Prospectors have known about Saskatchewan’s vast oil deposits since the mid-1950s.
The problem has been, until recently, no one knew of an economical way to access them. Previous attempts to use the traditional method of vertical drilling yielded such low quantities that the oil plays were deemed nonviable and left untouched.
Fast forward to 18 months ago, when drillers began to combine the relatively new method of horizontal drilling with equally innovative multi-stage fracture technology to access and extract oil from tight rock formations. All of a sudden, those oil plays once thought to be unworkable are causing industry experts to have second thoughts.
Hugh Ross, president and CEO of Calgary-based Novus Energy Inc., believes there is untapped potential in Saskatchewan, particularly on the Dodsland Viking oil play. He was at the Village Green Hotel Tuesday night to discuss with Novus shareholders how this latest drilling technology might translate into an investment opportunity.
The presentation was hosted by Sherman Dahl, an investment advisor with National Bank Financial.
“They’ve known about these oil regions for years, and in the last 18 months we’ve been able to drill horizontal wells,” said Ross, who sold his former company, Gentry Resources, for $300 million in August 2008, before starting Novus in March ‘09.
“Three years ago if you drilled a vertical well, it wouldn’t be economical. It wouldn’t be worth the cost of drilling.”
Novus owns 110 sections of land around the Viking play, and of the 33 horizontal wells they drilled in 2010, all of them were successful. And where vertical drilling would have produced maybe five barrels a day, the current technology has allowed for a significan increase in production.
“It’s a lot more expensive, but your productivity is tenfold,” said Ross. “The technology keeps getting better and better, and it keeps getting cheaper. The plays are more economic now.”
When Novus first began operating they were producing 200 barrels of light-gravity crude oil a day. They are now close to 2,000 barrels a day, and Ross sees a potential of around 3,000.
Ross, who oversees a staff of 25 geologists, engineers, geophysicists and other technical professionals, noted that the lighter-gravity crude they are extracting from Dodsland is more valuable as it requires less refining.
Ready to build on last year’s success, Novus is expecting to double or triple in size in 2011. With a capital budget of $60 million, they plan to drill 59 more wells.
After an initial financing round at 50 cents, and a secondary financing at 65 cents, Novus stock (TSX.V:NVS) is currently trading around $1.33.
“The company is doing very well. It has all the right fundamentals – it doesn’t have any debt, it’s got cash and ($30 million) line of credit,” said Ross.
“When we started this company, the market cap was around $6 million, and the market cap today is getting close to $250 million in less than 18 months. It has been quite a success story and I think it’s going to continue this year.”
