Stunned by Enbridge Inc.’s Kalamazoo River oil spill in 2010 that disrupted its sole market access in Saskatchewan, Crescent Point Energy Corp. found an unlikely ally: an agriculture company.
Toronto-based Ceres Global Ag. Corp owns a stake in Southern Stewart Railway set up to transport grain from Stoughton, Sask., to Regina, from where it connects to other lines. But floods over the past two years had wrecked its agriculture business, and the province’s burgeoning oil production seemed like a good way to bring its trains back into active duty.
The arrangement took off. Within the space of a year, SSR was shipping nearly 30,000 bpd of oil out of Saskatchewan, helping Crescent Point and others escape the heavy oil discounts plaguing Canadian producers.
Saskatchewan producers desperately need these small-scale solutions for the big problem of pipeline capacity constraints.
Encouraged by its first foray into oil shipment, Ceres is now roping in bigger players such as Warren Buffett’s Burlington Northern Santa Fe Corp. railway company for its second ag-and-oil venture.
"We think we know logistics and transportation pretty well. And there are synergies between ag and oil," Michael Detlefsen, president of Ceres said.
The company starts building a logistics hub in Northgate, Sask. next month, featuring two high-efficiency rail loops, each capable of handling unit trains of up to 120 railcars, to be served by BNSF Railway’s network. The facility will be shipping 15,000 to 20,000 bpd of Saskatchewan oil in the first phase, ramping up eventually to 70,000 bpd.
The company is in talks with six groups with oil operations in Saskatchewan interested in transporting oil to U.S. refineries and tidewater.
Meanwhile, Twin Butte, an intermediate producer, which ships 15% of its oil via rail, will complete construction of a facility at Lashburn, Sask. by the second quarter, which potentially doubles its rail car shipments.
Unlike its neighbours Alberta and Northwest Territories, Saskatchewan is not exploring expensive northern pipeline proposals and sticking with a series of low-key but effective rail-based solutions.
In the interim, rail remains the most viable option for many Saskatchewan producers as a number of small loading facilities spring up across the province.
Home to the mighty Bakken — which it shares with North Dakota — as well as the Shaunovan, Viking and Birdbear plays, Saskatchewan has emerged as a hunting ground for producers able to squeeze oil from mature wells and explore sizeable conventional pockets largely left alone by major producers.
While Alberta gets all the attention, Saskatchewan ramped up oil production to a record 470,000 bpd last year.
But the industry has been unable to realize the full fruits of its labours, McMillan said.
"[The discounts] are very serious for our economy," McMillan said. "To the government we estimate loss of up to $300 million on annual basis in differentials last year. We estimate opportunity loss to the industry in Saskatchewan alone of $2.5 billion."
Access to market is especially important for the province, which competes with other oil and gas regions that are closer to tidewater or refineries.
"Saskatchewan is facing the same challenges Alberta has as a major energy producer," said Michael Holden, senior economist at CanadaWest Foundation.
The province’s economy is in the midst of a robust growth cycle, creating 25,000 new jobs over the past 12 months and driving unemployment rate down to 3.9% in March, one of the lowest in the country. But discounts are taking the shine off, with new exploration and development activity slowing.
