Sask. announces 'aggressive' new program to encourage more drilling

Saskatchewan is offering a new, "more aggressiveprogram" to encourage more drilling in the face of what some in the industry are describing as a critical, high stakes time for the oil and gas sector.

The province announced what it calls a Waterflood Development Program in Regina today, meant to encourage industry to build or convert existing wells into waterflood injection wells.

Water flooding sees water injected into a oil fieldto pressurize the reservoir and move the oil, similar to fracking techniques. Most of Saskatchewan's oil production is light oil, which canbe recovered through this water injection process.

The move comes on the heels of Alberta's move to cut production to reduce an oil glut, but Minister of Energy and Resources Bronwyn Eyre emphasized that Saskatchewan's action would not undermine Alberta.

"This is not about heavy oil," she told reporters, at a news conference hosted at Cathedral Energy Service's Emerald Park facility. "This is about different plays, plays across the province. We really will see the benefit of this water flooding incentiveacross the province."

Under the new program, industry players have the option to build or convert existing wells into waterflood injection wellsand to defer the royalties they would pay to the province for three years in return for their investment, Eyre said.

Eyre called it a "sustainable" program, that would add to the lifespan of the wells, as well as boost employment and revenue for the province.

The province estimates the program could lead to $245 million in provincial royalties over the next 10 yearsand anincrease in oil production capacity of72 million barrels over the next 35 years.

Professor agrees approach won't hurt Alberta

Greg Poelzer, a professorat the University of Saskatchewan's School of Environment and Sustainability, said that it makes sense for Alberta to cut production, but it's equally sensible for Saskatchewan to take a different approach.

Alberta's heavy oil is facing a steep discount because of the challenges in getting it to market, which is having "catastrophic" effects on that province and forcing Alberta Premier Rachel Notley to act as she has done, Poelzer said. Saskatchewan's light oil also faces this price differential, but to a lesser extent, he said.

"So for us, it doesn't do our economy a lot of good to follow suit," said Poelzer. "It's probably the right decision for Saskatchewan to morally supportPremier Notley but not to cut production on our light and medium oil here."

Price differentials in oil still havemajor implications for Saskatchewan, and not just because of less money flowing into provincial coffers.

The province is shipping four times as much oil by rail as it did in 2012, when oil prices were over $100 a barrel, according to Poelzer. He said this has a ripple effect over the agriculture sector bypreventing grain from getting to the market in a timely manner.

"So over the last decade we've lost literally billions of dollars in this province alone."

For Poelzer andthe industry representatives present at Wednesday's announcement, the answer comes back to the oft-repeated issue: the need for pipelines that would allow producers to sellto more thanjust the U.S.

"The stakes are higher than people realize," said Poelzer.