Wood Mackenzie's breakeven review of more than 180 individual company assets in western Canada reveals significant variation in the economics of each core area. The results show many of the Canadian plays yielding comparable returns to key producing plays in the US Lower 48.

"Our Western Canadian liquids production forecast is underpinned by an increasing commodity price environment and growing demand for oil sands diluent. We anticipate an upward trajectory in volumes beginning in 2016 and peaking in 2021 with the Montney, Duvernay and Cardium formations driving volumes," says Peter Argiris,  Principal Analyst for Wood Mackenzie.

While Wood Mackenzie's liquids growth outlook remains positive, there is a downside to the forecast.

"One factor that is currently front of mind is the supply/infrastructure constraints from the lighter end of the NGL stream", adds Argiris. "Propane supply is at historic levels and we have seen material price declines as a result. How this affects the remaining NGL stream (apart from diluent) from a pricing/infrastructure capacity perspective could have a negative impact on producer pricing and future activity going forward."

While headline plays like the Montney and Duvernay account for the bulk of production growth, there are a wide variety of plays and operators that are well-positioned to create value in the current price environment. In addition, the variability across core areas coupled with a fragmented corporate landscape has paved the way for consolidation and additional M&A opportunities according to Wood Mackenzie.

The following are key considerations from Wood Mackenzie's analysis:
1. Liquids growth is driven largely by condensate and NGLs produced from the Duvernay Formation.  Within our coverage universe, this is projected to grow from 27 thousand barrels per day (mbbl/d) in 2015 to over 320 mbbl/d in 2025. An additional surge of liquids production is expected to come from the Montney Formation, which we expect will double production from 86 mbb/d in 2015 to over 160 mbb/d in 2025.
2. Highly levered operators are more likely to have a smaller, narrower liquids resource base. However, these are not necessarily low quality assets, as indicated by several debt-burdened companies holding assets with breakevens below US$60 WTI. The primary engine of oil production growth in Canada is still the oil sands, and the large players dominate in that sector.
3. From a natural gas perspective, a collection of low debt, small and mid-sized independent producers have emerged with gas producing assets that breakeven below US$2.50 Henry Hub. Economics for many of these assets are supported by associated liquids production which will remain a key determinant to development considering our depressed natural gas price outlook for AECO gas.
Source: Wood Mackenzie