CALGARY — The energy industry had all but abandoned Canada's biggest light oil pool, deeming it too expensive and difficult to exploit.
But then shale natural gas plays began to take off in the United States as companies learned how to drill far-reaching horizontal wells and fracture the rock several times along the bore to extract the gas.
"It wasn't until somebody said, 'Wait a second -can we do that with oil?' that all of a sudden it changed the game," said Jason Fleury, manager of investor relations with Penn West Energy Trust (TSX:PWT.UN).
Penn West is one of the top players in the Cardium oil play, a region that spans much of west-central Alberta. The industry has known there was oil there since the 1950s, but until recently there was no way to get the bulk of it out of the ground and still make money.
"The rock is tight. The economics are tough. It just didn't lend itself to a level of development commensurate with the size of the pool," Fleury said.
Fast forward a few decades and the Cardium region has become a hotbed of activity, as companies look to bulk up their presence in an area that holds enormous amounts of high-quality oil.
On Friday, Daylight Resources Trust (TSX:DAY.UN) announced plans to buy West Energy Ltd. (TSX:WTL) for $570 million in cash and stock so it could expand its holdings in the area.
"I think this is the most exciting new play in Western Canada," said Daylight executive vice-president Ted Hanbury.
In the past few years, much of the industry's attention has been focused on the Bakken, a similar type of area in southeastern Saskatchewan and parts of Montana and North Dakota.
"Those kinds of opportunities with large oil reserves in place and large lower-risk drilling inventories don't actually come around very often," said Hanbury.
"So when a play like the Cardium emerges, I think it gathers the attention of a lot of companies."
Daylight has had a position in the Cardium for about three years, but ramped up its activity last year when it bought Highpine Oil and Gas for $530 million.
With so little of the Cardium land in Crown hands, acquisitions are really the only way for companies there to grow, Hanbury said.
PetroBakken Energy Ltd. (TSX:PBN) has also been on the hunt. It purchased a private company active in the Cardium for $251.4 million this week shortly after gobbling up Result Energy Inc. for $480 million and Berens Energy Ltd. for $336 million.
"All of these acquisitions fit well together and provide a concentrated land position in the west Pembina area that will be one of our key focus areas," said Gregg Smith, PetroBakken's president and chief operating officer.
PetroBakken plans to have six rigs working in the Cardium, allowing 60 gross wells to be drilled by the end of the year.
As its name would suggest, PetroBakken's main area of focus is the Bakken region of Saskatchewan. But it has found many of the techniques to get the oil out of that region work in the Cardium, too.
"We feel that technically the Cardium is analogous to the Bakken with similar reservoir parameters and thickness, if not even better in many areas," Smith said on a conference call Friday.
Original estimates of the Cardium put the amount of oil in place there at 10 billion barrels, but that was based on old technology that essentially involved punching a hole straight down into the ground. With the advent of horizontal drilling, there's potential for that estimate to rise, Penn West's Fleury said.
The estimates were also based on a narrow definition of what parts of the Cardium can be economically developed. Smaller companies began to drill outside of those zones - in what's called the "halo" - and found oil.
"These guys are drilling wells where there wasn't supposed to be development," said Fleury, referring to Result, Berens and West.
"These guys are the ones that do things that bigger guys might not want to put capital into. They risk it all every day and our industry benefits from it."
