Keeping up with oil and gas companies 10 years ago was not easy. The dynamic duo technologies of fracking and horizontal drilling were opening up MANY new shale plays all over the continent. There was a huge land race, with companies buying each other up to get as many potential drilling locations as possible.

Now, not so much. Everyone has lots of land & drilling inventory. And up until a year ago, a lacklustre oil price kept investors away (ignoring the continued huge increases in efficiency–getting more oil out with lower costs).

There have been no new BIG onshore oil discoveries in North America for a long time–and who would have cared until recently?

But there is a new kid on the block in the Western Canadian Sedimentary Basin – the Clearwater heavy oil play.

The Clearwater started to make waves in 2019 as production grew from 5,000 bbl/d to over 15,000 bbl/d. 

While the pandemic burner for a time, rising oil prices and a few new players in the area this year have brought the attention back.

The reason for all the attention is simple – these are the single best economics of any new play in NA in a decade.

The chart below comes from Tamarack Valley (TVE – TSX).  It compares their Clearwater economics to other plays across North America at $60 WTI.

Source: Tamarack Valley Investor Presentation

Believe it or not but Tamarack is not even in the Tier-1 acreage of the of the play.

Headwater Exploration (HWX – TSX) is in the core of the play.  They have a land package in the area of the Marten Hills.  They purchased the land from Cenovus Energy (CVE – TSX) last year.

Source: Headwater Exploration Investor Presentation

Headwater’s results have been impressive.  They released Q3 results this week, saying that they had “grown oil production from 3,385 bbls/d in the first quarter of 2021 to current levels exceeding 9,000 bbls/d.”
Headwater estimates a payout of 4 months at $55 WTI.

Source: Headwater Exploration Investor Presentation
The results continue to improve. Headwater says that the results of their last 11 wells have had IP30 rates of 400 bbl/d, which is 33% above the 300 bbl/d rates of older wells.



You would think these must be light oil gushers to produce these kind of economics.

Well, you’d be wrong.  What drives the Clearwater is technology and cost.

The technology is drilling – very tightly spaced multilateral wellbores. 

Companies are drilling 8-leg multilateral wells at 4 wells per section – 32 legs in all.

Source: Headwater Exploration Investor Presentation

Declining drilling and advances in drilling technology mean that they can drill these wells quickly and extremely accurately.

These are mile long laterals a couple hundred feet apart.  The tight spacing of the laterals removes any need to frac.  The wells require no casing in the lateral at all – another savings – and are completed open-hole.

It is bare bones and cheap, cheap, cheap.

Headwater estimates $1.35 million per well at Marten Hills.   Tamarack’s capital costs at Nipisi are $1.1 million per well.

Low costs, low water-cuts, shallow decline curves and plentiful infrastructure add up to very economic wells even if they aren’t gushers.

The best wells in the Tier 1 area are coming onstream with an IP30 of ~600 bbl/d.  It’s a good rate, but remember it is coming from 8 laterals.

Source: Headwater Exploration August Investor Presentation


Getting my head around the Clearwater has not been an easy task.  The area is dominated by private companies which means data is scarce (private cos. rarely have corporate presentations or give public updates).

Baytex Energy (BTE – TSX), Tamarack Valley and Headwater are the main publicly traded stocks to play. 

A fourth play, Rubellite Energy (RBY – TSXv) recently was spun-out of Clearwater assets from Perpetual Energy (PMT – TSX).

But much of the land in that core Marten Hills area is private.   Spur Petroleum is the biggest landowner.  All the flat green colored land in the map below belongs to Spur.

Source: Stifel

The #2 and #3 land holders are also private – Rolling Hills (300 sections) and Crestwynd (290 sections).  Deltastream, another private company, is right up there twith 190 sections, with much of that in the middle of Tier 1 Marten Hills.


Marten Hills is the Tier 1 core area.  In 2019, when the play was in its early stages nearly all the wells were in Marten Hills.  Since then some operators have ventured further out.  Tamarack has drilled out a few sections at Nipisi.  There is a smattering of wells elsewhere.

This is not a homogenous play.  While the economics look good across the play, the geology at Marten Hills is different than elsewhere.
Source: National Bank of Canada

Marten Hills oil is 22°API while it is mid-teens elsewhere (the lower the API, the thicker/more gooey the oil is). It also has the thickest net pay by some margin.

Headwater gave a good slide in their corporate presentation that illustrated how net pay changes across the play.

Source: Headwater April Investor Presentation

Nipisi, which is east of Marten Hills, has been the second most active area, thanks largely to Tamarack.. 

Tamarack owns land in both the Nipisi and Jarvie area.

Source: Tamarack Valley September Investor Presentation

Tamarack’s Nipisi results look good so far.  Their main development area is ~6 sections and has average IP of 185 bbl/d.

185 bbl/d is quite a bit less than the Marten Hills numbers of 400-600 bbl/d.  But according to Tamarack, these wells are paying out in 7-8 months, which is solid.

Source: Tamarack Valley September Investor Presentation

Jarvie, to the south, is too early to call.  Wells drilled so far are showing ~150 bbl/d IPs.

Jarvie is a very different beast than the Clearwater to the north.  Net pay is 5-8m, much thinner than both Marten Hills and Nipisi.  Reservoir pressure is more than 3x higher.  That makes it hard to extrapolate what we see from the north.

Tamarack bought their Jarvie position from Spur.  You could look at this both ways – Tamarack’s interest in the area vs. Spur’s decision to divest it.

Even at Marten Hills results vary a lot.  Below is a snapshot from Headwater’s April presentation.  In yellow are the Headwater operated sections (in yellow) that are outside of the core development area:

Source: Headwater Exploration Investor Presentation

Headwater drilled the above listed 6 exploration wells across these sections.  The results were…. okay.  Three wells had 4 laterals (instead of 8) and we don’t know how these wells were operated, but the IP30 and current rate data is less than stellar.

The stock has stalled out since May.  That might not be coincidence.


 The majority of the Clearwater drilling has centered on Marten Hills and Nipisi.

Baytex however, have begun to drill wells way to the NW.
Or are they? 

I pose it as a question because Baytex describes their “Peace River Clearwater play” as Clearwater “equivalent”.

Baytex is actually targeting the Spirit River formation – which they refer to as analogous to the Clearwater:

Source: Baytex Investor Presentation

Is this Clearwater or isn’t it?   It is in the “Clearwater fairway”.  Maybe that is good enough.

Source: Baytex Corporate Presentation

The truth is the Spirit River formation is about the same depth as the Clearwater, the wells design looks similar, so maybe I am splitting hairs. 

What you can say about the Baytex Clearwater equivalent is that the well results look good.

Their first 3 eight lateral wells flowed IP30s of 695 bbl/d, 412 bbl/d and 930 bbl/d.

Source: Baytex Corporate Presentation

These are Clearwater-like results.

Most important, the IRR on these wells is within the range of the Clearwater wells to the South, which is to say – pretty darn good.

Source: Baytex Corporate Presentation

The results are good enough that Baytex adjusted their spending plays to drill 4 more wells into the Clearwater in Q4.
So is it the Clearwater or is it Spirit River?  And does it even matter?


The Players

The go-to pure-play is Headwater – a $950 million market cap company with $80 million of net cash.

Headwater owns 280 sections of Clearwater land.  They have a core area in Marten Hills where they have had incredible wells.   But much of the surrounding acreage is untested – their core operations comes from just ~8 sections.

Source: Headwater Exploration Investor Presentation

Headwater produced 6,500 boe/d in the second quarter.  They have guided to 9,000 – 9,500 boe/d average production in Q4.

Tamarack Valley owns 160 net sections at Nipisi and another 120 net sections at Jarvie.  At Jarvie this includes the 53 sections they added from Spur at a little over $1,000 per acre.

Production comes entirely from the Nipisi – 5,200 boe/d.  That is 40% of corporate wide production.

Tamarack has outlined 500+ locations on their property at $50 WTI. 

The Clearwater locations make up ~60% of Tamarack’s overall locations.  They expect to spend 40% of their capex budget on growing their Clearwater production.

Baytex has >120 net sections that are prospective for their Clearwater equivalent Spirit River formation – called Peavine.    Peavine is ~200 miles NW of Nipisi.

Baytex budgeted 7 wells into Peavine this year.  Five of those are now on production.  Two of these wells rank at the top peak calendar rates.

Source: Baytex September Corporate Presentation

Baytex is expecting an expanded program in 2022 with 12-18 wells drilled.

A more risky micro-cap bet would be Rubellite.  Rubellite is a spin-out of Perpetual.  The market cap is still in flux because of soon-to-expire warrants but it’s ballpark $70 million depending on their exercise.

Rubellite owns ~100 sections of prospective Clearwater land.  They are forecasting 650-700 bbl/d of production in Q4, and forecasting over 2,000 bbl/d by the end of Q1 2022.

Rubellite has land throughout the play. 

Source: Rubellite Energy Investor Presentation

Their crown jewel is a very small (1.5 net section) position smack-dab in the core of Marten Hills (with 1 well on production and 2 more locations).  They have a larger position west of that core area that appears untested. 

Rubellite also own land to the south, around Jarvie, and land just north of Baytex’s Peavine.

There are a few wells on production at the southern land (Figure Lake and Ukalta).  Rubellite is estimating paybacks of 0.7-0.8 years based on type curves so far.

Finally, Cardinal Energy (CJ – TSX) has a small 3 section position in the Nipisi Clearwater.  They are planning 4 wells in Dec-Jan.



We know that the Clearwater at Marten Hills is first-in-class.

What we don’t know is how all the surrounding area will perform.

Over the winter we are going to see well results at Jarvie, Peavine and some exploration wells in the other surrounding untapped acres.

It is still early days and all of these areas.  We have some big land positions for the public players so positive well results – especially if they look like Marten Hills – could drive these names much higher.

But the Clearwater is no longer a hidden gem.  It is on everyone’s radar.

I will be watching those results closely. The latest quarterlies all showed good to great results out of the Clearwater. The next move up for these stocks will be continued drill results and their next quarterly.

Keith Schaefer

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