAC Areas 2, 3, and 7. The AER has calculated representative supply costs to reflect the industry practice of drilling more than one well or lateral leg from a well pad, commonly referred to as a multiwell pad or multilateral well. These wells are able to take advantage of economies of scale and typically incur lower capital costs, resulting in a lower cost per unit of output, as shown in Table 1.5 [HTML].
Supply costs in 2017 compared with 2016 were on average 20.2 per cent higher for single wells and 20.1 per cent higher for multiwell pads on a dollar per barrel basis as a result of increased capital costs. Horizontal drilling using hydraulic multistage fracturing completion technology continues to enhance the development of crude oil in Alberta. Lower supply costs in 2017 for horizontal wells in PSAC Areas 4 and 5 compared with other areas were associated with more wells being placed on production in the Cardium and Mannville Formations, which underlie these two PSAC areas, as shown in Figure S4.5 [Tableau].
The methodology used to calculate the supply costs can be found in the Methodology section