A hot spot for Canadian oil drillers is emerging in a tiny corner of eastern Alberta, drawing companies including Canadian Natural Resources Ltd. and Baytex Energy Corp. in search of cheaper, lower-emissions heavy crude.

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Oil drillers have applied for 81 licences to drill into the so-called Waseca formation so far this year, 30 more than in all of 2022. That’s the biggest increase in any oil and gas formation in the province this year, according to regulatory data.

The formation holds heavy oil about 400 metres beneath Alberta’s soil near the oilsands region of Cold Lake. But, unlike the oilsands, the Waseca can be tapped with conventional drilling gear that costs less and generates lower emissions because steam isn’t needed to make the crude flow.

“The play is definitely taking off,” said Kendall Arthur, general manager of the Canadian heavy-oil business for Baytex, which has drilled two wells into the Waseca this year and plans to complete a total of five by year end.

While the oilsands can require billions of dollars of upfront investment and years to establish production, a conventional heavy-oil well can be brought online in a few months at a fraction of the cost. They’re also more environmentally friendly than the oilsands, which produce some of the highest carbon emissions in the world per barrel.

“It’s much cheaper oil to extract, which is why companies are attracted to it,” Jonah Resnick, a Calgary-based research analyst for Wood Mackenzie, said by phone.

The Waseca is similar to the Clearwater formation, also in Alberta, which has been the most heavily drilled play in the province for the past several years in fields such as Marten Hills and Nipisi. Unlike Clearwater, Waseca is in its early days, Resnick said. A total of 69 wells have been drilled there so far this year in the formation versus 62 in all of last year and just 12 in 2021, Alberta Energy Regulator (AER) data show. Production from the formation totalled just over 5,000 barrels a day in August.

Canadian Natural Resources, the country’s biggest oil producer, has been the most active, drilling 64 wells since the start of 2021, AER data show. The company declined to comment when contacted by email. Closely held Caltex Trilogy Inc. has drilled 39 Waseca wells this year, while Buffalo Mission Energy Corp. has drilled 16, the data show.

Baytex is still appraising the Waseca’s potential, but could drill as many as 15 wells in the formation by the end of 2024, Arthur said. Wells can be brought on for similar costs to the Clearwater, but they are shallower, and the pressure is lower, he said. Each well produces about 100 to 200 barrels a day initially.

Waseca is a “natural expansion of what has happened in the Clearwater,” he said.

Shares of Canadian Natural have risen 19 per cent this year in Toronto, while Baytex Energy is up two per cent.

Bloomberg.com