The Viking is an established oil play that has produced oil and gas from conventional reservoirs since the 1950’s. From a geological point of view, the play has been delineated by more than 8,000 vertical wells. This is a low risk light oil resource style play with a large amount of original oil in place that is second only to the Cardium and has one of the lowest recoveries estimated at ~4%. The formation covers a large part of western Canada and extends over most of Saskatchewan. It is mostly gas bearing with oil production restricted to west-central Saskatchewan in the Kindersley-Dodsland area. This light sweet oil play deserves to be highlighted along with notable Viking oil companies.

The Viking Oil Trend

The Viking formation consists mainly of fine to coarse grained sandstone sandwiched between 2 marine shales. It is divided into 2 zones: an upper zone that ranges from 2-3 meters in thickness where oil has been produced from vertical wells and a lower zone that is 3-9 meters thick which has been uneconomic to produce from until the advent of new technology. Government estimates for the upper zone suggest 2 billion barrels of OOIP exploitable with vertical drilling. However, the Viking oil pools have been “widened” with the advent of horizontal drilling and multistage fracking completion, the industry now estimates up to 6 billion barrels of OOIP as a result of tapping into the previously uneconomic lower compartmentalized zone. Horizontal development has unlocked massive oil reserves and is expected to increase recovery factors up to 12% potentially exceeding 20% through secondary recovery techniques such as putting Viking oil pools under waterflood.

Only 4% recovered to date

Compared to other unconventional plays, the Viking is shallower at only 700-750m in depth. A shallower depth results in lower costs for drilling and completing a well and lower pressure which translates into less prolific production rates relative to other light oil plays such as the Cardium formation or the Slave Point. Most of the players have been optimizing their completion techniques and have brought their costs below $1 million per well improving returns on the play and well results. It now takes a Viking well less than 28 days from spud date to on-stream date. Several players in the industry have even started to successfully employ 16 well/section spacing in the Dodsland area which materially augments the scope of their opportunity base.

Viking oil from West Central Saskatchewan is 35° – 39° API light sweet oil. Each barrel fetches Edmonton Par pricing less ~$4.00/bbl . Saskatchewan offers an extremely attractive royalty system whereby Viking horizontal wells qualify for a 2.5% royalty rate on crown lands and 0% production tax on freehold lands for the first 37,700 barrels of cumulative oil production. This would equate to about half of the expected ultimate recovery (EUR) of some producers.

Attractive royalty rates coupled with low production costs result in extremely attractive netbacks. At $95 Edmonton Par, Viking oil producers can net between $64 and $68 in profit per barrel which means an excellent recycle ratio for each dollar. Viking oil wells IP30 (initial production rates for the first 30 days) range from 35-65 bbls/day with more than 85% weighting to light sweet oil. A Viking oil well’s production may contain anywhere from 0-25% of natural gas. Estimated ultimate recoveries range from 45,000 up to 75,000 bbls per well depending on the area and the completion method. The figure below by Renegade Petroleum provides a good example of the Viking type curve following 51 wells drilled in 2011 in West Central Saskatchewan. Westfire Energy recently achieved IP30 rates of 77 bbls/day by modifying its “hot frac” completion technique. (“Hot frac” means the frac fluid is heated to a temperature of ~55°C prior to completions (versus the reservoir temperature of ~23-25ºC); the frac fluid is pumped down hole and mitigates waxy buildup in the lateral portion of the well during initial flow back.)

Viking oil type curve

Production declines on these wells range from 50%-60% in the first year. This is normal for tight oil plays and in the case of the Viking at least the cost per well makes it less capital intensive to replace declines and increase production. These wells payout in ~1 year or less which also helps in recovering money faster and recycling it into new wells. There is a large number of oil companies operating in W.C. Saskatchewan both private and public. Let’s focus on the public companies which include junior, intermediate and senior producers:

The Viking formation is also present in Alberta where it is deeper and thicker resulting in higher IP rates but this is a story on its own to be written later. Some of the acreage above includes land prospective for Viking oil in Alberta. Companies with no exposures to the Viking in WC Saskatchewan have not been included in the list.

The Viking oil play in Saskatchewan is repeatable and scalable with low operating costs and high netbacks.

The Viking oil play is an established light oil conventional play which is only second to the Cardium formation when it comes to original oil in place (OOIP). This oil bearing formation has already been delineated with vertical drilling in WC Saskatchewan as it has been known since its discovery in 1957. With the advent of horizontal drilling and advanced completion techniques (multistage fraccing) it is now possible to tap oil trapped in thick shaly intervals that was once deemed uneconomic to exploit. Most of the land is locked up by major producers but a few juniors managed to assemble notable positions.

WestFire Energy WFE.TO $4.79 [-0.01]
Viking Land: 232 net sections
WestFire Energy has a strong leverage to the Viking light oil play with 148,500 net acres mainly in WC Saskatchewan (Plato & Dodsland) and Alberta (Redwater & Provost). The company assembled an extensive drilling inventory of 916 net locations of low risk light oil focused development opportunities. WFE is guiding for 9,750 boepd (71% oil) in average production for 2012 as it executes an aggressive drilling program this year which is a significant increase over 2011′s average production rate of 5,809 boe/d. The company is currently exploring strategic alternatives with a view to enhancing shareholder value and is currently trading at a significant discount to its Net Asset Value of $8.71/share at December 31, 2011 as reported by the company.

Novus Energy NVS.V $0.83 [+0.01]
Viking Land: 121 net sections
Novus Energy is largely focused on the Viking light oil resource play where it assembled a drilling inventory of 615 net locations at Dodsland, WC Saskatchewan. This inventory could be doubled to 1,230 locations if well density is increased from 8 wells per section to 16 wells per section. Novus is guiding for 3,300 boe/d weighted 84% to oil in average production for 2012 by exclusively focusing on its repeatable, low risk and highly economic Viking light oil resource play in Dodsland, West Central Saskatchewan. With a Net Asset Value reported at $1.64 at December 31, 2011, Novus is currently trading at a significant discount.

Raging River Exploration RRX.V $1.91 [+0.04]
Viking Land: 131 net sections
Raging River Exploration was created through the spin out of Wild Stream Exploration’s (WSX) assets in Dodsland, SW Saskatchewan. This junior producer is 100% oil weighted and is exclusively focused on the Viking oil play with its 84,000 net acres of land prospective for this play. The company has more than 600 net drilling locations for Viking light oil and expects to exit 2012 at 2,200 bopd (97% oil) which represents >100% growth from its Jan 1, 2012 volumes of 1,000 boepd.

Compass Petroleum (Acquired by Whitecap Resources)
Viking Land: 75 net sections
Compass accumulated a large, multi-year inventory of over 150 net Viking horizontal drilling locations in Dodsland, WC Saskatchewan. Production as of September 2011 was about 800 boe/d (78% oil) and the company is guiding for a June 30, 2012 exit production rate of 1,300 boe/d to 1,400 boe/d.

3MV Energy TMV.V $0.81 [+0.01]
Viking Land: 37 net sections
3MV Energy is a pure Viking light oil player that began trading on the TSXV in February of 2012. The company assembled 37 net sections at Fiske in the Kindersley area in West Central Saskatchewan. It’s first well averaged over 100 bbl/d of light oil for its first month of production which is above the average rates expected in the Kindersley area. The company currently produces more than 300 boepd weighted 83% to oil.

Sure Energy SHR.TO $0.72 [+0.01]
Viking Land: 35 net sections
Sure Energy is not a pure player when compared to its peers but its Viking oil production is at the heart of its growth. The company holds about 17,000 net acres of land at Redwater, Alberta where it assembled a low risk development inventory of 72 locations. Sure also holds 9 sections at Virginia Hills Alberta with the potential 72 locations at 8 wells per section targeting the Viking formation. The company currently produces 1,410 boe/d with a 63% oil and liquids weighting. For 2012, 71% of its capital expenditures will be targeting Viking oil at both Redwater and Virginia Hills.

The 5 junior oil producers listed above are highly leveraged to the Viking oil play because it constitutes the core of their development programs through 2012 and beyond. These companies have experienced management teams, high working interest and an operated development inventory of low risk high quality drilling locations.