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Updated June 2020

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 cost serves as an indicator of a project's economic viability. The supply cost is represented as the value required per unit of production.

A solid understanding of the underlying geology allows the most effective and cost-efficient completion technology to be used. Supply cost 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,
  • royalties.

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 that target wet gas (the horizontal wells in the Foothills Front and Central Alberta regions [PSAC Areas 2 and 7]) typically have lower supply costs because the liquids, as a by-product add value, which helps offset the costs of the well.

Supply Costs by PSAC Area

With the exception of horizontal wells in the East Central region (PSAC Area 4), Northeastern Alberta (PSAC Area 6), shale and Northwestern Alberta (PSAC 7) wells, supply costs generally increased in 2019 compared with 2018. Despite higher initial productivity rates for horizontal wells in the Foothills Front and Central Alberta, increases in supply cost for these reference wells were because of longer well lengths, increases in capital costs and lower natural gas liquids prices, which added significant capital costs.

Table S5.6 shows the estimated costs for gas, shale, and CBM natural gas wells from specific areas in Alberta based on 2019 estimated costs and production profiles. Supply cost are lowest for horizontal wells in the Foothills Front and Northwestern regions (PSAC Area 2 and 7).

Representative Wells

Supply costs are based on representative wells in each PSAC area. Results may not reflect wells that differ from the representative well profiles used in the analysis. 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. Operators of these wells are able to take advantage of economies of scale and cost efficiencies, resulting in lower costs per unit of output.

Recompletions have not been considered in the analysis. They are substantially cheaper than new drills but they have a weaker initial productivity.

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