Waterflood huge potential Although the company hasn’t yet booked any waterflood reserves, Legacy Oil + Gas Inc. believes the secondary recovery method has the potential to double its reserve base.
Using Sproule’s contingent resource estimate and an assumed recovery factor of 10.5 per cent, Legacy believes it could add reserves of about 114 million bbls of light oil through waterflooding -- roughly doubling its existing reserve base, said president Trent Yanko.
“This is incremental to what we have booked today. We don’t have any waterflood barrels booked today. We just have a little bit of enhanced performance from a couple of wells,” Yanko told the company’s annual meeting on Wednesday.
Referring just to Legacy’s land in Saskatchewan and Manitoba, he said: “If we get a 10.5 per cent incremental recovery factor, it’s about 114 million barrels. Our corporate reserves are in and around that number. So we have the potential to double our reserves through the waterflood.”
The light oil producer has two main areas. One is the Williston Basin of southeast Saskatchewan, Manitoba and North Dakota, accounting for about 70 per cent of its production. The other is the Turner Valley area of Alberta, which makes up about 30 per cent of its output.
“In all the areas, including Turner Valley, which is a conventional asset, we’re pursuing waterflooding. We’ll continue to ramp that up,” Yanko told shareholders.
Legacy drills only horizontal wells and about three-quarters receive multiple-stage hydraulic fracture treatments, he said. Multi-frac horizontal wells have high initial production decline rates, which several tight oil producers are trying to mitigate by waterflooding.
“We do focus on waterflooding because, first and foremost, by putting water back into the reservoir, you maintain the pressure. The longer you can maintain the pressure, the more oil you produce. And a simple rule of thumb in a lot of the reservoirs we’re in, it’s basically a doubling of the recovery,” Yanko said.
He added waterflooding also helps tight oil and tight gas producers sustain long-term production growth.
“That reduction of your decline rate adds to your sustainability -- you need to spend less money to stand still,” Yanko said. He acknowledged high decline rates are “kind of the Achilles heel of a lot of the multi-stage-frac horizontal plays. [As an industry] we’re seeing higher and higher decline rates than we’ve ever seen in history, on these plays. So it gets a lot tougher to grow.”
He said Legacy’s waterflood strategy “allows us to be much more sustainable in the future than most of our peers. So that is a big differentiating factor.”
“And it’s a source of free cash flow. In a typical waterflood, if the base decline is five or six per cent -- versus a multi-stage-frac horizontal well that could be 30 or 40 per cent -- your sustaining capital is less, and therefore your free cash flow is more,” he added. “A typical waterflood would have free cash flow of 90 per cent. So if you had $100 million of cash flow coming from an asset, $90 million of that is free cash flow. It doesn’t take a lot to maintain production.”