Canada's Clearwater play drives surge in Alberta drilling permits

(Bloomberg) — As oil prices climbed this spring, Alberta producers didn't turn to Canada's long-cycle oil sands projects. Instead, they accelerated drilling in the Clearwater formation, a low-cost conventional oil play that can bring new production online in months rather than years.

Alberta issued 1,764 drilling licenses between the start of the year and June 12, the highest total for the period since 2014, according to provincial data. Nearly one in five permits targeted the Clearwater formation, the largest share on record.

For decades, Canada's oil industry has been dominated by multibillion-dollar oil sands developments that require years to build. Clearwater is changing that equation. The play's relatively low development costs and shorter project timelines have allowed producers to respond more quickly to higher oil prices and supply disruptions, including those triggered during the recent Iran conflict.

"It doesn't take a whole bunch of capital to get started, and therefore it's quite cost efficient," said Brian Schmidt, chief executive officer of Tamarack Valley Energy Ltd., one of the play's largest producers. "It's phenomenal. There's no conventional play that compares."

The Clearwater produces dense, high-sulfur crude similar to Canada's oil sands, but unlike thermal oil sands projects, it can be developed using conventional multilateral horizontal drilling, avoiding the need for steam-assisted recovery.

The formation has attracted larger operators such as Canadian Natural Resources Ltd., but development has largely been driven by smaller independent producers.

Formerly small operators, Spur Petroleum Ltd. and Tamarack Valley Energy have climbed into Alberta's top 10 oil producers, competing with some established oil sands companies.

Tamarack has received 89 drilling licenses this year—37 more than during the same period in 2025—the largest increase among Alberta operators, according to the Alberta Energy Regulator. Eighty of those permits target the Clearwater, second only to privately held Spur Petroleum.

To sharpen its focus on the play, Tamarack sold its Charlie Lake assets for C$804 million ($570 million) in May and modestly increased its 2026 capital budget to between C$430 million and C$450 million.

Schmidt said advances in multilateral drilling and waterflood technology have transformed the economics of the formation.

Headwater Exploration Inc., another leading Clearwater producer, also increased its capital budget—to C$250 million from C$185 million—after raising its oil price outlook to $78.85/bbl following the Iran conflict. The company now expects production to grow 10% this year, up from an earlier forecast of 8%.

Much of that increase will come from expanded water injection programs that roughly double oil recovery while increasing well costs by less than twofold, according to Jeff Magee, the company's vice president of engineering.

Located in the boreal forests of north-central Alberta, the Clearwater emerged as a major exploration target after a series of competitive land sales in the Marten Hills and Nipisi areas beginning in 2017.

Production has climbed rapidly—from about 30,000 bopd in 2017 to roughly 230,000 bopd last year. The Alberta Energy Regulator estimates the formation contains approximately 1.6 billion bbl of recoverable oil.

Production estimates vary depending on how the play is defined. Headwater estimates current output closer to 175,000 bopd, but expects production could reach 250,000 bopd before the end of the decade.

The growth of the play has also fueled consolidation. Tamarack acquired Deltastream Energy four years ago, and Schmidt expects additional deals as smaller operators look to monetize their positions.

"There's a number of smaller privates that don't want to be in the game long," he said. "There'll be more consolidation in the Clearwater."