Updated March 2017
Table 1.6 [HTML] shows that the supply costs vary considerably depending on the area and the type of well used, illustrating the importance of having sufficient understanding of the underlying geology to employ the most effective and cost efficient completion technology. It also shows that wells that target wet gas (the horizontal wells in PSAC Areas 2, 5, and 7) typically have lower supply costs because the liquids add value, which helps offset the costs of the well. Wells with longer total measured depths, typically horizontal wells, tend to have higher initial productivity but also higher capital costs. However, since the higher initial productivity is typically able to offset the higher capital costs, these wells tend to have lower supply costs. With the exception of horizontal wells in PSAC Area 5, which experienced a minor increase, and vertical wells in PSAC Area 6, supply costs went down in 2016 relative to 2015 as a result of lower capital costs and better initial productivity in some areas. The improvement in initial productivity was the result of drilling that targeted only the most productive areas in the formation, as a result of the current low price environment, and was slight to moderate in nature.
Our latest analysis includes an additional horizontal well in PSAC Area 2 producing from the Upper Mannville to reflect current industry trends.
The analysis also includes a separate set of supply costs for certain PSAC areas 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 can be seen in Table 1.6 [HTML], supply costs are the lowest for horizontal drilling in PSAC Areas 2 and 7, which benefit from economies of scale.
The AER has not considered recompletions in the analysis, which are substantially cheaper than new drills but have weaker initial productivity.