Updated June 2021
The supply cost of a resource project is the minimum constant dollar price needed to recover all capital expenditures, operating costs, royalties, and taxes, as well as to earn a specified return on investment. Supply costs serve as an indicator of a project’s economic viability.
An understanding of the underlying geology allows the most effective and cost-efficient completion technology to be used. Supply costs for different geological plays and Petroleum Services Association of Canada (PSAC) areas vary significantly because of
- differing production rates,
- well types,
- drilling and operating costs, and
Wells with a longer total measured depth, which is typical of horizontal wells, tend to have higher initial productivity but also higher capital costs. However, since the higher initial productivity of these wells is typically able to offset the higher capital costs, these wells tend to have lower supply costs.
Wells drilled in the following areas tend to be horizontal and have higher initial productivity:
- Foothills Front (PSAC 2)
- Northwestern Alberta (PSAC 7)
- Central Alberta (PSAC 5)
Supply Costs by PSAC Area
Table S4.3 shows the estimated supply costs for crude oil by PSAC area. These costs are based on 2020 capital and operating costs and representative production profiles. Companies often drill 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.
Supply costs in 2020 decreased year over year by an average of 5 per cent for single wells and multiwell pads because of decreased capital and operating costs. Drilling, casing, and completion costs across all PSAC areas also decreased. Lower associated drilling costs such as labour, fuel, directional drilling services, fracture stimulation, and equipment rentals contributed to overall lower costs.