Updated March 2017
Table 1.5 [HTML] summarizes the estimated supply costs for conventional crude oil by Petroleum Services Association of Canada (PSAC) area based on 2016 capital and operating costs and representative production profiles.
Capital costs in 2016 compared with 2015 fell on average by about 6 per cent, but for some representative wells dropped by as much as 30 per cent. The decreased capital costs were primarily due to decreased drilling and completion costs. The lower capital costs, combined with the Government of Alberta’s Modernized Royalty Framework, resulted in the majority of the representative wells in Table 1.5 [HTML] being economical, as the Alberta crude oil wellhead price averaged an estimated $51.25 per barrel (bbl) for light-medium oil in 2016. PSAC Area 4 representative heavy oil wells had the lowest supply costs in 2016, which combined with a heavy oil price of $34.28/bbl, made these wells economical as well.
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].
The supply costs in 2016 were about 33 per cent lower on average compared with 2015 for single wells and about 36 per cent for multiwell pads. Horizontal drilling using multistage fracturing completion technology continues to enhance the development of crude oil in Alberta. Lower supply costs in 2016 for horizontal wells in PSAC Areas 2 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 seen in Figure S4.5 [Tableau].
The methodology used to calculate the supply costs can be found in the methodology section.