Manitoba Oil & Gas Review 2017 by DEL Communications Inc.

SERVING MANITOBA’S OIL & GAS INDUSTRY

MANITOBA Oil & Gas Review 2017

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The Manitoba Advantage:

Fraser Institute gives the province high marks once again Climate Change and Energy Demand

Manitoba Industry Overview Canada’s Oil Industry Not Threatened by Trump Virden’s Industrial Waste Facility Brings in Community Revenue The Funding of Anti-Pipeline Activism

ON THE BAKKENâ&#x20AC;&#x2122;S DOORSTEP Daily direct WestJet flights to and from Calgary Highly diversified industrial and commercial business sectors A large, dedicated, and skilled labour force Full urban amenities and services Birdtail (135) Manson (125) Kirkella (120)

Daly Sinclair (125)

Distances from Brandon, MB

Oilfield Location (km)

Virden (80)

Souris Hartney (70) Regent (80)

Tilston (145)

Pierson (160)

Waskada (140)

Whitewater (95) Mountainside (100) Lulu Lake (105)

High-end oilfield safety certification via Assiniboine Community College Thousands of acres of industrial land Overall business cost competitiveness consistently ranked in Top 10

In this issue... 6 Manitoba Oil Industry Overview 2016 10 Resilient and Optimistic: A Message from the Premier Brian Pallister 12 Message from the Honourable James Carr, Canada’s Minister of Natural Resources 13 Standing Up For the Oil & Gas Sector: A Message from Larry Maguire, MP for Brandon-Souris

14 Message from Jeff McConnell, Mayor of Virden 16 Virden’s Industrial Waste Facility Brings Revenue to the Community 18 Manitoba Remains Highly Regarded for Petroleum Exploration and Development Investment

22 Manitoba: Upcoming Prospect Oil Producer? 24 Standing By the Energy Sector: A Message from Brad Wall, Premier of Saskatchewan

26 Gas Demand Heats Up the Commodity Market 28 Oil Respect: One Year In 30 ABCO Supply Remains Committed to Customers 32 Williston Basin Petroleum Conference Ushers in 25 Years 34 Canadian Oil Industry Not Threatened By Trump 38 The Upside of the Downturn? How Tundra Oil & Gas Manages Costs 40 Two Realizations Coming Out of a “Break-up From Hell 2.0” 41 The Cash Stash Behind Anti-Pipeline Activism 42 Development is on the Rise in the RM of Pipestone 44 A History of Keystone XL 46 Trust the Experts at DRIVING FORCE

index to advertisers Abco Supply & Service Ltd............................................... 31 Annugas Compression Consulting Ltd.................... IBC Aon Risk Solutions................................................................... 12 Cros-Man Direct Underground Ltd.............................. 23 DL Parts for Trailers.................................................................. 21 Driving Force.............................................................................. 11 Economic Development Brandon...............................IFC Falcon Enterprises Ltd..............................................................5 Fountain Tire............................................................................... 23 GB Contract Inspection....................................................... 15 Good Lands Environmental Inc...................................... 10 Graham......................................................................................OBC Grimes Sales & Service......................................................... 25 H&G Directional Drilling Ltd.............................................. 13 Hudson Tank Rentals............................................................. 21 Leech Printing............................................................................ 14

Manitoba Oil & Gas Review 2017

Milwaukee Tools....................................................................... 13 MNP LLP........................................................................................ 36 Reliable Metal Buildings Ltd............................................. 10 RM of Pipestone....................................................................... 43 RM of Wallace-Woodworth............................................... 17 Scott Land & Lease Ltd......................................................... 32 Silverline Oilfield Services......................................................3 SNC Lavalin Inc.......................................................................... 35 Sunrise Credit Union............................................................. 24 Triangle Welding & Machining...........................................7 Tundra Oil & Gas....................................................................... 37 Virden Meter Services..............................................................9 Welders Supplies Ltd............................................................. 27 Western Heritage Services................................................. 19 Williston Basin Conference................................................ 33 Workers Compensation Board........................................ 20

Published by: DEL Communications Inc. Suite 300, 6 Roslyn Road Winnipeg, MB R3L 0G5 www.delcommunications.com President & CEO: David Langstaff Publisher: Jason Stefanik Editor: Lyndon McLean lyndon@delcommunications.com Advertising Sales Manager: Dayna Oulion TF: 1-866-424-6398 Advertising Sales: Mic Paterson Anthony Romeo Gary seamans Production services provided by: S.G. Bennett Marketing Services www.sgbennett.com Art Director / Design: Kathy Cable Advertising Art: DANA JENSEN WENDY REYN ©Copyright 2017. Manitoba Oil & Gas Review. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. While every effort has been made to ensure the accuracy of the information contained herein and the reliability of the source, the publisherin no way guarantees nor warrants the information and is not responsible for errors, omissions or statements made by advertisers. Opinions and recommendations made by contributors or advertisers are not necessarily those of the publisher, its directors, officers or employees. Publications mail agreement #40934510 Return undeliverable Canadian addresses to: DEL Communications Inc. Suite 300, 6 Roslyn Road Winnipeg, Manitoba, Canada R3L 0G5 Email: david@delcommunications.com PRINTED IN CANADA 04 | 2017

Servicing Wells in Alberta Saskatchewan & Manitoba

Since 1988

overview

Manitoba’s oil activity 2016 Courtesy of the Manitoba Petroleum Branch Wells Drilled: 81, with 6 rigs working 2016 Oil Production: 13.6 million barrels*

ty 2016

2015 Production: 16.9 million barrels

Primary Drilling targets: s working Bakken, Three Forks, Lodgepole ion barrels* on barrels Total producing wells = 4,099 n, Three Forks, Total SWD wells = 113 Total WIW = 565 WSW = 14

4,099 13

*not final – estimated 14.8

4.8

Manitoba Oil & Gas Review 2017

overview

Manitoba Drilling Activity MANITOBA DRILLING ACTIVITY Average Oil Price ($/bbl)

Wells Drilled

Impact for Manitoba • 2016 — $15 million – provincial revenues — $195.9 (2013) million in freehold minerals — $12 million to RMs — $280 million industry expenditures • Since 1951 to Jan 30, 2017: — 9,709 wells drilled — 61.1 M3 (384.5 million bbls) produced

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The province collect $41.4 million of direct revenue which is Crown royalty, production tax on oil production from privately-owned or freehold O & G rights, leasing of Crown O & G rights. The total for has fallen to $30.3 million. • Private Mineral holders collected $196 million in revenue. • The RMs have received a boost and are now collecting $11.4 million on property taxes directly related to the oil & gas industry. • Industry spent $1.23 billion in 2011 while developing and producing oil and gas properties in the province. So far we have had 8,177 wells drilled since the initial 1951 discovery. Last year, Manitoba surpassed a cumulative total of 300 million barrels of oil production.

Petroleum Outlook 2017 FY • Annual average oil price $63.03 • Production 5,810 m3/day • 160 wells drilled • Revenue $13.4 million (taxes, royalties, oil and gas lease rentals)

Manitoba Oil & Gas Review 2017

Horizontal

Vertical

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Manitoba’s Top Drillers – 2016 MANITOBA TOP DRILLERS – 2016 Corex Resources 7

Melita Resources 6 Fire Sky 6 Crescent Point 15

Tundra Oil & Gas 37

Other 10

by 81 w81 ells wells drilled by 9drilled different companies

9 different companies • For the fifth year in a row, Winnipeg-based Tundra is the top driller (30% of wells drilled) • 114 wells drilled by 14 other companies

• Waskada was the busiest oil field in 2012 with 179 wells 81 drilled wells drilled by 9 different companies • 179 wells were drilled in the Daly Sinclair field and 138 in the Pierson field

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Manitoba Oil & Gas Review 2017

message

manitoba oil: resilient and optimistic a message from the premier of manitoba, the honourable brian pallister Oil has had a significant history in the province. In 1951, when oil was first produced in Manitoba, the discovery marked the beginning of a legacy. More than 60 years later, in 2014, Manitoba’s oil fields comprised over 10,000 wells and saw petroleum as the province’s second highest ranked export and valuable contributor to our annual GDP. Manitoba’s crude oil production today remains equivalent to approximately 34 per cent of the province’s refined petroleum products requirement. In 2016, oil and gas exports represented 5.9 per cent of total provincial exports. In the past decade, the oil and gas industry has experienced substantial growth as an important contributor to the economic health of western Manitoba. Increased activity drove an investment of $9 billion between 2006 and 2015. Jobs were created. New and expanded businesses appeared in areas around production hotspots, impacting the communities of Virden, Melita, Waskada, Reston, Elkhorn and Brandon, with the largest producer headquartered in Winnipeg. An increase in exploration had major impacts on Manitoba’s production, which has tripled over the past decade.

Global pressures and geopolitics have had an impact on our industry. Most recently in 2015, a major shift and drop in the worldwide price of oil resulted in oil falling from second to sixth place as a provincial export. New oil well development slowed significantly and forecasts for an upturn failed to materialize. The low price of oil not only affected the provincial economy; it impacted the lives of individuals, companies and producers who had toiled to make the sector a success. Today, Manitoba’s oil patch remains challenged yet resilient and optimistic. The province has large untapped potential for new production in unexplored deeper zones since few wells have drilled through the full sedimentary column of the province. Industry is pulling new production from existing pools by experimenting with the injection of substances like nitrogen and carbon dioxide. Maximizing production from existing pools lengthens the life of oilfields, resulting in future employment. Considerable work is being done to capitalize on innovation, partnerships and new technologies. For example, in the Sinclair area, an operator is expanding a CO2 water-alternating gas-en-

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Manitoba Oil & Gas Review 2017

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hanced oil recovery pilot. In three to five years, this may lead to field-wide application of this technology and over $1 billion of new expenditures. Our primary production in southwest Manitoba continues today along the northeastern flank of the Williston Basin, a sedimentary basin which also occupies portions of southern Saskatchewan, North Dakota, South Dakota and Montana. Although we are primarily an oil-producing province, there are gas shows in most of the Cretaceous shale formations throughout southwestern Manitoba. Royalties payable to private oil and gas rights owners were estimated in 2016 at $94 million and $1.5 billion during the last six years. Total oil industry expenditures in Manitoba were approximately $829 million in 2015 and $6.5 billion over the last six years, positively impacting Manitoba’s economy. As of December 2016, remaining established oil reserves were estimated to be 9.5 million cubic metres (59.8 million barrels). Potential hydrocarbon-bearing formations in southwest Manitoba occur to depths of up to 1,000 metres (3,210 feet). It appears we are seeing an increase in activity and the beginning of a turn-around in industry activity despite the fact that only 81 wells were drilled in 2016. To the middle of February this year, an additional 35,000 lineal metres and 20 more wells have been drilled, a 50 per cent increase compared to the same time period in 2016. Manitoba currently has 4,274 producing wells located in the southwestern portion of the province. In 2016, these wells pro-

duced 2.3 million cubic metres (14.7 million barrels) of oil worth over $715 million. The average production rate for producing horizontal wells in the province was 1.5 cubic metres per day (9.5 barrels per day), compared to an average production rate of 0.6 cubic metres per day (3.7 barrels per day) for producing vertical wells. During 2016, horizontal wells accounted for 78 per cent of the province’s total production. Our priority is to work with the oil industry to position Manitoba as Canada’s most improved province. Optimism matters. It’s a Manitoba strength that will see us paving the way forward for new investment, innovation, research and development. In tough times as well as good, the oil industry in our province continues to work hard, persevere and innovate in amazing ways. We are thankful for producers who have invested in developing our oil potential. We have inherited an invaluable resource and have worked sustainably to optimize and manage that resource successfully. I am confident our ongoing efforts, persistence and vision will reap rewards. Manitoba’s oil potential is well within reach. The rebound is beginning.

The Honourable Brian Pallister v

340 Parent Way or Fort McMurray Airport

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Manitoba Oil & Gas Review 2017

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canadian energy industry a message from canada’s minister of natural resources, the honourable james carr I would like to thank the Manitoba Oil & Gas Review for giving me this opportunity to share my perspective on the energy industry in Canada and specifically in Manitoba. One of the fundamental responsibilities of our government is to get our natural resources to market sustainably. In 2016, we approved several major pipeline projects that will do just that. These projects will serve existing markets, open new ones and create tens of thousands of middle-class jobs in construction, engineering and finance. Of particular interest among the projects we approved is Enbridge’s Line 3 Replacement Program, which goes through Manitoba and crosses the US border. This $4.8-billion project will generate significant economic benefits, including approximately 7,000 full-time jobs during construction. The project will replace a 48-year-old pipeline with a brand new one, meet modern specifications and improve the safety and integrity of both the network and the environment.

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Manitoba Oil & Gas Review 2017

Many of the jobs along the pipeline route will be in Indigenous communities. In response to what we heard during consultations with these communities, we are providing up to $21.6 million to co-develop an Indigenous pipeline environment committee. It will bring together Indigenous peoples, the National Energy Board and the Government of Canada to monitor activities that affect communities while ensuring environmental oversight of the project. While the world is in the midst of a historic transition away from traditional sources of energy, including oil and gas, the demand for fossil fuels will continue to grow. Our responsibility is to manage this transition in a way that strikes the right balance, creating the prosperity we all seek while preserving the environment we all cherish. For Manitoba – and for Canada – that depends on a thriving oil & gas industry for decades to come. v

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standing up for the oil & gas sector by larry maguire, member of parliament for brandon-souris In Canada, we are fortunate enough to have an abundance of natural resources that enables our industries to thrive. It comes as no surprise then that our oil & gas industries are significant drivers of our country’s economic growth. We shouldn’t discount the financial returns created by our oil and gas industries. In 2013-2015 alone, our country’s oil and natural gas industry produced an average of $15 billion in government revenues. With these revenues, healthcare, education, and infrastructure projects are able to be funded. In Westman, many folks are directly or indirectly employed from the oil & gas sector and the economic spinoffs are worth millions of dollars for our local economy. Last year was tough for those employed in our oil fields. When the new wells from all the companies were combined, drilling was the lowest in a decade, with only 75 new wells sunk. That compares to 205 drilled in 2015 and 616 in 2012, according to statistics from the Petroleum Branch of the Manitoba Government. However, good news is on the way for those who work in the industry as Tundra Oil plans to drill more than 100 new wells this year, compared to fewer than 35 in 2016. They are seeing significantly more activity due to the return of stable

prices, which has made these projects economically viable. Now with a new Liberal government in charge, it is important that we continue to stand up and tell the truth about how Canada has some of the strongest rules and regulations regarding pipeline safety and environmental protection. It is deeply troubling that the Liberals are politicizing how energy projects are reviewed and approved. They have been claiming that there were no pipelines built under our former Conservative government. This is categorically false. In fact, four major pipelines were constructed, as well as a handful of smaller ones, which act as tributaries to the main lines. I will continue to be a strong voice for the thousands of families who work day in and day out in the oil & gas sector. Even though these past few years have been rough for many employed in the industry, I believe there is still a lot of untapped economic potential. The Canadian oil & gas sector is experiencing increased capacity, and it is crucial that this sector have access to new and diverse markets. Please know that our Conservative caucus in Ottawa is fighting for good-paying jobs that families in the oil & gas sector rely on. v

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VIRDEN, OIL CAPITAL OF MANITOBA! message from jeff mcconnell, MAYOR OF VIRDEN

tural activities and recreational facilities. Tundra Oil & Gas Place, a multi-purpose facility, is home to large banquet functions, our famous indoor rodeo, concerts and regional/provincial sporting events. The Virden Oil Capitals, a Manitoba Junior Hockey League team, have a large fan base and have made another trip to the playoffs. The CP Station Art Gallery is home to Arts Mosaic, which hosts an Art Gallery and offers many shows in the 500 seat Aud Theater, Western Canada’s Oldest Opera House. Our airport offers a paved runway and tarmac, as well as Jet Fuel and Avgas. It is a surprisingly busy facility. Industrial development continues to pop up in our industrial park next to the airport. The agriculture and oil sectors contribute to the need for our many retail and service businesses. We welcome the opportunity to discuss your commercial or industrial concepts for our community, whether it’s in Virden or in the surrounding communities. On behalf of the council, staff and people of Virden and area, we hope you find exactly what you are looking for in Virden, where we have a proud heritage and strong future! v

ello from Virden, the Oil Capital of Manitoba! We are strategically located at the intersection of two major highways and within the heart of Manitoba’s petroleumproducing region. We have 3,322 people who call Virden home. It seems that each year we are presented with a weather event that challenges our region. Each time it occurs, our community rises above and shows the nation who we are. This past winter presented two snow events that closed highways and required us to help stranded travelers. Our people, including the people and businesses associated with the oil & gas industry, stepped up once again to show that we help our neighbors and we have lots of heart – just one more example of why Virden is a great place to live and work. It is true that oil prices are still a concern to many, but our region is well placed to continue to grow. Several companies are making longterm investments in our region to grow their business. We are the Oil Capital but we have so much more than oil. Virden is well known for its cul-

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Waste Not, Want Not Virden’s Industrial Waste Facility Brings Revenue to the Community By Bailey Hildebrand-Russell

hile some small towns in Manitoba struggle to grow their population, increase economic growth and maintain public facilities, Virden is thriving, and it may have its landfill to thank. But it’s not simply a waste and recycling depot; it is also home to an industrial waste facility managed by Secure Energy Services. The partnership began in 1996 between the town and what was then called Hazco Environmental Services. Hazco recognized there was a need for proper disposal of waste and contaminated soil from oil fields in western Manitoba and eastern Saskatchewan. Hazco was eventually purchased by Tervita, and Secure Energy Services later took over the project. The deal is that revenues generated by the facility are not just realized by Secure Energy but are shared with the Town of Virden. “This arrangement is one that benefits both the private company, the private operator, and the town of Virden,” says Mayor Jeff McConnell. “We use revenues from that to maintain the facility, expand the facility, and build more space for landfilling, and we also use

Manitoba Oil & Gas Review 2017

revenues to do projects that we would not otherwise be able to do.” McConnell says money that’s gone back into the town is easily over $10 million since 1996, allowing Virden to pay for its own projects and apply for grants that match community dollars. Revenues have gone toward development and construction of a 48-lot subdivision with full servicing and the creation of an industrial park. The money has also helped the town fund a portion of its recreation facility, which boasts a 1,200-seat arena, 500seat banquet hall, fitness centre, and change rooms for an outdoor pool. The town has also been able to update its recreation grounds by building three new ball diamonds and refurbishing two more, as well as building a new playground. Virden’s airport has also benefitted, with the paving of a 4,000foot runway and construction of both a terminal building and equipment shed. “We like to show the industry that when they use our facility, not only are they getting a good product, a secure environment in which they know that the product they are responsible for is being managed correctly, they are at

the same time supporting the community where their staffers live — the community where they want their employees to feel comfortable, to have things to do,” McConnell says. “Every time we do a new project in the community, we like to emphasize where the money comes from if the project is funded by this facility.” David Mattinson, executive vicepresident of on-site services, has been with Secure Energy Services and its predecessor since the beginning of the partnership with the town, and he says the relationship is a win-win-win for all involved. “Our customers win because it’s a close facility, so there are fewer trucks on the road and lower trucking costs to get the material disposed of appropriately. It’s a win for Secure, we’ve been able to employ about five local residents there for the last 20 years. And the town has had a huge win in that they have all this extra money that they’re able to use at their discretion for things that a lot of smaller municipalities or towns can’t do because of money constraints.” The operation of the Virden munici-

Virden’s industrial waste facility sees many businesses in the oil industry use its services repeatedly. Rhonda Stewart, Virden’s chief administrative officer, says that’s because that the entire landfill is licensed by the Manitoba government’s Sustainable Development branch. pal and industrial waste facility is a bit different from Secure Energy’s typical services — it owns many for-profit waste facilities, most of them located in Alberta. Secure Energy also provides on-site services to primarily oil field customers, specifically demolition and decommission of oil & gas facilities, and remediation and reclamation of contaminated sites. Virden’s industrial waste facility sees many businesses in the oil industry use its services repeatedly. Rhonda Stewart, Virden’s chief administrative officer, says that’s because that the entire landfill is licensed by the Manitoba government’s Sustainable Development branch. “They monitor the activities out there very closely as well, and that is why these larger companies are comfortable using this facility,” Stewart says. “They run their own internal audits as well, just to ensure that their product is being handled and managed the way we say we’re doing it. It’s a safe place to store this material and clean up our environment.”

Secure Energy Services does that by cleaning up inert soil contaminated by either oil or salt water spills, according to McConnell. According to Secure Energy, the facility “provides the secure disposal of miscellaneous oilfield and industrial waste including but not limited to contaminated soils, drilling muds, drill cuttings, hydro vac waste, and residuals from tank and treatment processes. All industrial and oilfield waste is screened prior to disposal for landfill acceptability. This waste must meet the waste acceptance

criteria outlined by the license issued by Manitoba Conservation.” “These are non-hazardous materials,” McConnell says. “These are materials that in many instances potentially could just be landfilled without regulation. But the industry takes care not to do that in several instances. The industry knows there’s the potential going forward that they might be regulated. So they’d rather be careful with it now and they’d rather be taking care of it in a way they know it’s managed properly.” v

www.wallace-woodworth.com ph: 204-748-1239 | info@wallace-woodworth.com Manitoba Oil & Gas Review 2017

Fraser Institute 2016 Global Petroleum Survey Findings Manitoba remains highly regarded for petroleum exploration and development investment By Gerry Angevine

s in 2013 and every year since, the 2016 Fraser Institute Global Petroleum Survey of explorers and developers indicates that Manitoba is the second most favourable jurisdiction in Canada, behind only Saskatchewan, for upstream petroleum exploration and development. In fact, the province has not only placed first or second in Canada, but has achieved a relatively high rating when compared with jurisdictions in the United States and other countries according to the survey’s all-inclusive Policy Perception Index scoring methodology for a number of years. The Fraser Institute’s tenth annual survey was conducted during the summer of 2016 and the results were published in early December. The findings are based on responses from 381 petroleum industry executives, managers, and experts to questions regarding barriers to investment in petroleum exploration and production development in 96 provinces, states, regions and countries. Together, these jurisdictions hold 66 per cent of the world’s proved oil and natural gas reserves and account for 75 per cent of global production. As in previous years, the survey questions targeted 16 important factors impacting investment in upstream petroleum exploration and development. These include fiscal terms; taxation and other factors affecting the commercial environment, such as the availability of skilled labour; quality of and access to essential infrastructure; the regulatory climate which investors face including the cost of regulatory compliance, duplication, inconsistent interpretation, and enforcement of regulations; and a number of other important

Manitoba Oil & Gas Review 2017

issues such as land claims disputes and uncertainty with regard to how environmental regulations may be changed. For each survey question in relation to a given jurisdiction a survey particpant is asked to select from five possible responses: encourages investment; not a deterrent to investment, a mild deterrent to investment; a strong deterrent to investment; and “would not invest because of this factor”. In order to calculate a Policy Perception Index (PPI) value for each jurisdiction a score was estimated for each of the 16 factors addressed by the survey questions by first calculating the average response to each question. That score was then standardized using a common technique, whereby the average response was subtracted from the jurisdiction’s score on each of the policy factors and then divided by the standard deviation. A jurisdiction’s scores on each of the 16 survey questions, as reflected by the responses, were then added to generate a final, standardized PPI score. The jurisdiction with the result that indicated the lowest barriers to investment was awarded a score of 100, and the jurisdiction with the least favourable result, a score of 0. It is important to note that the Policy Perception Index rankings referred to above (with regard to Manitoba and Saskatchewan), in which all 96 of the jurisdictions rated in the survey are included, do not reflect the extent of the various jurisdictions’ crude oil and natural gas resources or reserves. Ranking jurisdictions according to their Policy Perception Index scores alone does not recognize that decisions to invest in the upstream petroleum sector are also heavily influenced by the extent of the oil

and gas resources that are available for exploitation. Jurisdictions with relatively small proven petroleum reserves and relatively small oil and gas production, such as Manitoba, may be recognized as very attractive for investment as reflected by favorable Policy Perception Index scores and rankings, but cannot be expected to attract nearly as much investment as those with relatively large undeveloped oil and gas reserves, such as Alberta and Kuwait. When jurisdictions’ proved petroleum reserves are considered, the rankings are much different. For example, when grouped with 12 jurisdictions each holding at least one per cent of the world’s total proved petroleum reserves [of the 93 (of 96) jurisdictions ranked in the 2016 survey which have at least some proved reserves], Alberta – the only Canadian jurisdiction with “large” reserves – ranks as the fourth most attractive jurisdiction for investment (down from third in the 2015 survey when there were 14 jurisdictions in the group), behind only Texas, the United Arab Emirates and Qatar but ahead of the eight other jurisdictions in the group of 12 large reserve holders, including Russia and Venezuela. Among 36 jurisdictions holding at least 0.1 per cent of total proved reserves, but less than one per cent, Newfoundland and Labrador and British Columbia (the only Canadian jurisdictions in this group) rank as the 12th and 18th most attractive for investment, respectively. In the 2015 survey, British Columbia was the only Canadian jurisdiction in this group, ranking 17th of 38. This compares with 19th (of 44) in the 2014 survey and 14th (of 40) in 2013. According to the 2016 Survey, Oklahoma,

Wyoming, North Dakota, Norway—North Sea, and the Netherlands are the five topranked jurisdictions in the group of medium reserve holders. All of the other Canadian jurisdictions with proved reserves fall in a group of 45 jurisdictions with relatively small reserves. Manitoba ranks 8th in this group compared with 7th (of 66) a year earlier, while Saskatchewan ranks 2nd. The only other jurisdictions of the 45 that rank more highly than Manitoba are Kansas, Mississippi, Utah, Montana, Alabama and United Kingdom – Offshore Except North Sea. The first-quintile rankings (scores of 80 or higher) awarded to these eight jurisdictions as well as New Zealand and Morocco, which rank 9th and 10th, respectively, reflect their generally positive attributes with regard to most of the investment drivers addressed by the survey. On the basis of the Policy Perception Index rankings obtained when all of the jurisdictions for which sufficient survey responses were obtained are included, regardless of the extent of their petroleum

Table 1 – Survey Results for Selected Canadian Jurisdictions Index Values and Canadian Rankings (of 7) Saskatchewan Manitoba Newfoundland & Lab. British Columbia Alberta Nova Scotia Northwest Territories

2016 2015 2014 2013 2012 94.18 (1) 93.89 (1) 97.65 (1) 96.71 (1) 89.51 (1) 87.01 (2) 89.92 (2) 97.19 (2) 87.71 (2) 88.04 (2) 78.66 (3) 83.48 (3) 77.37 (4) 82.11 (4) 70.40 (6) 68.13 (4) 70.90 (5) 64.43 (6) 73.22 (6) 75.44 (5) 66.87 (5) 82.72 (4) 85.98 (3) 85.66 (3) 83.65 (3) 59.12 (6) 65.04 (7) 68.43 (5) 77.25 (5) 80.87 (4) 51.80 (7) 70.38 (6) 63.31 (7) 62.13 (7) 61.56 (7)

resources, Table 1 illustrates that Manitoba and Saskatchewan were ranked higher by survey participants in 2016 than Canada’s five other significant oil and gas-producing jurisdictions in terms of attractiveness for upstream investment – repeating the relative outcomes that the two provinces have enjoyed for a number of years. Saskatchewan’s PPI score improverd marginally from a year earlier while Manitoba’s score slipped as a consequence of higher percentages of negative responses in relation to some of of the investment drivers captured by the survey questions. These

two provinces were the only Canadian jurisidctions to achieve attractive first-quintile scores in the 2016 survey. All of the remaining jurisdictions in Table 1 also received lower scores than in 2015, with the greatest deterioration recorded in Alberta and the Northwest Territories which fell from fourth to fifth spot, and from sixth to seventh place among this group of jurisdictions, respectively. Saskatchewan’s modestly improved score reflects lower percentages of negative responses on the survey questions pertaining to labor availability and skills,

Manitoba Oil & Gas Review 2017

trade barriers, and quality of infrastructure. The decline in Manitoba’s PPI score was driven by increases in negative sentiment in relation to the questions pertaining to regulatory duplication and inconsistencies, environmental regulations, and taxation in general The relatively large drop in Alberta’s PPI score, to the lowest level since 2011, suggests that oil and gas executives see the province as somewhat plagued by increasing barriers to investment. The NDP government that was elected in May 2015 has changed a number of policies that im-

pact the oil and gas industry in the province. These include higher corporate taxes, a cap on greenhhouse gas emissions from oil sands production, a new carbon tax, and a royalty review. The latter left the roylaty framework relatively unchanged but created considerably uncertainty for a while. All of these policy changes came at a time when the industry was faced with lower crude oil and natural gas prices and struggling to obtain access to alternative and expanded crude oil markets. Much of the deterioration in Alberta’s PPI score in the 2016 survey relative to the

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Manitoba Oil & Gas Review 2017

preceding year was driven by increased percentages of negative responses on questions pertaining to regulation and taxation. In particular, respondents were much less positive than previously with regard to regulatory duplication and inconsistencies, taxation in general, and environmental regulations. The Northwest Territories received a much lower PPI score in 2016, more than offsetting the improvement witnessed in the previous survey and dropping back to last position among the seven jurisdictions compared in Table 1. British Columbia achieved more positive results in the 2016 survey on a number of factors, especially the availabilityof labour, quality of infrasture and protected areas. However, the province’s score declined as the result of lower percentages of negative responses to a number of other of survey questions, especially disputed land claims. In fact, more than 80 per cent of respondents indicated that disputed land claims are a deterrent to upstream petroleum investment in B.C. The Policy Perception Index global ranking comparisons with respect to Canadian petroleum-producing provinces (Table 2) indicate that Manitoba, which had been among the top 10 jurisdictions surveyed by the Fraser Institute for two consecutive years dropped from tenth place (of 96) worldwide in 2015 to 14th place in 2016. Fourth place Saskatchewan (compared with 7th place in 2015) remains among the top 10 jurisdictions worldwide in terms of attractiveness for upstream investment and is now the only Canadian jurisdiction with that distinction. Newfoundland and Labrador, the next most favourable Canadian jurisdiction for investment according to the survey respondents fell slightly in the global ranking schem, from 22nd place to 25th, while British Columbia remained in 39th position. Alberta dropped from 25th place in 2015 to 43rd place globally (of 96) in 2016. These rankings compare with positions ranging from 13th to 15th place during the 2012 to 2014 period. Clearly, the policy changes that have been introduced by the NDP government have damaged the “Alberta

How Canada’s Signicant Petroleum-producing Jurisdictions Rank Worldwide (Of Jurisdictions Ranked in 2016 Only)

2016 2015 2014 2013 2012

Saskatchewan

4 7 4 3

Manitoba

14 10 6 11

Newfoundland & Lab.

British Columbia

39 39 43 36

Alberta

43 25 14 15

Nova Scotia

56 53 35 30

Advantage” that many observers touted

In order to maintain Manitoba’s position

in the past. Lower oil prices and price ex-

as one the two most attractive attractive

pectations are also making investment in

jurisdictions for investment in petroleum

relatively high cost petroleum develop-

exploration and production development

ment and production, as with Alberta’s oil

in Canada, and one of the most attractive

sands, less attractive compared with other

jurisdictions among the world’s small oil

opportunities.

and gas reserve holders, and restore the

province’s status as a top-ten ranked jurisdiction globally, the new provincial government faces a number of challenges. Needless to say it must ensure that the province’s royalty scheme continues to be competitive relative to other jusridictions. It must also ensure that the cost of regulatory compliance does not get out of line relative to competing jurisdictions. Further, Manitoba must address stakeholders’ concerns with regard to regulatory duplication and inconsistencies, environmental regulation, taxation (in general), land claim disputes and other issues which could threaten the province’s attractiveness for investment as they arise. v

The Fraser Institute is a non-profit research and education organization. The full report on the results of the 2016 Global Petroleum Survey may be downloaded free-of-charge at:

https://www.fraserinstitute.org/sites/default/files/global-petroleum-survey-2016.pdf The 2017 survey will be launched during the summer and results will be available in the fall. Dr. Gerry Angevine is a Senior Fellow at the Fraser Institute.

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Manitoba Oil & Gas Outlook:

Upcoming Prospect Oil Producer? Submitted by the Canadian Energy Research Institute

he decline in commodity prices has not only affected the Figure 1 – New Oil Wells and Crude Oil Production Forecast Canadian oil & gas industry and related service sectors, but also the economic growth in Canada. In 2015, Statistics Canada reported that Canada’s energy sector (including energy exports) contributed almost 20 per cent to the country’s GDP, down from 28.6 per cent in 2014 and 30.7 per cent in 2013. The North American natural gas and oil markets have both been transformed by the emergence of the so-called “shale revolution.” Advances in horizontal drilling, 3D seismic technology, and hydraulic fracturing have enabled gas and oil production growth from basins that were once thought uneconomic, particularly in the United States. This environment offers different oil & gas-producing Canadian provinces, including Manitoba, opportunities and chalFigure XX: New Oil wells and Crude Oil Production Forecast lenges in this “new normal.” Figure 2 – Supply Costs for Horizontal Wells Manitoba has been an oil producer since 1951, albeit with lesser volumes than other western Canadian provinces such as Alberta and Saskatchewan. A significant part of crude oil production comes from the Mississippian, a conventional oil deposit where first barrels were extracted in 1951, followed by the Lower Amaranth tight deposit in 1980, the Bakken-Torquay in the mid-2000s, and small volumes recently from the Jurassic deposit. Manitoba has seen its production of crude oil more than double over the last decade, reaching a peak of four per cent of total Canadian crude oil production in 2012 , at 18.5 million barrels. The development of the Sinclair Field increased Manitoba’s crude oil production more than four-fold since 2000 and 40 per cent since 2010. The oil & gas industry spent $0.5 billion on exploration in 2015. The southwest of Manitoba and the Hudson Bay areas are considered to hold potential oil & gas resource in the province. Manitoba Charts Manitoba Mineral Resources is continuously improving geoscien- Figure Figure XX: 3 M– anitoba Vertical Oil W ell SVertical upply Costs Supply Costs for Wells tific knowledge in the area of petroleum exploration and development. Some of the most recent work involves geological surveys of the shallow gas-bearing Cretaceous formations in southwest Manitoba, the Hudson Bay Lowlands, the Ungava area, and the Devonian Duperow. The geologic surveys might indicate province’s strong interest in the development of provincial oil & gas reserves in the coming years. While not a producer of natural gas, Manitoba’s Cretaceous shale is rich in gas in the southwest of the province; the Favel and Carlile formations have the highest gas content. However, low gas prices and oversupply of natural gas in the North American market might not preclude immediate exploration. In the Canadian Energy Research Institute’s (CERI) study 159, Figure XX: New Oil wells and Crude Oil Production Forecast which analyzes well completions, production forecasts, and supply Figure XX: Manitoba Horizontal Oil Well Supply Costs.

Manitoba Oil & Gas Review 2017

costs for natural gas and crude oil, the Institute predicts a linear growth in Manitoba’s new oil wells count after 2019, with more than 50 additional wells added by 2036, as it estimates that there will be a continuous increase in oil prices. Given drilling expectations and known decline rates in the drilling areas, CERI developed a 20-year production forecast for oil in Manitoba (see Figure 1). CERI predicts a flat growth in the short term, with production hovering around 35,000 barrels per day (bpd), and after 2022, as well count continues to increase, the production will reach 45,000 bpd by the end of the study period. There is a significant variation in the average supply costs, depending on the well structure and its location. The average calculated well-supply costs for horizontal wells range from $46.73 to $71.24/bb (see Figure 2). Vertical wells show a higher cost structure, varying from $42.78 to $243.38/bbl (see Figure 3). According to the Fraser Institute study released in 2017, Manitoba ranked as the second-best jurisdiction after Saskatchewan for investment attractiveness for mining companies; this is a formidable jump from its 19th rank a year earlier. The province is also viewed by the industry as having an attractive mining policy and scored a 6th place for its policy perception index. Going forward, over the next decade, major planned natural resource projects in Manitoba are energy projects, which account for 94 per cent of total investment in natural resource projects and 75 per cent of total investment. The future of the oil & gas industry seems bright for Manitoba. v

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Standing By

the Energy

Sector

Brad Wall, Premier of Saskatchewan

askatchewan benefits enormously from the industry and risk taking of those working in our energy sector. That’s been the case for decades, and it remains true today, even as the industry recovers from a steep drop in prices. Oil and gas companies operating in Saskatchewan account for approximately 15 per cent of our province’s gross domestic product and support an estimated 31,000 jobs directly and indirectly. Our government is thankful for this activity and is working to ensure Saskatchewan continues to be a stable and welcoming place to do business. We were encouraged by a 2016 global

survey of international petroleum industry executives and managers undertaken by the Fraser Institute. The survey ranked our province as the fourth most attractive jurisdiction for oil and gas investment in the world, up from seventh place the year before, and the number one ranked jurisdiction in Canada. That survey was good news, but we’re not resting on our laurels. There is always more work to do. In the battle for public opinion, the work never ends. Our province is in a unique position to provide leadership and advocacy in the energy debate in this country. We remain

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Manitoba Oil & Gas Review 2017

a staunch advocate for pipeline development to increase market access for Western Canadian oil. We know pipelines are the safest and most environmentally sound method of transporting oil to market. And we know pipelines are fundamentally important to the economic well-being of our country. Many Canadians would be surprised by the extent of our pipeline network. The federal government estimates there are 825,000 kilometres of transmission, gathering and distribution lines in Canada. Most provinces have significant pipeline infrastructure. Approximately 73,000 kilometres of pipelines are federally regulated and transport over $100 billion of oil, gas, and petroleum products each year. And they do it safely. Between 2008 and 2012, 99.999 per cent of the oil and gas transported on federally regulated pipelines were delivered without incident. Over the past decade, the rate of spills on federally regulated pipelines in Canada was 57 per cent lower than comparable pipelines in Europe and 60 per cent lower than pipelines in the U.S. The companies operating interprovincial and international pipelines in Canada are required to follow strict rules and regulations—and the Canadian Standards Association specifications for pipelines and equipment are considered among the most stringent in the world. Safety, integrity, and emergency response programs specific to each company’s infrastructure are regularly reviewed and audited by the National Energy Board (NEB), which also conducts ongoing pipeline monitoring, inspections, and site visits, and has the ability to issue mandatory compliance orders. In the last few years, we’ve seen an in-

crease in the amount of oil transported by rail as pipeline development has stalled, in part because of the opposition of environmental groups. This shift in the method of conveyance has come at a cost to public safety. According to the Fraser Institute, you are four to five times more likely to have a spill when you ship oil by rail when compared to pipelines. The tragic accident at Lac-Mégantic, Quebec in 2013, which took the lives of 47 people, underscores the potential danger of moving oil by rail. That’s not to say pipelines are perfect. In Saskatchewan, we’ve experienced major spills during the last year, and we are stepping up oversight of the industry. However, pipelines remain the safest, most efficient, and most environmentally responsible way to transport oil. This is one reason why we welcome our federal government’s approval of Enbridge’s Line 3 Replacement and the Trump administration’s approval of TransCanada’s Keystone XL project. The Line 3 Replacement, which involves the replacement of Enbridge’s Line 3 pipeline between Hardisty, Alberta and Superior, Wisconsin, will boost Saskatchewan’s GDP by more than $1 billion. Keystone will run from Hardisty, Alberta to Steele City, Nebraska, where it will join the original Keystone Pipeline and continue to Cushing, Oklahoma, and then south to the Houston area. Refineries on the U.S. Gulf Coast that currently import heavy crude from Mexico and Venezuela will be able to process the Alberta bitumen and North Dakota light crude carried by Keystone into refined petroleum products for American and international markets. Keystone is an important project for Saskatchewan. About 25 per cent of the pipe to be used in the construction of Keystone will be provided by Evraz in Regina, which employs about 900 people. Keystone is also an important project for Canada, where oil production is expected to rise from about 4.1 million barrels a day to 5.7 million barrels a day by 2040. Keystone, and other proposed pipelines like Trans Mountain and Energy East, will diversify markets for the Canadian energy sector.

Without additional pipeline capacity, resource companies will be forced to continue to sell into a U.S. market that has priced oil at a major discount to the world price. This comes at a significant cost for government and companies. In 2015, the Government of Saskatchewan lost $80 million in unrealized royalties while producers lost $1 billion in potential revenue because we can’t get our oil to tidewater. The cost for the Government of Alberta was $650 million in royalties and $10 billion for Alberta producers. This simply can’t go on.

Our government will continue to advocate for an expansion of pipeline capacity across North America. And we are committed to ensuring our province remains one of the best places in the world for energy investment. We’re grateful for the contributions of our oil and gas companies and the firms that support them. They have provided hope and opportunity for our growing population. They have earned our support, and we will stand by our energy sector come what may. v

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Gas Demand

Heats Up Commodity

Market By Melanie Franner

nergy is in constant demand – be it air conditioning in the summer or heating in the winter. Add to that the regular need for electricity for cooking, lighting or even water delivery and the demand continues to rise. The correlation between energy demand and commodity prices may be nothing new but the downturn in the oil & gas industry has made the link that much more apparent. Climate Change

Global warming is doing its part to highlight the correlation between energy demand and oil & gas prices. Over the last half of the 20th century alone, according to the Government of Canada, global warming was about twice that for the entire century. And, it adds, global warming experienced since the mid20th century can be attributed largely to human influences. The government cites a long-term global warming of about 0.85° C between 1880 to 2012. The U.S. Environmental Protection Agency (EPA) has said that since 1901, the average surface temperature across the contiguous 48 states has risen at an average rate of 0.13° F per decade. Since the late 1970s, however, average temperatures have risen more quickly – 0.26 to 0.43° F per decade. Worldwide, adds the EPA, 2014 was the warmest year on record. Climate change can impact the environment in a variety of ways, such as increase or decrease rainfall, affect crop yields, affect human health, change ecosystems and even impact energy supplies. Scientists have advised that temperature increases be limited to 2° C above pre-industrial levels and that in order to

Manitoba Oil & Gas Review 2017

do so, net carbon dioxide emissions need to decrease to almost zero by 2050. On December 12, 2015, Canada was one of 194 countries to sign the Paris Agreement, an effort to fight climate change and limit global average temperature rises to well below 2 degrees C – and to pursue efforts to limit the increase to 1.5 degrees C. The Paris Agreement is an ambitious effort, given the fact that even the slightest rise in temperature can produce dramatic results. According to the EPA, if the U.S.’s climate were to warm up by 1.8° F, the demand for energy used for cooling would increase by about five to 20 per cent, while the demand for energy used for heating would decrease by about three to 15 per cent. Warming is likely to increase summer peak electricity demand in most regions of the U.S. The EPA suggests that a 6.3 to 9° F temperature increase could result in climate change that would require the need for additional electric generating capacity of approximately 10 to 20 per cent by 2050. Another area that would be greatly impacted by climate change is water. Not only is energy needed to pump, transport and treat drinking water and wastewater, but rising temperatures can affect the amount of water available. Warmer temperatures increase the rate of evaporation. The EPA states that the Colorado River system, for example, is a major source of water supply for more than 30 million people. Recent droughts, reductions in winter precipitation and drier springs have caused water supplies in the river to decrease. Ac-

According to the EPA, if the U.S.’s climate were to warm up by 1.8° F, the demand for energy used for cooling would increase by about five to 20 per cent, while the demand for energy used for heating would decrease by about three to 15 per cent. cording to the EPA, every one per cent decrease in streamflow in the Colorado River Basin results in a three per cent decrease in

The Numbers Have It

According to the Global Affairs Canada’s monthly report on Canada’s International Merchandise Trade Performance, energy

hydroelectric power generation in the region.

exports jumped 7.6 per cent in April 2016, with natural gas ex-

Climate Change and Commodities

All of these potential increases in temperature and decreases in water supplies will undoubtedly help shape the future oil & gas markets. Already, some analysts have witnessed the correlation between the higher temperatures experienced as of late and the increased demand for energy. The International Energy Agency released a report in November 2015 entitled Making the Energy Sector More Resilient to Climate Change. In this report, it cites extreme weather events as having been a cause of oil & gas production disruptions.

ports accounting for most of the gain. Exports of natural gas leapt 43.2 per cent for the month, which was attributed largely to a spike in prices linked to below-average seasonal temperatures in the northeastern U.S. at the beginning of April. The U.S. Energy Information Administration states that 97 per cent of natural gas imports arrive via pipeline from Canada. The numbers show a steady decline in almost every year since 2007, with 2015 being the lowest level since 1994. That being said, warmer weather translates into greater energy demand and – ultimately – higher pricing for oil & gas. As

For example, the report states that the May 2015 wildfires near

such, the ongoing fluctuation in energy demand will undoubt-

the oil sands production areas in Alberta reduced total oil out-

edly continue to impact the price of oil & gas – both domes-

put by around 10 per cent, at the time its lowest level in almost

tically and internationally. And although the effects of climate

two years. The report also refers to Hurricanes Katrina and Rita

change and global warming remain unknown, one can easily

as damaging more than 100 oil-drilling platforms in the Gulf of

assume that more dramatic weather conditions will persist well

Mexico in 2005.

into future. v

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Manitoba Oil & Gas Review 2017 27 9/7/11 3:02:11 PM

Oil Respect: One Year In

ere at the Canadian Association of Oilwell Drilling Contractors, our primary mission is to provide value for our members

Commons, with nearly 35,000 signatures

Enbridge’s Line 3. A proposed greenfield

from across the country.

project, Enbridge’s Northern Gateway,

through information-sharing, industry

The Fort McMurray wildfires in May

was shut down by the federal govern-

2016 shook Alberta’s oil families to the

ment. While we are pleased these two

core. Many lost their homes and trea-

projects were conditionally approved, we

standards and advocacy. Throughout

sured family possessions. The fires forever

are disappointed that the Northern Gate-

the past year, our advocacy efforts have

changed the landscape of Fort McMur-

way project, which would have injected

taken on a more assertive form in the Oil

ray, and some residents are still displaced

an estimated $300 billion over 30 years

Respect campaign.

today. However, something else became

into Canada’s economy and created ap-

The basic aim of the campaign, which

apparent in the days following the ini-

proximately 3,000 jobs, was rejected.

began in earnest in February of 2016, con-

tial blaze. There was not one serious in-

The need to remain steadfast in our

tinues to be highlighting the excellence

jury or loss of life as a direct result of the

advocacy for our industry is greater than

of Canada’s oil & gas sector and pushing

fires. This is remarkable given that a city

ever. We need to keep pressure on our

back against misinformation spread by

of more than 80,000 people had to be

elected officials to ensure that energy

the industry’s detractors. The past year

evacuated. And it speaks volumes to the

projects like Line 3 and Trans Mountain

has been an exciting and challenging

perseverance and obsession with safety

break ground in good time. The need

one, and the Oil Respect campaign has

that are the hallmarks of Canada’s oil &

for market access is profound, and the

grown and changed in ways we could

gas sector. The role of industry – from ser-

approval of these two projects does not

not have foreseen.

vice companies that provided food and

mean our work is finished. Not by a long

Uptake for the campaign on social

water to the displaced, to the exploration

shot.

media has been fantastic. To date, more

companies that offered up their camps

The elephant in the room right now

than 50,000 people have engaged with

as accommodations – cannot be over-

is, of course, TransCanada’s Energy East

us on Facebook and Twitter. Our efforts

stated. The rest of Canada got a glimpse

pipeline. Approval for this project should

and those of our supporters have also

of a world that oil & gas workers and their

be a no-brainer, as it will supply Canadian

netted the campaign significant earned

families know all too well; one in which

jurisdictions with oil where it is currently

media, particularly the tabling of our e-

people unreservedly give of themselves

being imported from the likes of Nige-

petition, which asks the Government

to help others in their time of need. The

ria, Iran and Saudi Arabia. According to

of Canada to support oil & gas families

sheer number of industry trucks lining

a 2015 Fraser Institute study, pipelines

across the country. With the help of Ber-

Highway 63 with food, water and other

are four to five times safer than rail as a

nard Hancock (Canada’s favourite Rough-

provisions speaks volumes about the

means of transporting oil . We need only

neck!) we were able to capture primetime

types of people we work with every day.

look to the 2013 Lac-Mégantic rail disas-

media coverage from coast to coast. The

This year also saw the federal approv-

petition was also the most successful e-

al of two pipeline expansion projects,

petition ever presented in the House of

Kinder Morgan’s Trans Mountain and

Manitoba Oil & Gas Review 2017

ter to illustrate just how myopic the antipipeline lobby is. Shouldn’t Canadians be using Cana-

Those who work in the patch know Canada’s environmental conservation, reclamation and safety standards exceed those of all other major oil-producing jurisdictions. dian oil? Would any other industry in the country accept the idea of selling its products at a discount, in some cases as much as $30 per barrel? This amounts to a loss of $90 million per day in revenues for Canada’s oil & gas sector at the high end . Would dairy farmers in Quebec or salmon fishermen in British Columbia accept deep discounts like these because of lack of infrastructure? Those who work in the patch know Canada’s environmental conservation, reclamation and safety standards exceed those of all other major oil-producing jurisdictions. In 2017, the need to articulate this message is greater than ever. Pipeline approvals are not worth the paper they are written on if shovels do not hit the ground. We need to continue to tell the story of our oil & gas industry in a way that captures the collective imagination of Canadians. Canada has the third-largest proven oil reserves in the world. We provide jobs, direct and indirect, for thousands of Canadians. Did you know that a single drilling rig creates as many as 145 jobs in its lifecycle ? That means that 145 more families are able to put food on the table, gas in their vehicles, and pay their kids’ hockey or music fees. This is what makes the introduction of new carbon taxes across the country so concerning. Aside from making consumer goods, transportation and services more expensive, these “levies” will take a significant toll on every business that uses oil & gas products in its daily operations. These range from feedlots to grain farms to oil and gas service companies, and all of the local businesses that depend upon their products. Ordinary Canadians need to step up and let their elected officials know that families simply cannot afford to pay more at a time when our economy C

is struggling. We applaud Saskatchewan

tainly take a leaf out of Saskatchewan’s

coast understand what we already know: that Canada’s oil & gas industry is here to stay and that it is an invaluable part of our nation’s enviable resource economy.

book!

Premier Brad Wall’s national leadership on this issue. The rest of Canada could cer-

There are reasons to be cautiously optimistic in 2017. But hope is nothing without hard work. Opponents of our industry are busily preparing to tear down the small gains we have made over the past year. We need to ensure that policymak-

“ Safety in the Transportation of Oil and Gas: Pipelines or Rail?” Available: www.fraserinstitute.org 2 CBC News, “Why Canada Just Pumps out Cheap Oil”, 2012 3 Alberta Oil, “How many jobs does a single drilling rig create and where are they?”, 2015 v

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ABCO Supply Delivers Quality Products and Installations with Pride

t’s been 45 years since four Winnipeg Supply employees struck out on their own to start ABCO Supply & Service Ltd., a service company that has branched out to become one of Manitoba’s premier mechanical and electrical contractors. Started in 1972 and incorporated in 1973, ABCO is a privately owned Winnipeg-based firm recognized as one of Western Canada’s most respected and successful multi-trade contractor and service companies. “We have always staked our reputation on quality products and installations, and quick response times with superior workmanship,” says John Nunes, ABCO’s President and General Manager. “We became the first mechanical and electrical CORcertified contractor in Manitoba in 1997, and we received the Royal Canadian Mint award for excellence in providing highquality goods and services in 2007 and 2009.” Long-standing members of the Winnipeg Construction Association and the Construction Association of Rural Manitoba, ABCO is also proactive in continually reviewing and upgrading training, safety, procedures, and techniques to exceed the ever-changing demands of the industry. ABCO owns and operates a 33,000-square-foot complex consisting of their head office, warehouse, and fabrication facility. The fabrication facility has a five-ton indoor overhead crane, enabling them to pre-fabricate many complex mechanical piping systems used in the industry. Their millwright division also custom fabricates and modifies components for

Manitoba Oil & Gas Review 2017

clients in the manufacturing, food & beverage, oil, gas, mining and utility industries. “We’re committed to our customers’ needs and satisfaction. ABCO’s diversification of multiple trades enables us to provide clients with skilled and experienced project management, supervisory and craft personnel who work as a team to get the job done. ABCO also offers value-added engineering recommendations on alternative means and methods, and we provide our clients with savings from the single-source management of multiple trades creating improved project scheduling and costing.” The company operates in the commercial, manufacturing, industrial, utility, mining and institutional, sectors, and their clients include Boeing Canada, the City of Winnipeg, TransCanada Pipelines, the University of Manitoba, Winnipeg Airport Authority, CN Rail, Canadian Pacific Rail, the National Research Centre, among others. Projects include the Husky Ethanol Refinery in Minnedosa, Victoria General Hospital’s New Oncology Department, the City of Winnipeg’s Deacon Water Treatment Plant Standby Generator Building, and the 230KV, 99-Megawatt Windfarm in St. Leon. Whatever the project, ABCO approaches each undertaking with great pride and a philosophy of providing uncompromising quality. Whether it’s a small retrofit or a major construction project, ABCO is your one-stop shop advantage. v

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Manitoba Oil & Gas Review 2017

Williston Basin Petroleum Conference Ushers in 25 Years

certain sense of optimism is creeping back into the Williston Basin these days. After almost two years of low oil prices, difficulties with getting products to market, and layoffs (in the field, with operators and on down the supply chain), activity and spirits seems to be on the rise. You can see it in Estevan, where drill rigs

are again dotting the horizon east of town. You can feel it in and around Bismarck and Williston – in the formerly crowded camps where workers are housed and fed and that are again ramping up. And you can confirm it in the slow rise and stabilization of oil prices, reaching 54 dollars a barrel in late February, which has stemmed the oil company layoffs and even led to a slow

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hiring of engineers, geologists and managers. “Let’s face it, the past two years have been tough,” notes Melinda Yurkowski, Assistant Chief Geologist at the Saskatchewan Geological Survey, co-organizer of the 2017 Williston Basin Petroleum Conference. “Both 2015 in Regina and 2016 in Bismarck saw significant drops in booth assignments and conference registrations. And this year’s event won’t likely see an improvement on those numbers. But the upswing has begun, and I think this year’s event will offer significant opportunities for those who do attend.” Norm Sacuta, Communications Manager at the Petroleum Technology Research Centre – the research company coorganizing the WBPC – notes that smaller doesn’t necessarily mean less impactful. “I really feel the attendees and businesses at this year’s conference are going to see opportunities for networking,” says Sacuta. “Size is no indication of impact, and with fewer companies operating in the Williston Basin – many of those leaner, meaner and on the rise – there will be real

“ Size is no indication of impact, and with fewer companies operating in the Williston Basin – many of those leaner, meaner and on the rise – there will be real chances for making connections.” chances for making connections.” The technical conference itself is very strong and is drawing significant interest among registrants. Confirmed speakers from the Colorado School of Mines, University of Montana, University of Alberta, Saskatchewan Research Council, Saskatchewan Geological Survey, SaskPower and other companies and organizations are covering topics that discuss many of the major issues in the Bakken and explore most of the important geological formations. “We’ve got a full slate of presentations that cover most of the main regions in the Williston Basin and beyond,” says Dan Kohlruss, senior geologist at the Saskatchewan Geological Survey. “Topics cover a wide variety of interests from a look at stratigraphy, re-fracking, EOR and faulting in the Basin to an examination of how hydroge-

ology impacts production behaviour. The topics are definitely of interest to operators and scientists alike.” One presentation, by Michelle Nicholas of the Manitoba Geological Survey, is looking at Manitoba’s unexplored oil and gas potential. Another, by Professor Michael Hofmann of the University of Montana, is looking at the Sappington Formation in southwestern Montana. These are areas not as often in the spotlight of Williston Basin research, and there’s some excitement on their inclusion. Another rising area of interest is the use of CO2 as a fluid in hydraulic fracturing and for EOR in the Bakken in general. With two major suppliers of CO2 in the region – Dakota Gasification and SaskPower – a presentation by David Hanly from SaskPower will be looking at some of the issues around CO2-EOR. There’s also a large poster session

planned, and the best student poster at the conference will receive a cash prize. “The conference is continuing its tradition of offering a Core Workshop on the opening day, May 2nd,” says Yurkowski. “This has always been well attended and offers several presentations that are of interest to industry, along with opportunities for attendees to examine core samples from different formations and discuss them with presenters.” The Core Workshop carries an additional fee of $150 Canadian, and attendees must also be registered for the conference to attend. “The Bakken has certainly faced down its challenges in the last few years,” notes Yurkowski, “and the WBPC has felt the effects. But we’re convinced our 25th event, while smaller and more focussed, will carry a wallop. We hope to see everyone there.” v

Manitoba Oil & Gas Review 2017

Canadian Oil Industry

Not Threatened By Trump By David Yager, Yager Management Ltd.

n the day of U.S. President Donald Trump’s inauguration, the official White House website was rewritten, including 361 brief words outlining the future of American Energy Policy. Titled “An America First Energy Plan”, it starts with “The Trump Administration is committed to energy policies that lower costs for hardworking Americans and maximize the use of American resources, freeing us from dependence on foreign oil.” Canada is a foreign country. The U.S. is our largest buyer of oil & gas, and we are their largest foreign supplier. This doesn’t read well. There has been endless speculation on how awful this is going to be for a Canadian oilpatch finally emerging from the economic wilderness. However, reading the other 323 words reveals no bad news. Trump will eliminate or soften environmental protection laws, stating, “Lifting these restrictions will greatly help American workers, increasing wages by more than US$30 billion in the next seven years.” America will, as Alaska governor and Republican VP Candidate Sarah Palin declared in the 2008 election, “Drill, baby, drill”. “The Trump Administration will embrace the shale oil & gas revolution to bring jobs and prosperity to millions of Americans. We must take advantage of the estimated US$50 trillion in untapped shale, oil and natural gas reserves, especially those on federal lands…” Wouldn’t it be nice if someone besides Saskatchewan Premier Brad Wall said these things? There’s more. “Less expensive energy will be a big boost to American agriculture”; “boosting domestic energy production is in America’s national security in-

Manitoba Oil & Gas Review 2017

terest”; “achieving energy independence from the OPEC cartel and any nations hostile to our interests”; and “A brighter energy future depends on energy policies that stimulate our economy, ensure our security, and protect our health”. There have been many nervous moments surrounding Trump’s inauguration on January 20 about a Border Adjustment Tax (BAT) and the notification of the intent to revisit NAFTA. But the White House is sending strong signals that whatever new policies the U.S. enacts, they don’t appear to be directed at Canadian oil & gas. A senior advisor to Trump met with the federal cabinet at a recent retreat in Calgary. The Calgary Herald reported January 24, “Stephen Schwarzman, a billionaire businessman who chairs Trump’s team of economic advisers…suggested that Canadian energy exports to the United States are unlikely to be hit with a new cross-border tax.” Schwarzman said, “There may be some modifications, but, basically, things should go well for Canada in terms of any discussions with the United States. Trade between the U.S. and Canada is really very much in balance and is a model for the way that trade relations should be.” A Bloomberg story in the National Post carried the views of David McNaughton, Canadian ambassador to the U.S. McNaughton said, “I don’t think Canada’s the focus at all. Their biggest concern, frankly, in terms of trade, is the deficits they have with China and Mexico. That’s what they’ve raised.” The Trump Administration is looking positively friendly. On January 24, the White House issued an executive order to get the stalled Dakota Access pipeline

finished and Keystone XL underway. It is not intuitive the U.S. would want more Canadian oil as a source of future BAT revenue instead of safe and secure energy supplies. With the trade and tax issues becoming clearer, of greater interest should be: what does cutting the American oil industry loose through fewer regulations and obstacles mean to future Canadian exports? In the past few years, the mantra has emerged that our best customer has become our biggest competitor because the U.S. put 4 million b/d of new production on stream, primarily light tight shale oil (LTO). What does “drill, baby, drill” to unlock US$50 trillion worth of shale oil & gas mean for the WCSB? Take a deep breath, examine the facts, and figure out on which side of the 49th parallel our challenges lie. Everyone reads regularly about the unbelievable potential of American LTO. For two years we’ve been told the U.S. has replaced Saudi Arabia as the world’s “swing producer”. Every week when the U.S. active oil rig rises, another analyst predicts lower oil prices are inevitable. The legendary Permian Basin is at the top of the news, as is “rig productivity”, the fact new horizontal wells continue to do a bit better than the last ones due to continuous improvements in drilling speed, multistage completion systems, frac density, initial production rates and lower decline curves. Considering it took a century to perfect the vertical well, that horizontals should continue to improve with technology and practice should surprise no one. This is reflected in lower F&D costs and higher recovery rates, meaning LTO operators can do better at US$50 or less than ever

Rank Country Reserves, Billions of Barrels

Venezuela 298,400,000,000 Saudi Arabia

268,300,000,000

Canada

171,000,000,000

Iran

157,800,000,000

Iraq

144,200,000,000

Kuwait

104,000,000,000

Russia

103,200,000,000

United Arab Emirates

97,800,000,000

Libya

48,360,000,000

Nigeria

37,070,000.000

before. Rising service prices, essential to get service companies on location and keep them in business, will increase costs somewhat. But the biggest gain is in equipment, technology and procedures. But to the point of the new White House energy policy: are there actually 1 trillion barrels of oil to be unlocked through the bold policy initiatives of the

Trump administration? Or including gas, 1 trillion barrels of oil equivalent. Thatâ&#x20AC;&#x2122;s what US$50 trillion works out to. Is this somehow a threat to Canadian oil exports? Is this even possible? One trillion barrels of oil is a lot. Massive. According to worldatlas.com, the proven oil reserves of the top 10 oil producing countries in the world are listed

1,430,130,000,000 in the chart above. The total is 1.4 trillion barrels. Note the U.S. doesnâ&#x20AC;&#x2122;t make the list. It ranks number 11 at 36.5 billion barrels. The Energy Information Administration (EIA) figure is higher at 39.9 billion proved barrels at December 31, 2015. At US$50 a barrel, the EIA number would be worth nearly US$2 trillion. That a lot of oil and a

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lot of money. But it is 960 billion barrels short of a trillion and US$48 trillion short of US$50 trillion. Just sayin’. Gas looks the same. The EIA reports proved gas reserves at December 31, 2015 at 388.8 trillion cubic feet (tcf ). Say gas sells for US$3.50 per mcf, which is the current price. If all of this were extracted and sold, the total value is US$1.4 trillion, a pile of money. But it’s about US$48.6 trillion below the new president’s estimate. Add them both up compared to the White House’s new stated energy opportunity and it’s about US$45 trillion below the stated potential. That’s a whack of hydrocarbons that must move from “maybe” to “probable” to “proven”. Which is fine. Based on technology and price and all the variables that accompany the upstream petroleum industry, you never know. What has already happened in the U.S. was thought impossible at the turn of the century. Higher prices will certainly help. To give you an idea what an oilfield that can truly shape global markets or a country looks like, consider the Ghawar deposit

in Saudi Arabia. Discovered in 1951, this single field was estimated to have recoverable reserves of 72 to 100 billion barrels, greater than the remaining reserves of the bottom three of world’s top ten countries ranked by proven crude reserves. This field has been chugging along at 5 million b/d for decades. Infield drilling, horizontal drilling and secondary recovery have helped prove Ghawar is not unlike the Permian Basin, except it is more prolific. The Saudis estimated in 2008 that half was still available for production. This is not to say North American fields are without promise. In November, the United States Geological Survey (USGS) estimated the Wolfcamp shale in the Midland portion of the Permian Basin could potentially hold 20 billion barrels of oil, 6 tcf of gas and 1.6 billion barrels of natural gas liquids. It if is all there that’s a 50 per cent bump in U.S. proven reserves. The release reads, “This estimate is for continuous (unconventional) oil and consists of undiscovered, technically recoverable resources.” In 2012, the USGS published

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Deb Calverley, CPA, CGA Deloraine T: 204.747.2842 E: deb.calverley@mnp.ca

Manitoba Oil & Gas Review 2017

Corie Wudrick-Mohrbutter, CPA, CA Moosomin T: 306.435.3347 E: corie.wudrick-mohrbutter@mnp.ca

another report indicating the fields in the Permian basin could have 2.7 billion more recoverable barrels than previously thought. It is a massive deposit. Opportunity for sure. But back on planet earth, EIA statistics report for the four weeks ended January 13, 2017, U.S. oil imports average 8.3 million b/d. While this is down significantly from prior years, thanks to the LTO miracle, net imports were 7.5 million b/d the U.S. now that the U.S. exports oil of certain grades to specific markets. Canada exports about 3.5 million b/d to the U.S., accounting for 42 per cent of American imports. But even under Trump’s new regime and exciting new plays like Wolfcamp, is there a set of circumstances under which Canadian oil will no longer be required? Never. Review the foregoing. Never. Without one or two Ghawars secretly concealed from U.S. explorationists for the past century or longer, the idea a Trumpfueled investment boom in some of the most expensive oil in the world will dis-

place all – or even a meaningful portion – of U.S. imports anytime soon is fantasy. It will take massive drilling – federal lands included – to make a significant dent in imports. And judging by the wording of the White House energy statement and recent announcements, if and when America does reduce oil imports from Canada will be last to lose market share. From a reserve and production perspective, for the U.S. to become everything President Trump figures it should or could be, it will require much more than reversing Barack Obama’s environmental protection legislation; it will take a geological miracle. So long as we don’t do anything really stupid, Canada will be able to sell the U.S. all the oil this country can produce for the foreseeable future. But the key words are “really stupid”. The last issue regarding Canada/U.S. energy relations, which has yet to be properly addressed, is economic competitiveness. This may be the greatest damage the Trump administration will inflict on the Canadian oilpatch. With the exception of

lower service and labor prices since crude collapsed, operating costs in Canada have only been rising for some time. This include regulations, transportation and most recently, corporate tax increases, carbon taxes and an oil sands emissions cap. These costs are rising because of government policy, not geology. If Trump delivers on streamlined regulations and increased opportunities (including access to restricted federal lands) while Canada continues in the opposite direction, capital will migrate to jurisdictions with the simplest rules and highest rate of return. When it comes to Alberta this is already underway. The destination for many larger Canadian operators has been U.S. basins like the Permian, Marcellus or Bakken. Capital formerly destined for oil sands is going elsewhere. Even the weather makes it cheaper to operate in the U.S., where the extreme cycles of winter followed by spring break-up that affect activity and investment don’t exist. Long-term planning and year-round operations are simpler and less expensive

for Americans. Canadian efforts on climate change through carbon taxes are meant to ensure spring break-up always follows an historically cold winter. It is unlikely anybody considered the oilpatch would be more profitable in Canada if we could just level off the temperature fluctuations. When Donald Trump talks about a new “America First” energy strategy, Canada must remember the U.S. deals with multiple suppliers. Canada shares with the U.S. the longest unguarded border in the world. The Keystone XL announcement indicates that for Trump, Canada is the bottom of the list of oil & gas importers that are an issue. But for our oil & gas industry not to be affected by the Trump presidency, we must remain economically competitive. In terms of energy policy, trade, fiscal regime and operating environment, the greatest threat to Canada’s oil & gas industry comes from Canada, not the U.S. Originally published on Oilprice.com. v

Committed to achieving a balance of economic, social and environmental sustainability. To learn more, visit our website www.tundraoilandgas.com. Proudly investing in Manitoba since 1980. Manitoba Oil & Gas Review 2017

The Upside

of the

Downturn? How Tundra Oil & Gas is managing costs in a low oil price environment

ver the past 36 years, Tundra has experienced low oil price intervals – but now that the industry is in its deepest downturn since the 1990s, the company has had to carefully review its capital spending, overhead costs and operating expenditures. “Tundra has always been focused on managing its costs to maximize the returns on its investments. The company went through a lot of lean years in the ‘80s and ‘90s that created a cost discipline that has remained,” says Chief Financial Officer Murray Hanstead. “While we’ve always had this culture of trying to spend prudently, there’s no doubt that it’s now more important than ever given where oil prices are.” After the Sinclair oil field discovery in 2004, Tundra experienced a period of continuous, rapid growth that lasted until 2015. Now that activity has subsided, the company is able to catch its breath and

Manitoba Oil & Gas Review 2017

evaluate all aspects of its operations. “When the price of oil goes way down, the first thing you quit doing is drilling new wells,” explains Bill Jenkins, Vice President of Production Operations. “That’s allowed us to shift from development activity to focusing on better understanding the assets we’ve acquired and to consolidating our production, facilities and other resources.” Tundra’s operations and maintenance crews, its facilities, operations and production engineering teams have worked with other groups such as land, supply chain, and accounting to come up with effective strategies to manage and reduce costs. “This is the seventh time in my career I’ve been through a low oil price situation, and I’ve seen it navigated most successfully when everyone is involved and empowered to make a difference. Managing direct operating expense is our responsibility, and everyone can help manage costs in some way,” Jenkins says. “I believe that starts by communicating what the vision is and what needs to get done to deliver the business plan – giving

everyone the bigger picture and understanding the costs and trends. Teams of people can then be empowered to gather and interpret data, use it to generate ideas and form strategies and put actionable solutions into place to help manage every single line item.” While certain operating costs, such as property taxes, are beyond the control of most employees, there are many day-today decisions made that can have a sizable impact on the bottom line. “Operating in a low oil price environment affects every decision regardless of the apparent magnitude of that decision,” Jenkins says. “If an operator discovers a problem at 3 o’clock in the afternoon, does he stay and put in overtime to fix it, or does he go home and come back to fix it tomorrow? Or when a well develops a problem down hole and we need to decide whether to put a rig on it for a highcost repair. In high oil price times, these are easy decisions. But now all production data, well history, operating cost, and netback data must be thoroughly evaluated versus the repair cost. Every decision now requires extra work to gather and evaluate available information. Controlling costs remains our best strategy for get-

“It’s an opportunity they wouldn’t get at most other companies and we believe it will pay off greatly for Tundra once activity rebounds.” ting through this challenging time.” Eric Bjornsson, Vice President of Development Operations, says that the drop in the price of oil has caused activity in the field to slow down considerably. “As a result, we are seeing significantly reduced drilling and completions activity throughout the entire industry. At Tundra we’ve gone from steadily running five or six drilling rigs to running one drilling rig part-time.” “From a development perspective, this slowdown has given us time to do more in-depth analysis on our drilling and completions programs than we would normally be able to do. We can really dissect our strategies, processes and procedures, study them and determine lessons learned from every activity that we can implement going forward to further improve the bottom line.” With fewer rigs in operation, Tundra has had the opportunity to find new

endeavours to keep its young engineers and technologists busy. “Typically, we hire consultants to supervise our drilling and completion activities in the field, but the slowdown has enabled us to redeploy our young talent in these direct supervisory roles to gain some very valuable, hands-on leadership experience. It’s an opportunity they wouldn’t get at most other companies and we believe it will pay off greatly for Tundra once activity rebounds.” Another advantage of the downturn is that services are more readily available at lower prices. Bjornsson says that Tundra is also utilizing this time to review and evaluate all of its processes, including vendor services. “When times are busy, you get a lot of service providers knocking at your door but you don’t always have the luxury of being able to assess the quality of their

services in detail,” he says. “Today, competition for work is intense. When prices drop on a particular service, we have to be sure that the cost savings is not due to a decrease in service or product quality.” Despite having been able to demonstrate Tundra’s enduring commitment to employees, suppliers and to the communities in which it operates, the low oil price environment offers few benefits able to defer the shortfalls of the entire industry. “The reality is, from a financial perspective, we’re in a very tough environment right now. While we are making cost savings, it doesn’t come close to offsetting the impact of a lower oil price on our bottom line,” Hanstead says. “We believe we will be a stronger company for it in the long run, but in the meantime, it remains a more difficult time to be in this business.” v

Tundra Hedges Against the Decline Since being established in 1980, Tundra has managed risk by hedging (selling forward a substantial portion of production). This has likely made the company better prepared to ride out cyclical lows compared to many competitors who jump ship, sell off assets and move away. “We use derivative financial instrument to lock in selling prices on 50 per cent of our production two years into the future; the remaining 50 per cent is sold at spot prices each month,” explains Tundra CFO Murray Hanstead. “This is a disciplined process where we do not try to outsmart the market. Once the Board approves another round of hedging, we execute the future sales with the best price we can get at that time.” Having two years of hedges in place has helped Tundra to protect its past investments and ensure that the wells it drilled in a higher-price environment are still able to deliver the economic returns that were expected. “It has given us time to reassess the current environment and not be forced to make rash decisions on things such as selling assets or reducing staff levels. Instead, these decisions can be made with a long-term view in mind and not on short-term profitability,” Hanstead says. “Hedging revenue has enabled Tundra to continue generating strong cash flow that has been used for opportune acquisitions and to pay down some of our debt. We have always carried very low levels of debt compared to industry peers, but this will keep us in a very conservative leverage position even at current oil prices.”

Manitoba Oil & Gas Review 2017

Two Realizations Coming Out of a

reak-up B From Hell 2.0 By Mark Salkeld, President and CEO, Petroleum Services Association of Canada (PSAC)

hen times are tough, the first things to go are safety budgets and supply chain relationships. This is my fifth experience with a downturn in the Canadian oil patch, and I remember clearly when the infamous NEP struck Alberta. My safety point accumulation account promptly ceased – this was an incentive plan that awarded points for adherence to safety standards in exchange for coveted items like leather jackets, ball caps and coveralls. It wasn’t long after that when the shop PA system sounded out names, typically on Monday mornings, and I was amongst them. It was my first and only lay off during a 36-year career in oilfield services. I remember the sense of sadness over the loss of safety points and the feeling of dejection from being laid off. As I’ve come to witness repeatedly in my career, the first sign of reigning-in spending is the elimination of safety programs. The next sign of reigning-in I experienced while climbing the corporate ladder came in the form of letters from E&P customers requesting a significant lowering of invoices. Demands of 10 to 30 per cent cuts with noncompliance clauses that forfeit the relationship, sending the project back to tender or threats of using suppliers that complied to these demands, became common place in downturns. Fast-forward to today and nothing seems to have changed. I will concede that there is a higher regard for safety, but it still comes under the chopping block near the onset of a slowdown. An example as recent as fall 2016: a service company executive doing field calls to fully operational locations was not site-specific oriented once in 15 site visits and only twice was signed-in to location. There was no dedicated safety person on location, and whoever held that responsibility probably had 10 other duties to tend to, like running the pumping unit and blenders. Safety is a culture for some operators; for others it’s an expense and a checked box on some redundant safety registry to satisfy the customer’s pretense for safety oversight. And the supply chain relationship? There are E&Ps out there bragging about lowering costs through a reverse auction process! A reverse auction is an online system that automatically extends the bid after the preceding lowest bid is submitted, sharing that last lowest bid number to encourage desperate-

Manitoba Oil & Gas Review 2017

for-revenue oilfield service and supply companies to bid lower. It is a despicable cost savings innovation that damages relationships. Recent studies assert that Canada is 15 to 20 years behind other countries when it comes to supply chain relationships in the oil & gas industry between producers and service companies. I have worked in oilfields around the world and I tend to agree with that estimate. At first it was difficult to adjust to the tendering process in other countries. You must reveal far more information than when tendering bids in Canada. But the ultimate result when the bid is won and a five-year contract secured is a collaborative and supportive relationship with the customer instead of an adversarial and penny pinching one. Everyone comes out a winner! Job security, economies of scale realized through longer-term planning, cost savings realized and shared between the customer and service provider. These supply-chain tenets promote an open and respectful relationship, further allowing for the professional and expedient resolution of issues. I have yet to witness a similar supply chain relationship in Canada. When it comes to oilfield service, supply and manufacturing safety and supply chain relationships, the Canadian oil & gas industry has plenty of room to improve. We need far more professional supply chain relationships, and we need a much greater commitment to safety. There are savings to be realized through both. I believe the key to enhancing safety is to create, mandate and enforce a uniform set of safety standards that every level and aspect of the Canadian oil & gas industry must adhere to – in good times and bad. The ability for producers to rip up contracts without repercussions when their margins are threatened can not be an accepted business practice. Canadian suppliers must become comfortable with opening their books to customers during the tendering process, knowing that the process will be respected, and if contracts are won, it is a collaborative and respectful relationship through to the mutually agreed upon end to the contract. There are solutions to these industry challenges – and PSAC is committed to bringing them to the table in 2017 and beyond. Those who buy in will win; those who do not will lose – it is as simple as that! v

The Cash Stash Behind Anti-Pipeline Activism By Vivian Krause

ipelines are crucial to the safe transportation of oil and gas, and yet they’ve become unusually controversial. This isn’t by chance, but because a group of American funders, mostly from California, has financed a massive anti-pipeline campaign against Alberta oil. In 2009, the anti-pipeline movement was put in motion by three U.S. charitable foundations: the Rockefeller Brothers Fund, created by the famous family of oil pioneers; the William and Flora Hewlett Foundation, created by one of the founders of Hewlett-Packard; and the Tides Foundation, an intermediary that receives funds from billionaire philanthropists to distribute as the donor directs. Since then, Tides and its funders have quietly financed more than 100 First Nations and environmental activist groups in order to cripple Alberta’s oil industry. Because none of the participating organizations say they’re part of a campaign to put the screws to Canada, it’s invisible to the average person. But under the banner “The Tar Sands Campaign,” Tides has made over 400 payments totalling $30 million to First Nations and environmental groups in Canada, the U.S. and in Europe – payments ranging from $12,000 to $700,000. When the campaign’s funding was first reported in the Financial Post in October 2010, information was scant, discovered only because the words “Tar Sands Campaign” were noticed in payments reported in the U.S. tax returns filed by Tides. Since the Tar Sands Campaign came to light, public opinion has been split. Some accuse the activist groups and First Nations involved of being bought and paid for by their American funders. But the fact is, environmentalists have been trying to restrict the oil industry for decades, since long before the big U.S. cheques began to roll in. The media has generally taken activists’ and First Nations’ word that their campaign is purely environmental. But in light of statements from long-time Tar Sands Campaign director Michael Marx on the organization’s website, this stance lacks merit: “From the very beginning, the campaign strategy was to land-lock the tar sands so their crude could not reach the international market where it could fetch a high price per barrel.” Evidently, the campaign isn’t strictly about the environment. By its original director’s admission, it aims to hurt Canada where it matters: in our national wallet. No doubt, The Tar Sands Campaign also helps protect American economic and trade interests, guaranteeing exclusive access to Alberta’s heavy crude at prices lower than U.S. buyers would pay for the same oil from anywhere else. It’s important to note that anti-pipeline activism is funded as a small part of a larger effort to foster renewable energy, and it helps to look at their effort’s history and how energy independence has been re-branded as “sustainable energy,” and more recently, as

“clean energy.” Saving the climate has become code for reducing U.S. dependence on the Middle East. Renewable energy is domestic. There’s no multi-million-dollar campaign against Texas, North Dakota or Oklahoma. On its website, the Hewlett Foundation makes clear that it doesn’t fund activism in the states that account for 95 per cent of U.S. oil production. American charitable foundations only focus campaigns against foreign production, particularly from Canada. This isn’t surprising, since Canada is the only oil-exporting country that can be bullied out of the international market without risk of civil unrest and economic collapse. In 2001, a group of California philanthropists set out to achieve energy Independence, which had eluded the U.S. for decades. Leading the pack were the Rockefeller Brothers and the Hewlett Foundation. By 2004, the Hewlett Foundation and like-minded philanthropists had put together a suite of energy policy initiatives, including Securing America’s Future Energy and the Apollo Alliance. The Apollo Alliance produced “New Energy for America”, which called for at least $300 billion in U.S. government loans, subsidies and grants to kick-start a global renewable energy market. The Rockefeller Brothers and others also produced a report giving tips for addressing touchy issues like getting off Mid-East oil and promoting re-branding energy independence in the name of environmental protection. Eventually, the Apollo Alliance changed its logo to promote “clean energy”, not “energy independence”, and merged with labour unions to become the BlueGreen Alliance. In 2015, the U.S. ended its longstanding ban on exporting U.S. oil. By 2016, U.S. oil companies reportedly exported 3 million barrels a day of refined products. Gasoline exports hit an all-time high of almost 1 million barrels a day, up ten-fold from a decade ago. Of course, the U.S. couldn’t export its own oil without a lockdown on the Canadian crude that covers at least a quarter of domestic requirements. Since the Tar Sands Campaign began, anti-pipeline activism has become about more than oil. First Nations who have felt powerless for decades have new power, purpose and more. If pipeline companies and their clients want to dial back the activism against their business, they need to deal directly with the big U.S. funders who have bankrolled anti-pipeline protests. The protestors aren’t paid but the organizers sure are, so until then, the organizers of the anti-pipeline movement will continue to do what they’re paid for. Vivian Krause is a Canadian writer. On Twitter, she’s @FairQuestions. v Manitoba Oil & Gas Review 2017

Development on the Rise in the RM

of Pipestone

This spring will be vibrant for residential and commercial development in the RM of Pipestone. With only one $10 Municipal Residential property remaining in the town of Reston, the RM has further developments on the horizon.

he RM of Pipestone currently has a 24-residential-lot subdivision in Reston, with one property remaining, and is working on a multi-year development plan for a quartersection adjacent to Reston. This parcel of land will encompass further residential development and offer the opportunity for alternative housing such as modular and mobile homes, industrial property, and extended commercial property. There are currently a handful of properties available throughout the RM under the $10 Municipal Residential Lot Sales Policy. The Municipal Residential Lot Sales Policy allows the RM to sell residential lots for a low cost of 10 dollars. “This policy creates authentic growth, as a purchaser has feasible guidelines to follow considering the timeframe for construction,” says Tanis Chalmers, Manager of Economic Development for the RM of Pipestone. Additional properties for residential development are not the only priority. “The first phase of this quarter-section development is timely. Not only do we have limited space for residential development in the Reston subdivision, but commercial activity is also on the rise as well.” The RM of Pipestone is known as an investor’s paradise, identified for its close proximity to Manitoba’s petroleum industry. The RM administers a policy for new business growth, which includes grant incentives for newly constructed businesses or the purchase of an

Manitoba Oil & Gas Review 2017

existing business within the RM. With the purchase or construction of a business in the municipality, business investments qualify for a cash incentive up to $32,000, based on the assessed value of the building constructed or purchased. “There has been an influx in business with having two primary industries: agriculture and oil. The positive economic state has kept us here and brought back a young population,” note Gail and Dick Irwin, owners of Irwin Automotive in Sinclair. These municipal developments and incentives can and will support the re-establishment and development of new services such as trades, seasonal concessions, accommodations and more. “Our municipality’s aggressive nature for development will not only support developments of this kind, but also encourage businesses growth throughout the years,” says Chalmers. The RM of Pipestone is currently welcoming entrepreneurs and investors to the community, sourcing persons that would have interest in business development. The RM’s Council and the Community Development Corporation (CDC) have been working hard toward initiatives designed to help build a stronger, healthier community. For more information about the RM of Pipestone and its programs, contact Tanis Chalmers, Manager of Economic Development 204-877-3327 or www.rmofpipestone.com. v

WELCOMING ENTREPRENEURIAL OPPORTUNITY Cash incentives for business development Developed property available Prime location Working to sustain your opportunity The lifestyle your business and family deserves 204-877-3327 tanis@rmofpipestone.com

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Keystone XL Timeline 2010

March: The National Energy Board approves TransCanada’s application for Keystone XL, though the approval comes with 22 conditions regarding safety, environmental protection and landowner rights. April: The U.S. State Department releases a draft environmental impact statement saying Keystone XL would have a limited effect on the environment. June-July: Opposition to Keystone XL begins mounting in the United States. Legislators write to then-secretary of state Hillary Clinton calling for greater environmental oversight; scientists begin speaking out against the project; the Environmental Protection Agency questions the need for the pipeline extension. July: The State Department extends its review of Keystone, saying federal agencies need more time to weigh in before a final environmental impact assessment can be released.

2011 August 26: The State Department releases its final environmental assessment, reiterating that the pipeline would have a limited environmental impact.

With the recent changes in the U.S. government and progress being made to move the project forward, here is a look at some key dates in Keystone XL’s history. 44

Manitoba Oil & Gas Review 2017

2008 July: TransCanada and ConocoPhillips, joint owners of the Keystone Pipeline, propose a major expansion to the network dubbed Keystone XL to carry oilsands bitumen from Alberta to Texas.

2009 As the U.S. State Department wades through comments based on an environmental assessment of the project, TransCanada starts visiting landowners potentially affected by the pipeline. Opposition emerges in Nebraska. June: TransCanada announces it will buy ConocoPhillips’s stake in Keystone.

August-September: Protesters stage a two-week campaign of civil disobedience at the White House to speak out against Keystone XL. Police arrest approximately 1,000 people. September 26: At a demonstration on Parliament Hill in Ottawa, police arrest 117 of 400 protesters. November 10: The State Department says TransCanada must reroute Keystone XL to avoid an ecologically sensitive region of Nebraska. November 14: TransCanada agrees to reroute the line. December: U.S. legislators pass a bill with a provision saying President Barack Obama must make a decision on the pipeline’s future within 60 days.

2012

2015

January 18: President Obama rejects Keystone, saying the timeline imposed by the December bill did not leave enough time to review the new route. Obama says TransCanada is free to submit another application.

January 9: By a narrow margin, a panel of seven judges on the Nebraska Supreme Court strikes down the lower-court decision.

February 27: TransCanada says it will build the southern leg of Keystone XL – from Cushing, Oklahoma to the Gulf Coast – as a separate project. This is not subject to presidential permission, since it does not cross an international border.

January 29: The U.S. Senate approves a bill to build Keystone XL, but the White House says Obama would veto it. February 24: Obama vetoes the bill.

April 18: TransCanada submits a new route to officials in Nebraska for approval.

June 30: TransCanada writes to Secretary of State John Kerry and other U.S. officials saying the State Department should include recent climate change policy announcements by the Alberta and federal governments in its review of Keystone XL.

May 4: TransCanada files a new application with the State Department for the northern part of Keystone XL.

November 2: TransCanada asks the U.S. government to temporarily suspend its application.

2013

November 4: The U.S. government rejects that request.

January 22: Nebraska Governor Dave Heineman approves TransCanada’s proposed new route for Keystone XL, sending the project back to the State Department for review. January: Pipeline opponents file a lawsuit against the Nebraska government claiming the state law used to review the new route is unconstitutional.

2014 January 31: A State Department report says Keystone XL would produce fewer greenhouse gas emissions than transporting oil to the Gulf of Mexico by rail. February 19: A Nebraska judge rules that the law that allowed the governor to approve Keystone XL over the objections of landowners was unconstitutional. Nebraska says it will appeal. April 18: The State Department suspends the regulatory process indefinitely, citing uncertainty about the court case in Nebraska. November 4: TransCanada reports the costs of Keystone XL have grown from US$5.4 billion to US$8 billion. November-December: Midterm elections turn control of the U.S. Congress over to Republicans, who say they’ll make acceptance of Keystone XL a top priority

November 6: The Obama administration rejects TransCanada’s application to build the Keystone XL pipeline. TransCanada CEO Russ Girling says he’s disappointed but continues to believe the project is in the best interests of both Canada and the U.S.

2016 January 6: TransCanada files notice to launch a claim under Chapter 11 of the North American Free Trade Agreement, alleging the U.S. government breached its legal commitments under NAFTA. May 26: Republican presidential contender Donald Trump says he would approve Keystone XL if elected, a promise he repeats several times during the campaign. November 8: Trump elected president.

2017 January 24: Trump signs executive order that he says approves Keystone XL, but he also suggests the U.S. intends to renegotiate the terms of the project. He also signs an order requiring American pipelines to be built with U.S. steel. January 26: TransCanada submits a new presidential permit application. March 4: The White House says Keystone XL won’t use American steel because the pipeline is already under construction and

Trump’s presidential directive is “specific to new pipelines or those that are being repaired,” according to a White House spokesperson. March 24: U.S. State Department grants presidential permit for Keystone XL. TransCanada discontinues its NAFTA challenge. The company still has a significant hurdle to clear in Nebraska, where the state’s Public Service Commission must approve the route. In a statement, U.S. Energy Association Executive Director Barry Worthington said, “President Trump’s decision to approve the Keystone XL pipeline is good for North American energy security, economic growth, and environmental protection. The approval ends a lengthy political fight and shows Canada, our friend and neighbor, that the U.S. is a reliable partner and friend. “The U.S. currently imports nearly three million barrels of oil per day from OPEC countries at about $50/barrel. That is $150 million/day we send out of this country. Replacing some of that oil with Canadian resources makes better sense, and it improves our negotiating power and diplomatic efforts worldwide.” Fred Jauss, partner at international law firm Dorsey & Whitney and a foremost experts in licensing and permits, adds, “In obtaining the Presidential Permit, TransCanada has cleared a big hurdle toward getting Keystone XL operational. However, the permit is only part of a web of federal, state, and local permits that must be obtained prior to starting construction. There’s a lot of work ahead but today’s grant of the permit allows TransCanada to push forward in earnest toward obtaining those other permits and getting pipe in the ground.” March 29-30: A coalition of environmental groups files two federal lawsuits challenging the U.S. federal permit for the Keystone XL oil pipeline, saying the initial environmental review completed in 2014 is inadequate and outdated, and that it “fails to properly account for the pipeline’s threats to the climate, water resources, wildlife and communities along the pipeline route.” v

Manitoba Oil & Gas Review 2017

Trust

the Experts DRIVING FORCE has the experience and relationships to meet industry needs

wo years after opening its first location in Manitoba, DRIVING FORCE continues to grow its presence in the oil and gas industry. Already a well-known and trusted brand in Alberta, the proudly Canadian company has two Winnipeg locations to serve customers – including a handy vehicle rental desk at 1750 Sargent Avenue, just minutes from the James Armstrong Richardson International Airport by shuttle. DRIVING FORCE opened its first location in Manitoba in February at 450 Oak Point Hwy in Winnipeg, bringing decades of industrial vehicle expertise to the province. Established in 1978, the company has expanded from its Edmonton, Alberta roots to cover most of Western Canada, with 27 locations to date from Langley, B.C. to Mississauga, Ontario. A big part of the company’s success has been its unwavering commitment to customer service and its recognition that keeping the industrial customer well served and properly supplied with the right equipment is every bit as important as serving the retail rental customer. In fact, DRIVING FORCE is one of the most respected and wideranging rental and leasing brands in the Alberta oil and mining sectors, and the company’s ability to form solid bonds with its clients is transferring well as the company moves eastward. “DRIVING FORCE has developed great relationships with Alberta’s petroleum and mining customers,” says Jay Smither, branch manager at DRIVING FORCE’s Winnipeg location. “Working with them has made DRIVING FORCE an expert in the commercial rentals field. For example, we’ve been working with Flint Energy Services (a division of URS and AECOM) in multiple mining locations for years, providing everything from half-tons to Class 4 heavy duty service trucks.” DRIVING FORCE takes pride in giving customers exactly what they want, whether it be half-ton pickups for yard work, one-ton crew cabs for on-site hauling and transportation, two-ton half-

Manitoba Oil & Gas Review 2017

decks, cube vans or any of a variety of picker trucks and service bodies. Their long-term relationships with trusted and respected truck builders mean they really can deliver on that promise. Understanding that some companies have specific preferences for certain makes, models and body styles, this company deals with all major truck manufacturers; whether you’re looking for Ram, GM or Ford products, DRIVING FORCE can deliver them completely equipped to meet the specific standards of the site. “Experience has shown us that our customers value the convenience of ordering vehicles for a specific destination; it can save them time and money while creating peace of mind,” says Bruce Jackson, DRIVING FORCE’s Edmonton and Area rental manager. “For example, when we get a call for a specific mining project, we know exactly what is required – a buggy whip, amber light, back-up alarm, a 30-pound fire extinguisher, first aid kit and flares. We also install GPS (Global Positioning Satellite) equipment and unit markings. When the customer picks up the vehicle (or we deliver it), they’re literally able to sign off, get in, turn the key and head off for work on-site.” Manitoba customers are seeing the advantages of DRIVING FORCE. Smither and his staff have years of experience in the Manitoba truck market and close support from additional petroleum project and mining site expertise whenever he needs it. “It’s great to know there’s a wealth of connections within DF to help me provide exactly what the customer wants,” says Smither. “We deliver anywhere in the province – rigged for your specific needs and ready to go. We’re looking forward to working with customers and showing off what DRIVING FORCE can do to make their rental and leasing experience better than they ever thought possible.” Jay can be reached at 204-694-3488, 1-800-936-9353, or you can visit www.drivingforce.ca for more information about DRIVING FORCE. v

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