Oil & Gas Inquirer | March 2011

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Grande Despite low natural gas prices, innovative proDucers anD service companies trigger an economic revival in granDe prairie

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New Owners Continue Tradition of

Excellence at Copp’s

Copp’s Pile Driving is an oilfield services company based in Red Deer, Alberta, with a proud tradition of operational excellence and customer service. That tradition now continues under the ownership of Copp’s by Dennis and Jason Weinberger, with their proven business history in the Western Canadian oilfield services industry.

Offering excellence in: • customer service • performance standards • modern equipment • experienced operators

Serving oil and gas, oilsands, construction, and infrastructure throughout the WCSB • pile driving • all-terrain pile driving • pile pre-drilling • picker services • pipe sales • oilfield hauling

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Contact Information: Copp’s Pile Driving | A Div. of Copp’s Services Inc. Phone: 403.347.6222 | Toll-free: 1.866.887.3606

www.coppspiledriving.com

Keeping readers regionally informed

F E A T U R E S

6

MARCH 2011 • OIL & GAS INQUIRER

12

Grande ideas

21

Avalanche of opportunity

By Mike Byfield

Despite low natural gas prices, innovative producers and service companies trigger an economic revival in northwestern Alberta

By Mike Byfield

Technical institutes and colleges are meeting the oil and gas sector’s looming skills crunch with more class than ever

TCA provides engineered steel containment solutions for the Western Canadian Oil & Gas Industry R E G I O N A L

27

N E W S

British Columbia

49

• Painted Pony achieves healthy

• Peters boosts drill, case and complete

production growth with the drill bit

forecast to $21.9B for 2011

• Storm Resources reports a successful Horn River well

31

Northwestern Alberta

By Pat Roche

57

at $800M, versus $675M in 2010

possible Triassic oil play

• Researchers will study alleged

• Deep Basin–developed fracture fluid

carbon dioxide leakage into farm near

tank system goes continental

Northeastern Alberta

Weyburn

61

• Oilsands investment could reach $16B in

43

Central Alberta

enhanced oil recovery program

63

East Coast • Bidding is ramping up this year for

• The liquids-rich Hoadley Glauconite play

• • • • •

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Newfoundland’s Hebron project

is generating good returns

By Paul Wells

Central Canada • Reef Resources outlines Ontario

2011, up by $2.5B from 2010

By Elsie Ross

Saskatchewan • PetroBakken sets 2011 capital budget

• Galleon’s northwest drilling identifies

35

Southern Alberta

ENGINEERED CONTAINMENT ADVANTAGES

By Pat Roche

65

International • ExxonMobil sees natural gas as the world’s fastest growing fuel to 2020

By Pat Roche

I N

10

E VE R Y

I S S U E

Statistics at a Glance

69

• Completions data, spot gas prices, gas

• BPC Services Group, based in

storage, drilling activity and more

67

Lloydminster, uses directional drilling to drastically reduce the impact of

On The Job

installing gathering pipeline systems,

• Erecting complex scaffolding keeps life

with benefits to the environment,

interesting for Jonathan Hokanson, a big and agile entrepreneur who fears boredom more than heights.

Tools of the Trade

surface owners and producers.

70

Political Cartoon Cover design: Aaron Parker

For a dealer in your area

1-866-TCA-7771 New Branch in Carlyle, SK Ph: 306-575-8111 6404 – 53 Street, Taber, AB T1G 2A2

Ph: 403-223-1113 Fax: 403-223-6312 Email: info@thecontainmentanswer.com www.thecontainmentanswer.com

OIL & GAS INQUIRER • MARCH 2011

7

piling

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ASTM A252 structural piling made to order.

DFI manufactures piling from 4½” to 16”, up to .500 wall thickness, and made to exact length. Save steel.

Save money.

www.dfi.ca 1.877.334.7453 Edmonton • Red Deer • Edson • Bonnyville • Brooks • Grande Cache • Peace River • Rycroft • Fort St. John

Editor’s Note Vol. 23 No. 2 President & ceo Bill Whitelaw | bwhitelaw@junewarren-nickles.com Publisher Agnes Zalewski | azalewski@junewarren-nickles.com Associate Publisher Chaz Osburn | cosburn@junewarren-nickles.com Editorial director Stephen Marsters | smarsters@junewarren-nickles.com

Mike Byfield | mbyfield@junewarren-nickles.com

EDITORIAL

The Mighty Peace

Editor

Mike Byfield | mbyfield@junewarren-nickles.com Editorial Assistance

Janis Carlson de Boer, Marisa Kurlovich, Kyle Thompson proofing@junewarren-nickles.com Contributors

Pat Roche, Elsie Ross, Paul Wells Creative Print, Prepress & Production Manager

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Ken Bessie | kbessie@junewarren-nickles.com CREATIVE SERVICES MANAGER

Tamara Polloway-Webb | tpwebb@junewarren-nickles.com Graphic Designer

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Grande Prairie looks young. Most of its 50,000 residents are first-generation with no ancestral roots in the community. When natural gas prices plunged in 2008 and jobs became scarcer, some newcomers easily drifted away. Even architecturally, northwestern Alberta’s largest urban centre appears uniformly modern, with no large heritage buildings at all.

Look a little deeper, though, and you’ll discover that the Peace River Valley has its own human spirit and historical character in abundance.

For starters, this is a big country—far larger than many southerners realize. The Peace drainage basin totals about 300,000 square kilometres across northern Alberta and British Columbia, five times as big as Nova Scotia and double the size of Great Britain. The majestic river itself is almost 2,000 kilometres long. The Peace Valley, with its rich agricultural soil and other natural resources, might well have become a province in its own right if settlement had occurred earlier.

As far back as 1927, according to a report from the National Research Council, the Peace district of Alberta generated more patent applications per capita than anywhere else in Canada. That record is all the more remarkable given the region’s geographic isolation until quite recently. The Peace was the last major agricultural belt to be settled in North America, with homesteading continuing into the 1950s.

As the cover story of this issue of Oil & Gas Inquirer proves, that pioneering technological spirit is alive and kicking in the oilpatch. For instance, David Forseth’s grand­father walked from the Peace country to Edmonton—about 500 kilometres—to register his homestead in the provincial capital. Then he walked back to his new home. Maybe it’s not just a coincidence that Forseth himself has stubbornly stuck with developing his innovative remote-site catalytic heating system through six long years.

Speaking of spirit, read this month’s article about three technical colleges whose students graduate to the energy sector. Germany, Japan, France, even little Belgium and Switzerland all built themselves into industrial champions on the strength of their workers’ skills as much as their professional engineering. If North America hopes to continue being blessed with prosperity, we must invest respect as well as cash in our technical schools. So it’s deeply good that SAIT Polytechnic graduates are donating large sums toward developing their college for generations to come.

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Postage Paid in Edmonton, Alberta, Canada. If undeliverable, return to: Circulation Department, 800 - 12 Concorde Place, Toronto, ON M3C 4J2 Made in Canada The opinions expressed by contributors to Oil & Gas Inquirer may not represent the official views of the magazine. While every effort is made to ensure accuracy, the publisher does not assume any responsibility or liability for errors or omissions.

N E X T

I S S U E

April Edition Look, Ma, no hands! Or fewer hands, anyway.

If you know an admirable person to profile in

In April, Oil & Gas Inquirer will take a look at

On The Job—he or she may be a veteran or

automation systems used in manufacturing

apprentice, field or shop, wise or a little crazy—

pipe, drill bits and other oilfield equipment.

please give me a call at 780-784-4251, or

Also, look for our Northeast British Columbia

email mbyfield@junewarren-nickles.com.

Profiler, which will provide the latest, most

In fact, feel free to sound off about any

intimate details on the Montney and

concern at all—that’s a personal invitation.

Horn River Basin plays.

OIL & GAS INQUIRER • MARCH 2011

9

Stats

FAST NUMBERS

$49.1B

AT A GLANCE

US

Estimated capital spending by 73 western Canadian producers for 2011, $3.9 billion more than those companies spent in 2010.

$2.8 B

Price paid for British firm John Wood Group by General Electric, which is expanding its role in oil and gas services.

Alberta Completions

WCSB Oil & Gas Completions

Source: Daily Oil Bulletin

Source: Daily Oil Bulletin

MONTH

OIL

GAS

OTHER

TOTAL

MONTH

OIL

GAS

DRY

SERVICE

TOTAL

Feb 2010 Mar 2010 Apr 2010

144 264 198

308 579 418

114 198 6

566 1,041 622

Feb 2010 Mar 2010 Apr 2010

147 548 291

143 681 458

20 109 2

5 20 9

315 1,358 760

May 2010 Jun 2010 Jul 2010

400 126 131

462 117 110

51 41 38

913 284 279

May 2010 Jun 2010 Jul 2010

490 295 193

511 153 9

39 40 16

19 16 4

1,059 504 222

Aug 2010 Sept 2010 Oct 2010

168 357 404

135 638 460

43 59 46

346 1054 909

Aug 2010 Sept 2010 Oct 2010

452 617 678

156 790 581

40 45 39

15 23 18

663 1475 1316

Nov 2010 Dec 2010 Jan 2011

579 676 226

847 403 145

169 294 82

1595 1373 413

Nov 2010 Dec 2010 Jan 2011

868 1061 409

989 559 201

75 78 33

165 238 17

2097 1936 660

Wells Drilled In British Columbia

Saskatchewan Completions

Source: B.C. Oil and Gas Commission

Source: Daily Oil Bulletin

MONTH

WELLS D R I L L E D

CUMULATIVE *

MONTH

OIL

GAS

OTHER

TOTAL

Feb 2010 Mar 2010 Apr 2010

101 98 56

166 264 320

Feb 2010 Mar 2010 Apr 2010

169 223 92

58 32 10

4 8 3

231 263 105

May 2010 Jun 2010 Jul 2010

54 41 65

374 415 480

May 2010 Jun 2010 Jul 2010

86 149 220

7 7 7

3 11 0

96 167 227

Aug 2010 Sept 2010 Oct 2010

43 39 42

523 562 604

Aug 2010 Sept 2010 Oct 2010

198 197 201

12 5 12

7 6 11

217 208 224

Nov 2010 Dec 2010 Jan 2011

43 49 59

647 696 59

Nov 2010 Dec 2010 Jan 2011

217 340 136

3 2 4

64 11 3

284 353 143

*From year to date

Serving Canadians for over 25 for yearsover 25 years Serving Canadians

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MARCH 2011 • OIL & GAS INQUIRER

S P O T P R I C E S at AECO trading hub in Alberta

GAS STOR AGE

Source: Natural Gas Exchange Inc.

Source: U.S. Energy Information Administration 2.8

4.25

1.91 Tcf Year ago: 2.05 Tcf 5-year avg: 2.04 Tcf

$3.395/GJ Total vol.: 1,648 TJ Transactions: 210

3.75

3.25

in the United States

Jan 19

Cdn$/GJ

Jan 26

Feb 2

Feb 9

2.3

1.8

Feb 16

Tcf

Source: Natural Gas Exchange Inc.

Jan 14

Jan 21

Jan 28

Drilling Rig Count by Province/Territory

Drilling Activity: Oil & Gas

Western Canada February 15, 2011 Source: Rig Locator

Alberta January 2011 Source: Daily Oil Bulletin

ACTIVE

DOWN

TOTAL

Alberta

ACTIVE (Per cent of total)

Western Canada 467

114

581

80

British Columbia

66

27

93

71

Manitoba

20

1

21

95

Saskatchewan

88

15

103

85

WC Totals

641

157

798

80

2

0

2

100

Alberta

GAS WELLS

Jan 11

Jan 10

Jan 11

Jan 10

Northwestern Alberta

56

53

72

77

Northeastern Alberta

10

27

0

1

130

141

27

69

Southern Alberta

30

32

46

178

TOTAL

226

253

145

325

Service Rig Count by Province/Territory

Drilling Activity: CBM & Bitumen

Western Canada February 15, 2011 Source: Rig Locator

Alberta January 2011 Source: Daily Oil Bulletin

ACTIVE

DOWN

TOTAL

ACTIVE

Western Canada 438

217

655

67

British Columbia

30

7

37

81

Manitoba

13

2

15

87

Saskatchewan

147

36

183

80

WC Totals

628

262

890

71

1

0

1

100

Quebec

COALBED METHANE

Alberta

Alberta

Feb 11

OIL WELLS

Central Alberta

Northwest Territories

Feb 4

Source: U.S. Energy Information Administration

BITUMEN WELLS

Jan 11

Jan 10

Jan 11

Jan 10

Northwestern Alberta

0

1

6

7

Northeastern Alberta

0

0

10

27

Central Alberta

9

19

61

84

Southern Alberta

1

74

1

0

10

94

78

118

TOTAL

OIL & GAS INQUIRER • MARCH 2011

11

BLANK PAGE FOR DUPLEXING

Feature

ideas Grande

Despite low natural gas prices, innovative producers and service companies trigger an economic Revival in Grande Prairie

By Mike Byfield

espite natural gas prices that continue to wallow dismally at about

Research and Innovation (CRI). Sponsored by the Peace Region Economic

$4 per thousand cubic feet (mcf), Grande Prairie’s energy sector is

Development Alliance and Grande Prairie Regional College, the CRI was

battling successfully to survive and thrive. Field crews have been

launched in 2007 with a $3.4 million grant from the provincial government’s

busy this winter and the future looks promising. Innovative pro-

Rural Alberta Development Fund.

ducers, including juniors, are probing the traditionally gas-prone

Letersky is a veteran specialist in economic and community develop-

region’s complex geological formations for liquid hydrocarbons. Meanwhile,

ment who grew up in the region near Spirit River. “I remember when Grande

locally based service companies are developing technologies with potential

Prairie had 3,000 people and still had a hitching post [for horses] down-

customers far beyond northwestern Alberta.

town,” he says. (The city’s current population is 50,000, servicing a market

The region has a gift for technical innovation. Currently, Alberta typi-

area totalling nearly 250,000.) “We were isolated for a long time, so people

cally ranks third among provinces in total patent applications per annum

learned to make their own replacement parts for farm implements and

(after Ontario and Quebec) but first on a per capita basis. Although the

other machinery,” the CRI coordinator says. “That self-sufficiency naturally

Mighty Peace has only five per cent of the provincial population, it accounts

evolved toward technical innovation.”

for as much as 40 per cent of the province’s patent applications. Companies

Every month, the CRI brings a patent lawyer to town, providing one-hour

based in Grande Prairie—for instance Risley Equipment Inc. and DAVCO

consultations to would-be inventors. “He’s seen more than 200 people so far

Manufacturing Ltd.—make patented forestry tools that are sold across

and we’re still going strong,” Letersky says. Besides helping with the patent-

North America, Australia and elsewhere.

ing process, the institute guides developers through the funding maze of

“At the moment, my client list of innovators has 59 people on it, many

research councils and government agencies. The CRI also offers practical

of them from the energy sector. We’ve got some excellent technology in

advice on technical drawings, prototypes, attracting investors and lenders,

the works,” says Jim Letersky, an adjunct staff member with the Centre for

and manufacturing start-up.

12

MARCH 2011 • OIL & GAS INQUIRER

Feature

Photo: Aaron Parker

Cataflow puts the

heat on at remote locations

“I only wish that I’d run into CRI earlier. They’re a tremendous ally,” says David Forseth, president of Cataflow Technologies Inc. Farm-raised north of Dawson Creek, his oilpatch experience includes work with steam trucks. “Production equipment and lines kept freezing off, and thawing them out obviously made less sense than preventing the freeze-up in the first place.

So I got to figuring out a better solution,” explains the 44-year-old inventor.

His start-up firm is now manufacturing its first 60 flameless, self-powered hydronic heating systems, designed to operate away from the power grid. Hydronic technology uses circulating liquid for heating purposes.

Depending on size, the Cataflow units can support up to 800 feet of heat trace (tubing used to wrap around equipment and lines) with a 12-inch by 24-inch heater. Besides heat, the patent-pending technology generates enough electricity to operate a pump that moves warm glycol through the heat trace. Very modest amounts of water and CO2 are emitted, minimizing the environmental footprint.

Cataf low’s systems can be fuelled by raw gas f rom a wellhead or any

other hydrocarbon gas. Three litres of bottled propane will supply 400 feet of heat trace for 24 hours with the smaller system. The only external power source required is a 12-volt battery for about 10 minutes. The battery initiates generation of infrared energy from a catalytic heater. “My system absorbs the infrared energy and transforms it into a heated f luid [glycol] and electricity,” Forseth explains. Catalytic heaters are popular in the patch because they are f lameless, a major plus wherever hydrocarbon vapours may be present.

The catalytic heater element contains platinum material, which reacts with oxygen and gas to create infrared energy. The catalytic process is selfsustaining as long as the heater doesn’t fall below 200 degrees Celsius. “A major producer is now in the second year of using our prototype units in the field and their guys love this technology. Our equipment will run for years with virtually no maintenance. The pump is magnetically driven; there are no seals or shafts,” says Forseth, who’s been in the development process for six years.

Cataflow's self-powered hydronic heater.

Financially, a key figure behind C at a f low i s Hou s ton - b a s e d M a rk A d a m s o n , w h o r u n s Te c h - S e a l International Inc. “Mark makes a lot of oilfield equipment. Getting his attention was very difficult, but he immediately agreed to invest once he came here and saw what we have,” Forseth reports. Another investor is Dan Vezina of SunStroke Solar Ltd., an Alberta-based developer of solarpowered pumps. While Cataflow’s initial goal was supplying heat at remote sites, an off-grid, inexpensive, low-emission source of electricity could well have even more market potential. Forseth acknowledges that his company is working on boosting power output from his catalytic technology but won’t yet discuss details.

Photo: Rhinokore

When the going got tough, Rhinokore got going R h i nokor e m a ke s insulated frac tanks, based on a proprietary polyurethane panel with an extraordinary strength-to-weight ratio. “One of our 1,200-cubic metre tanks can be transported on a single truck and erected in a day or two,” says Rhinokore founder Paul Dagesse. “It replaces 20 tanks [400 barrels apiece] and 20 truckloads. Our frac tank’s insulation value is as high as R40, which saves big on heating cost, as does the

floating-type lid. And completing a big shale gas well with one rectangular tank on the corner of the lease is a lot easier than hooking up 20 round tanks to the wellhead.”

Rhinokore, a subsidiary of Grande Prairie’s Trans Peace Construction, also manufactures portable bridges, rig mats and other products from its unique panels.

To make them, the company injects a lowdensity polyurethane foam into a honeycomb structure. Where other core-type technologies break at their stress point,

Rhinokore’s foam-stabilized cells distribute that energy across the structure, providing its panels with a powerful combination of stiffness and flexibility.

Dagesse, raised on a dairy farm in Manitoba, apprenticed as a carpenter with Trans Peace when he came west. In 1987, he and a partner bought out the previous owner. The company specializes in construction of self-framing metal buildings, utilidor structures, pipe insulation and similar oilfield tasks. Trans Peace also OIL & GAS INQUIRER • MARCH 2011

13

Feature

Photo: Rhinokore

Rhinokore's frac tank (left) sits in front of multiple round steel tanks, while its manifold (right) is conveniently simple.

manufactured conventional polyurethane panels, which prompted its president’s interest in composite materials.

A composite material consists of two or more chemically different materials that maintain their distinction within the bonded product. A simple example would be early bricks made with mud and straw. A composite always includes at least one matrix (polyurethane, in the case of Rhinokore) and a reinforcement. Rhinokore, launched three years ago, has not revealed what material is used to form its honeycomb, although Dagesse does say it’s neither the traditional paper nor polypropylene.

Also confidential is the manufacturing process used to fill the honeycomb with polyurethane so that it’s completely free of voids. (Air pockets would weaken the panel.) “That process is not as easy as you might think, and we have a patent,” Dagesse says with a smile. The polyurethaneimpregnated honeycomb is then wrapped in a tough resin covering.

Rhinokore’s first products were rig mats. “These panels will not warp or crack in extreme heat and cold. They’re splinterproof, waterproof and chemical-proof, and the non-skid surfaces are easy to clean,” Dagesse says. “Our heavy-duty mat has a compression strength of over 85,000 pounds per square foot. Our standard mat only weighs 600 pounds, which can save as much as 75-80 per cent in transportation costs compared to wood mats. Even the toughest traditional mats will break down after half a dozen uses. Ours will not.”

R h inokore’s pa nels, being nonmetallic, do not interfere with pipeline locations equipment, making them suitable for pipeline crossings. “Our panels can be installed on screw piles, so they’re wellsuited for floating and industrial docks, elevated roadways and small creek crossings. They’ll work well as insulation in permafrost applications, too,” Dagesse says.

Because drilling activity collapsed just as the innovative rig mats were

introduced, a ballooning surplus of wood mats impeded sales. Fortunately, producers were simultaneously gearing up to mount massive frac operations in the Horn River Basin and Montney plays, creating a new market for frac tanks of unprecedented size. Meanwhile, high gasoline prices had decimated sales of recreational vehicles. Rhinokore was able to lease a former RV manufacturing facility in Armstrong, B.C., which came complete with a highly experienced workforce.

Dagesse is intrigued by the possibility of combining Rhinokore panels with Cataflow’s remote-site catalytic heating technology. “We could provide a customer with an 8,000-square-foot heated floor, transported on one truck to a remote site and installed in a day. The customer could erect any kind of structure over that floor, [such as fabric buildings, another western Canadian specialty],” the Trans Peace president enthuses.

Stratus Pipelines

squeezes soil settling woes

Randy Galbreath, pre sident of St r at u s P ip e l i ne s Ltd., u se d to have shouting matches in the field with Doug Kulba, an inspector with Alberta Environment. “After a while, we decided that it would make more sense to work together,” comments Galbreath, a pipeline contractor based in Grande Prairie. The resulting cooperation has 14

MARCH 2011 • OIL & GAS INQUIRER

worked out better than either man could have expected.

In June, Kulba and Galbreath were cited along with Devon Canada Corp. by the Alberta Emerald Foundation for the Emerald Certified Shared Footprints Award. They were the inaugural recipients of this honour, newly created by Alberta’s Department of Sustainable Resource Development.

Their achievement: creating innovative

techniques and tools for resolving the expensive annoyance of soil settling above pipeline installations and mixing of soils.

In 2007 or so, Devon noticed that sunken “ditch lines” were appearing over pipelines installed five to 15 years earlier. If that ditch spanned a quarter section, it could be traversed as often as 800 times a year by a farmer while he circled his field to harrow, seed, spray, swath,

Feature combine and more. “Every time a farmer hits a ditch line, the jolt feels like driving your car over a speed bump in a parking lot at 20 kilometres per hour,” Galbreath says. Devon found itself paying for agricultural machinery and, more importantly, forfeiting the good will of landowners.

When trenching occurs along a pipeline right-of-way, the liberated clay expands in volume by up to 45 per cent, making it difficult to replace after the pipe is laid. Current approved pipeline practices allow for the spreading or “feathering” of excess clay across the right-of-way.

Gradually, however, the replaced soil resettles and a ditch is born. Spring runoff

“Every time a farmer hits a ditch line, the jolt feels like driving your car over a speed bump in a parking lot at 20 kilometres per hour.”

— Randy Galbreath, President, Stratus Pipelines Ltd.

water can deepen the fault line. Back when farmers routinely ploughed up fields, their yearly shifting of soil tended to even out land surfaces. In recent times, however, agricultural operators have largely switched to “no-till” methods that eliminate the need to plough annually.

To prevent ditch line settlement, Galbreath and Kulba hatched a solution based on careful preoperational planning that they named the “Low Impact Pipeline System.” Firstly, this approach calls for digging up less soil by narrowing the trench. Secondly, valuable topsoil is segregated from the underlying infertile clay more accurately. Finally, nearly all of the soil is replaced after the pipe is laid through improved clay compaction methods.

To implement their strategy, Galbreath and Kulba had to invest in creating suitable equipment. Stripping frozen topsoil

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Feature narrow buckets, packing wheels and the “We can reduce the ditch width by about 60 per cent, down to as little as 11 inches, Low Impact Pipeline System. Packing wheels can also be attached to existing considerably minimizing the amount equipment, and these wheels come in of subsoil demolition,” Galbreath adds.

“Initial expense of laying a pipeline with various widths. “In the cases where we can’t replace the topsoil due to frost, clay our methods is typically a little higher, but total project cost will be less over time.” The will still be 90-95 per cent returned,” pioneering pipeliner is hopeful that more Galbreath says. “This approach allows us to return in early May to tidy up the ditch companies will follow Devon Canada’s lead line and replace the topsoil. Landowners in harnessing this new technology. can then commence spr ing activ ities.

Traditional methods tend to prevent clean up from starting until July or August, meaning an entire crop year is lost.”

Stratus says its Low Impact Pipeline System reduces rightof-way width by 20-40 p e r c e nt . Top s oi l st r ippi ng r e qu i r e ment s drop by a s much as 60 per cent.

Stratus's Low Impact Pipeline System toolkit includes specialized buckets.

Stacked liquid prospects draw Tangle Creek to northwest AlbertA Ta n g l e C r e e k Energy Ltd. is a newly for med junior with over $100 million to invest.

“We are focused on oil in tighter reservoir rock. To establish our core operating areas, we’re now evaluating several prospects across the western Canadian Sedimentary Basin,” says Alison Essery, exploration vice-president for the private company. “Tangle Creek is interested in a number of areas but the Peace River Arch [PRA] is certainly attractive, especially for a start-up such as ourselves. Land sales activity began to pick up there about a year ago, and traffic is still increasing. I think the arch is about to bust wide open.”

The Peace River Arch lies deepest in the Alberta-B.C. border region west of Grande Prairie. From there, the geological trend (a high uplift in Devonian and a low basin during younger times) sprawls eastward and slightly north for

750 kilometres, gradually rising toward the surface. The PRA’s prime attraction, according to Essery, is gas liquids and oil, with large additional exploration and exploitation potential in Devonian, Triassic and Cretaceous formations. “ E v e n t h o u g h w e a r e t a r g e ting previously discovered—but noncommercial—accumulations, the exploitation component of our business is really applying some of the newer drilling and completions technologies that have been really successful in central Alberta.

Exploration usually involves a degree of luck,” Essery says. “So we prefer to work in areas with stacked targets that offer multiple possibilities for success.”

The Triassic specialist spent 29 years with Shell Canada, including eight years working on the PRA (with four years as team lead) and a further eight years in the Rocky Mountain foothills. In 1999, Shell sold its PRA lands to Apache Canada Ltd.

In fact, global heavyweights like Exxon Mobil Corporation and BP p.l.c. are almost entirely absent from this massive swathe of terrain, leaving plenty of room for independent producers and juniors.

Essery says it’s now nearly impossible to buy good prospective land in the Pembina area for less than $5,000 per hectare ($2,000 per acre). “Land prices in the better understood portions of the Cardium play [of west-central Alberta] have become too steep for most juniors,” she says. In contrast, the PRA remains relatively affordable. At the Alberta Crown auction on Jan. 26, Galleon Energy Inc. submitted the high bonus of the sale: $7.26 million for 6,400 hectares ($1,135 per hectare) in its North Peace core operating area. Most bids for PRA acreage are much lower.

“On the [Peace Rive] Arch, carbonates often occur within the sandstone systems, which isn’t always the case elsewhere.

OIL & GAS INQUIRER • MARCH 2011

17

Photo: Aaron Parker

is no simple task. “Until now, there were two choices. You could put a megamulcher head on a D6 Cat, which means using equipment worth $800,000 to $1 million,” Galbreath says. “Alternatively, a D8 could haul a soil-breaking tool, which came out to nearly as much in terms of equipment value.” Because this heavy machinery is wide, pipeline rights-of-way had to be wide as well.

Stratus has developed a patented topsoil stripper that is now available for sale or rent. The tool costs around $35,000 and it can be fitted as an attachment to the excavators that are present on any pipeline construction site. Adjustable front and back knives slice the topsoil, which is then carefully scooped up by the bucket. “As well, we worked with an inventor to develop a narrow bucket for large excavators. It’s surprising how much soil can be handled even by the smaller bucket,” Galbreath says. “It took a lot of time to achieve a clean dump and an even trench bottom.”

His company has invested $1.5 million in developing its topsoil stripper,

Feature There’s been a lot of [water] leaching, and the resulting carbonate dissolution generates sweet spots with better porosity and permeability [P&P] in tight sandstone formations,” Essery says. “Even today, some vertical wells can be good producers. Overall, there is a lot of potential for hybrid resource plays, with less P&P than a typical conventional prospect but better than, for example, the Horn River Basin.

Only the major or exceptionally wellcapitalized companies can afford the huge numbers of heavily fracced wells needed to develop economic production in a true resource play like Horn River. The arch is a good prospective place for a technically sophisticated but smaller company like Tangle Creek.”

Triassic targets with hydrocarbon potential in the PRA include the Montney, Doig, Halfway and Charlie Lake. Slightly higher sits the Nordegg. Prospective Devonian-period formations, roughly 130 million years older than the Triassic, include the Duvernay section, another PR A resource play that’s heating up.

“Fundamentally, the arch involves thick layered reservoir packages sandwiched between good source rocks,” Essery says.

“However, the geology is complex, with very mixed reservoirs that can be broken by faults in polygonal patterns.”

Among the explorers active in northwestern Alberta is Mike Rose, a former Shell Canada explorer and now the president of Tourmaline Oil Corp. The private

Resources Ltd. have also been active at recent land sales.

An unfashionable but still prime attraction in northwestern Alberta is natural gas, according to Essery. “On the arch, the odds are good for finding significant gas volumes. The gas becomes a really attractive

“I think that many shale gas producers are going to find that they’ve been over-optimistic about their production potential in North America.”

— Alison Essery, Exploration Vice-president, Tangle Creek Energy Ltd.

company expects to spend between $350 million and $425 million on exploration and production capital projects in 2011, principally on prospects in the Deep Basin and Peace River Arch. Other PR A drillers include Canadian Forest Oil Corp., Canadian Natural Resources Limited, Daylight Energ y Ltd., Pace Oil & Gas Ltd., Dejour Enterprises Ltd., TAQA North and Birchcliff Energy Ltd. Bonavista Energy Corp. and Paramount

bonus if it’s liquids-rich gas,” the veteran geologist says. “I think that many shale gas producers are going to find that they’ve been over-optimistic about their production potential in North America. Not everyone is going to have success. If I’m right, gas prices will come back sooner than many analysts expect. If I’m wrong, gas prices will still recover, but it may just take longer for companies to realize the benefit of the gas they find while looking for oil.”

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2011 PRODUCTS

Feature Illustration: SAIT Polytechnic

avalanche of

opportunity Technical institutes and colleges are meeting the oil and gas sector’s looming skills crunch with more class than ever

By Mike Byfield

An artist's rendering of the Trades and Technology Complex at SAIT Polytechnic.

T he oil and gas e x ploration , production and pipeline sectors will lose at least 30 per cent of their combined core workforce within 10 years due to retirement, according to a report released in December by the Petroleum Human Resources Council of Canada (PHRC).

The government-industry agency conducted four short-term labour market surveys over 2009-10. Chronic shortages of crucial skills—power engineers and plant operators, frac crews and other field specialists, production accountants and more—dogged the patch even during a period of mass upstream layoffs.

“Between 2007 and 2009, the services sector lost approximately 13,000 seismic, drilling, oilfield construction and maintenance, and well servicing workers,” the PHRC report states. In fact, even more energy service workers were likely laid off between 2007 and early 2009, the council says, but some were recalled during the latter part of 2009 when activity began picking up. As that recovery continues, the report notes, “material and skills shortages are expected to re-emerge in the OIL & GAS INQUIRER • MARCH 2011

21

Feature short-term [2012] and the industry will once again be challenged to keep costs under control, while competing for talent.”

We s t e r n t e c h n ol o g y i n s t it ut e s and colleges are responding aggressively to the looming oilfield sk ills squeeze. In Calgary, SAIT Polytechnic is

An impressive chunk of the Calgary project’s funding is coming from SAIT graduates and former tradespeople. For instance, the largest of the three TTC buildings will be named the Aldred Centre in recognition of a $15-million contribution from John and Cheryl Aldred.

Photo: SAIT Polytechnic

Construction of SAIT's 740,000–square foot Trades and Technology Centre is scheduled for completion next year.

Photo: SAIT Polytechnic

mid-way through construction of its Trades and Technology Complex (TTC).

Upon completion in 2012, the Calgary facility will provide 740,000 square feet of new space on campus, designed for training specialists in energy, construction, and manufacturing and automation. The TTC will deliver 3,600 more student spaces, allowing as many as 8,100 more students every year.

22

MARCH 2011 • OIL & GAS INQUIRER

A n im mig rant f rom Britain who arrived in 1967, John Aldred first worked as a heavy-duty mechanic in the oilpatch.

Going into business for himself, he transformed Enerf lex Systems Ltd. from a one-man start-up into a 3,000-employee global manufacturer of natural gas compression and processing equipment. In 2010, Toromont Industries Ltd. acquired Enerflex for $670 million.

The west wing of the TTC will be named the Johnson-Cobbe Energy Centre, honouring a pair of $5-million gifts from two SAIT graduates. Murray Cobbe and David Johnson both earned petroleum technology diplomas in the 1970s. Today, Cobbe is the executive chairman of Trican Well Service Ltd. while Johnson holds the same position at Progress Energy Resources Corp. The TTC initiative was launched in part thanks to an earlier $10-million gift from fellow SAIT alumnus Keith MacPhail, chairman and chief executive officer of Bonavista Energy Corp.

Building Three [of the TTC] will house a “live laboratory” where aspiring power engineers, instrumentation mechanics, process operators and other students will acquire skills in replica industrial facilities rather than classrooms. For example, SAIT will duplicate a steam assisted gravity drainage (SAGD) installation. “We depend on our graduates and other industry specialists to keep our programs and equipment focused on the current needs of the oil and gas sector,” says Mary MacDonald, dean of the MacPhail School of Energy at SAIT Polytechnic.

MacDonald places the highest priority on maintaining tight linkages with industry. Her energy school has 10 industry advisory committees that meet at least once annually. The Northern Alberta Institute of Technology operates a similar industry-academic advisory system.

To help coordinate technology training on a province-wide basis, NAIT and SAIT academic department chairs attend each other’s advisory committee meetings. Besides he r c om m ittee work , t he MacPhail dean says, “I also m e e t on e - on one w it h four industry leaders each month.”

Her staffers develop a great deal of energy-related curriculum material for their students. “No one publishes a standard textbook that includes instructions for operating an H2S [hydrogen sulphide] gas plant at 40 below,” MacDonald comments. SAIT’s academic strength continues to deepen, with full bachelor’s degrees now available in applied petroleum technology. “Quite a few students fail to graduate because they’re offered jobs before they’ve completed the program,” the energy dean notes with a touch of frustration.

SAIT provides custom-tailored technical training programs for companies and governments around the world. “The [Alberta] government only funds half of our overall budget,” MacDonald explains.

“We’ve been able to generate significant additional revenue through competing in the global market. For instance, we’ve got 92 Angolans here right now training for jobs in their own country. Beyond the immediate revenue for SAIT, international

Feature

Illustration: SAIT Polytechnic

initiatives create another valuable benefit: our graduates become familiar with Canadian energy technology and they represent future potential customers for our suppliers as their careers progress.”

Flexible delivery and transferability between industries are strong points for Northern Lights College, whose five campuses in northeastern British Columbia handle about 1,100 trades and technology students annually. Besides its headquarters in Dawson Creek, “B.C.’s energy college” has locations in Fort St. John, Fort Nelson, Chetwynd and Tumbler Ridge.

“We’re definitely not mired in academe and bureaucracy,” says Jeff Lekstrom, dean of trades and technology. “We deliver on a very timely basis, adjusting to changing circumstances in the petroleum, forestry and mining industries.”

In 2008, Canfor Ltd. closed an oriented strand board mill and plywood plant at Fort Nelson, triggering 625 direct job losses.

“Luckily, the Horn River Basin shale gas play was expanding at that time. Most of those forestry workers transitioned quickly into the natural gas sector, with help from

our trades and apprenticeship coordinator,” Lekstrom says. “We provided the necessary programs for upgrading tickets and specialized needs like H2S safety and confined space entry training.”

In 2009, the Horn River Basin Producers Group (which includes 11 member companies) informed Northern Lights that field operators would be needed in the near future. “I made a presentation to the group in Calgary in the morning and learned that our proposal was officially accepted when I got off the plane back home at 2 p.m.,” Lekstrom recalls. In January 2010, an initial intake of 46 students graduated as qualified operators.

To train power engineers at Fort Nelson, the college is now setting up a 10-month program in partnership with Spectra Energy, Encana Corp. and the Northeast Aboriginal Skills Employment Project. Course material covers fourthclass power engineering and all four levels of gas processing operations. Nine months of the program will be offered in Fort Nelson, with another month at the Fort St. John campus, plus practicum time

at local Spectra Energy and Encana facilities. Mandatory upgrading has already begun, with the program itself scheduled to launch in June.

Northern Lights prides itself on its well-qualified veteran instructors, all with operational experience in the region’s rigorous winter climate. Another mainstay is modern equipment. In 2008, the college opened its $12-million Oil and Gas Centre of Excellence on the Fort St. John campus, with half of its capital budget paid by

The west wing of the TTC will be named the Johnson-Cobbe Energy Centre, honouring a pair of $5-million gifts from two SAIT graduates.

SAIT's new technology centre will provide state-of-the-art facilities for foreign students as well as Canadians.

OIL & GAS INQUIRER • MARCH 2011

23

Feature

Photo: Northern Lights College

corporate and private donors. The facility includes a simulated well production site, complete with two wellheads, a compressor, and flare and pigging capabilities within a closed-loop system. “We emphasize hands-on training, and industry has been hugely supportive in providing our

students with great tools for that purpose,” Lekstrom says.

A nyone who’s looking for a wellpaid, virtually guaranteed job after one year of study might consider applying to the heavy oil operations technician (HOOT) program at Lakeland College in Lloydminster. The thriving heavy oil and in situ bitumen sector in Alberta a n d S a s k atc h e w a n i s e x p e c te d to ge ne r ate demand for many hund reds of op er ator s i n t he nea r f ut u re. B e r t Samuelson, Lakeland’s dean of the trades and technology school, says a survey of last spring’s graduates indicates 96 p e r c e nt s at i s f a c t i o n with HOOT. Samuelson says t he HOOT lab needs upgrading and possibly an addition. In particular, the dean dreams of Northern Lights College handles about 1,100 trades and adding a second year of study, which would train technology students per year.

24

MARCH 2011 • OIL & GAS INQUIRER

students as third-class power engineers (HOOT now prepares its grads to challenge the fourth-class exam), SAGD operations, firefighting, more intense training in information technology and more. “We’d configure the program for f lexibility,” he says. For example, an operator could graduate from the first year, work for a while in industry if he chooses, and then return to school later for the second year.

Other western schools that offer petroleum-specific training (excluding engineering and other disciplines at major un iversit ies) a re NA I T i n Edmonton, Fort McMurray ’s Keyano College, Red Deer and Medicine Hat colleges (primarily t hrough the rig technician apprenticeship program) and Saskatchewan Southeast Regional College. SAIT’s MacDonald predicts that all available training capacity will be stretched by the oilpatch’s need for skills.

“Institutes and colleges themselves will soon be challenged in recruiting instructors for energy-related courses, the situation is that intense,” the MacPhail dean comments. “We’re facing an avalanche of opportunity.”

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British Columbia

Painted Pony achieves healthy production growth with the drill bit

With veteran geologist Patrick Ward as CEO, Painted Pony has grown quickly since its launch in 2007.

Painted Pony Petroleum Ltd. says its production has continued to grow to record levels despite weather-related operational delays and pipeline apportionment, with field-estimated December 2010 production averaging 3,950 barrels of oil equivalent (boe) per day (52 per cent oil and liquids, 48 per cent gas). Based on field estimates, production for the fourth quarter of 2010 was 3,360 boe a day (54 per cent oil and liquids, 46 per cent gas).

Painted Pony planned to drill a total of five (2.9 net) Montney wells during the first quarter of 2011. The Montney zone across the entire area contains sweet, low-CO2 gas, with high heat content and an estimated liquids-to-gas ratio of over 20 barrels per million cubic feet (mmcf).

Following a five-day cleanup, Painted Pony said in mid-January that its Lower

Montney horizontal well Gundy D-B67J/94-B-9 (20 per cent working interest) flowed in-line for 19 days at an average rate of 11.6 mmcf per day with a peak rate of 13.1 mmcf a day. The average pressure during the 19-day test was over

the horizontal well Gundy C-67-J/94-B-9 (20 per cent working interest to Painted Pony) was brought on stream in December 2010. The well was drilled and completed during the summer of 2010, though it was not tied in until the Gundy compressor facility was completed. The well is currently producing 6.1 mmcf a day at over 1,400 psi, after one month on production.

Approximately four miles away on the same contiguous block of land, the horizontal well Kobes A-B10-J/94-B-9 (20 per cent working interest) has been on production since last August. Initial production was 9.8 mmcf a day, and the average production rate during the first 30 days following cleanup was 8.5 mmcf per day at an average pressure of over 2,900 psi.

The well has produced 0.85 bcf in approximately four months.

The Middle Montney horizontal well Kobes A-A10-J/94-B-9 (20 per cent working interest) has been on production since October 2010. The average production rate during the first 30 days following cleanup was 6.6 mmcf a day at an average pressure of 1,000 psi. The well has produced over 0.5 bcf in less than three months and is currently producing at 5.9 mmcf per day.

Painted Pony planned to drill a total of five (2.9 net) Montney wells during the first quarter of 2011.

2,900 pounds per square inch (psi).

Current production is 11.5 mmcf per day and the well has produced 0.3 billion cubic feet (bcf) in less than one month.

Daily Oil Bullet in records show Progress Energy Resources Corp. as the operator of the well. On the same pad,

In addition to these wells in the lower and middle Montney, Painted Pony now has three upper Montney horizontal wells on production. Production from the first two wells, which were brought on stream at Blair approximately eight months ago, has exceeded

JAN/10

JAN/11

JAN/10

JAN/11

WELLS SPUDDED

97

76

WELLS DRILLED

57

55

BRITISH COLUMBIA WELL ACTIVITY

JAN/10

JAN/11

WELL LICENCES

101

76

▼

▼

▼

Source: Daily Oil Bulletin

OIL & GAS INQUIRER • MARCH 2011

27

British Columbia

original expectations significantly, the company said. The third upper Montney well (20 per cent working interest), Gundy D-A67-J/94-B-9 is currently producing at 2.3 mmcf a day after 29 days on production.

Painted Pony said it continues to actively delineate all three Montney

intervals on its significant land position in northeastern British Columbia.

The company holds approximately 118 net sections with Montney rights in this area. On the Cameron/Kobes block, all three intervals in the Montney have been proven commercially productive with horizontal wells.

On the Blair/Town block (85 net sections), the upper Montney has been proved commercially productive with horizontal wells, and the lower and middle Montney have been tested successfully using vertical wells.

Additional horizontal piloting is planned for all three intervals at Blair/Town in 2011.

— DAILY OIL BULLETIN

Storm Resources reports a successful Horn River well Storm Resources Ltd. and its partner, Storm Gas Resource Corp. (SGR), have announced initial gas flow rates from the first horizontal well drilled in the Muskwa and Otter Park gas

4,300 metres with a 1,750-metre horizontal section in the Muskwa and Otter Park shales. Completion of the well commenced in early December 2010 and consisted of

Gas rate has been restricted and has averaged 8.8 million cubic feet (mmcf) per day during the cleanup period. shales on their joint lands in the Horn River Basin in northeastern British Columbia.

In October 2010, the first horizontal well at D-9-D/94-P-12 (60 per cent SGR, 40 per cent Storm) was drilled to a total depth of

12 fracture treatments with each being approximately 300 tonnes of sand and 2,900 cubic metres of water (total sand pumped was 3,500 tonnes and total water pumped was 35,000 cubic metres or 220,000 barrels).

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Total cost of the completion is expected to end up at $9 million to $9.5 million.

The well has now flowed for 76 hours on cleanup with results as follows: • Gas rate has been restricted and has averaged 8.8 million cubic feet (mmcf) per day during the cleanup period (cumulative gas production 28 mmcf).

• T he most recent gas rate was 9.1 mmcf per day at a flowing casing pressure of 8,000 kilopascals.

• The water used in the fracture treatments is being recovered at a rate of 1,600 barrels per day or 255 cubic metres per day,

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British Columbia

with cumulative water recovery to date being 1,050 cubic metres, representing three per cent of the water pumped in the fracture treatments.

• Tubing is now being installed in the wellbore and the well will be f low tested for an additional seven to 10 days in order to gain additional information regarding the gas rate and flowing pressures.

Once testing has been completed and assuming results are as expected,

construction of the associated facility and pipelines will begin and first gas sales may occur as early as April 2011.

Although the initial flow rate is very encouraging, Storm said in January that it expects at least three to six months of production history will be required before a reserve estimate can be provided and before longer-term production performance can be predicted.

A second horizontal well was drilled in December at C-29-D/94-P-12 (60 per cent

SGR, 40 per cent Storm) to a total depth of 4,400 metres, which includes a 1,900metre horizontal section.

SGR and Storm are 60:40 working interest partners and jointly control over 95 gross sections in the Horn River Basin, of which 19 gross sections have been identified as a core project area.

In addition to its direct working interest, Storm holds a 22 per cent ownership position in SGR. — DAILY OIL BULLETIN

Artek scores with Doig horizontal at Inga/Fireweed Artek Exploration Ltd. says it has successfully drilled its first horizontal Doig well (60 per cent working interest) in the Inga/ Fireweed area of British Columbia to a total measured depth of approximately 2,900 metres (including approximately a 1,100-metre horizontal lateral).

The well was successfully completed with a seven-stage fracture stimulation program. After a five-day cleanup, the well flowed on an in-line test over a 64 hour test period at an average restricted rate of approximately 4.7 million cubic feet (mmcf) a day and 1,100 barrels a day of condensate or 1,895 barrels of oil equivalent (boe) per day at an average flowing tubing pressure of 1,156 pounds per square inch (7,965 kilopascals).

The company said it is satisfied with the positive results from the initial seven stages of the planned 11-stage fracture stimulation program, although it may elect to stimulate additional stages in the future.

At a liquids ratio of over 200 barrels of condensate per mmcf of natural gas and an assumed oil price of $83 per barrel at the wellhead and a natural gas price of

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$3.85 per gigajoule (AECO price), Artek said it anticipates operating netbacks from the well of up to $41 per boe.

Daily Oil Bulletin records show an Artekoperated well licensed at 05-11-88-23W6.

In the immediate area, Artek holds interests in 16,780 gross acres (10,094 net) or approximately 25 gross sections (15 net)

The operational success at Inga establishes a new core area for the company that has scale and repeatability and where it has control of facilities and development, according to the company. and has an additional three sections tied up through a farm-in commitment.

The test results from this well, in combination with its five vertical Doig producers, provides validation to the company’s geotechnical model and Artek said it plans to drill an additional two Doig wells after breakup. The volumes are being processed at its operated facility at Inga. The operational success at Inga establishes a new core area for the company that has scale and repeatability and where it has control

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of facilities and development, according to the company.

Additionally, Artek said it has successfully drilled and cased a horizontal re-entry (85 per cent working interest) into a Paleozoic carbonate formation in the Peace River Arch area that is prospective for natural gas and liquids. The company plans to complete the

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well using a five-stage fracture stimulation program when services are available.

On the Alberta/B.C. border, Artek has spud its second Montney horizontal well (50 per cent working interest) in the Sinclair area, where in late 2010 its first Montney well tested in excess of eight mmcf a day. The well is anticipated to reach a total measured depth of approximately 4,300 metres and plans are for a 12-16 stage fracture stimulation prior to spring breakup.

— DAILY OIL BULLETIN

Read what our editor has to say. www.oilandgasinquirer.com/blog/

OIL & GAS INQUIRER • MARCH 2011

29

Northwestern Alberta/Foothills

Galleon’s northwest drilling identifies possible Triassic oil play

A veteran player on the Peace River Arch, Galleon estimates its 2011 production at 14,500 boe per day.

Galleon Energy Inc. said its successful fourth-quarter drilling program resulted in the identification of a potential Montney oil play and provided further support for a possible Triassic crude program. At its Eastern Montney business unit, Galleon said it plans to further develop an oilprone Montney fairway in 2011.

“Although it is still early in the development of this oil fairway, the potential of this oil play has been defined as significant,” the company said in a press release. Four horizontal wells (96 per cent interest) have been drilled to date having initial one-month production averaging 107 barrels of oil equivalent (boe) per day, with 76 per cent oil. Galleon said that the average cost to drill, complete and tie in each well is approximately $1.3 million.

In the fourth quarter at the company’s North Peace River Arch business unit, Galleon successfully drilled one vertical

Montney natural gas well. In addition, two new Triassic oil projects were identified.

An additional three horizontal wells were planned to be drilled in the first quarter to further prove up productivity from this new Montney oil fairway.

One vertical well in the first Triassic oil project was recompleted in the fourth

The company plans to follow up with two horizontal wells in the current quarter. In the second Triassic oil project, Galleon said that after comprehensive geological and geophysical analysis, one vertical well test was planned in the first quarter. At its Kakut Montney project, Galleon said that new production and pressure data has confirmed the existence of two separate Montney pools. The southern pool is primarily natural gas whereas the northern pool has an oil leg.

Recent production from the northern pool has seen a transition toward oil. Galleon has a plan to develop this oil resource during 2011. One well is currently on stream and three other standing wells are scheduled to be tied in and brought on stream late in the first quarter of 2011.

Galleon said it plans to further maximize oil production in 2011 by drilling at least one Montney horizontal well in the oil portion of the pool. Producing predominantly oil from this pool will result in increased cash flow due to high crude oil prices.

The company said its Kakut Doig gassy light oil project in Alberta continues to deliver economic wells. This Doig reservoir is defined by a large number of vertical control points. Galleon said it continues to accumulate data and

“Although it is still early in the development of this oil fairway, the potential of this oil play has been defined as significant.”

— Galleon Energy Inc.

quarter of 2010 with what the company called “encouraging results.” “This recompletion, along with vertical well control and seismic, provides support for an emerging Triassic oil play. This play has considerable aerial extent and thick hydrocarbon charge,” Galleon said.

history within this project, and as such, continues to increase its understanding of the reservoir. “In addition, work is ongoing to determine the appropriate completion and drilling methods, with the goal of optimizing well productivity and cost efficiency,” the company said.

NORTHWESTERN ALBERTA/FOOTHILLS WELL ACTIVITY

JAN/10

JAN/11

WELL LICENCES

251

278

▲

JAN/10

JAN/11

WELLS SPUDDED

357

320

▼

JAN/10

JAN/11

WELLS DRILLED

316

262

▼

Source: Daily Oil Bulletin

OIL & GAS INQUIRER • MARCH 2011

31

Northwestern Alberta/Foothills

Galleon plans to complete a Kakut Doig horizontal well in the first quarter with a cemented liner system using a higher fracture density than previously deployed.

Based on field estimates, Galleon said that fourth quarter 2010 production averaged 13,525 boe per day. For the same period a year prior, the company averaged 14,688 boe per day.

Galleon said production was affected as it experienced delays in obtaining fracture crews and equipment. This resulted in certain newly drilled wells being completed and brought on stream up to

three to four weeks later than initially forecasted. In January 2011, the company entered into a strategic agreement to contract equipment and crews for the majority of its currently planned completion activities through to the end of third quarter 2011.

Currently, the company has three drilling rigs working and plans to drill up to 19 wells in the first quarter. Estimated capital expenditures of approximately $33 million have been allocated to the drilling program for the period. These expenditures are expected to be funded by working capital and cash flow.

During t he t hree mont hs ended Dec. 31, 2010, 14 (12.75 net) wells were drilled and cased for production resulting in five (five net) natural gas and nine (7.75 net) oil wells, for a success rate of 100 per cent.

As previously announced, Galleon will spend $131 million this year with 70 per cent of that directed to oil projects.

The focus of its first quarter 2011 capital program will be on the continued development of its light oil and natural gas projects in the Kakut, Eastern Montney and North Peace River business units.

— DAILY OIL BULLETIN

Deep Basin–developed fracture fluid tank system goes continental Open Range Energy Corp. says Poseidon Concepts (a wholly owned business unit) is deploying its innovative fracturing fluidhandling system in the United States after achieving success among customers in

western Canada. Open Range is a Calgarybased junior producer that has ventured into the service sector.

Poseidon designs, manufactures and operates a patent-pending modular, insulated

tank system that was tested and rolled out

by Open Range personnel at its core Ansell/ Sundance Deep Basin property. The experimental system was deployed on several liquids-rich natural gas wells in early 2010.

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Northwestern Alberta/Foothills

Poseidon Concepts was subsequently formed under the operating direction of Cliff Wiebe, who has been Open Range’s completions superintendent for the past three years. Wiebe has over 25 years of industry experience primarily focused on completion operations and related energy services.

The insulated and modular tank system’s advantages reportedly include greatly increased storage capacity to accommodate larger fracturing operations, improved portability, more efficient fluid-heating process and reduced environmental footprint, all of which deliver cost savings versus the traditional approach of using multiple smaller standing tanks or lined pits.

Poseidon provides systems on a rental basis to oil and natural gas producers across western Canada. The first revenuegenerating job was performed in June and initial rentals focused on Alberta’s Deep Basin. Fabrication of tank systems for western Canadian operations is continuing through an Alberta-based third-party manufacturer and was scaled up in the fourth quarter of last year to meet increasing industry demand.

Late in the fourth quarter of last year, Poseidon expanded into North Dakota as its initial step towards servicing the multiple oil and natural gas basins in the U.S. Open Range commented that growing industry activity in North Dakota made this the logical entry point, gaining exposure to multiple intermediate to senior U.S. producers while remaining in relat ive proximity to its Canadian base.

Fabrication of tank systems for the U.S. operations is now underway using a large third-party manufacturer based in the U.S. The first U.S.-built system was recently field-deployed in North Dakota.

Poseidon’s U.S. operations recently received a one-year minimum commitment for the provision of multiple fluid handling systems to a major American oil and natural gas company operating in North Dakota.

Poseidon’s revenue per job has averaged approximately $86,000 during this period. With demand for fracturing services and related equipment in Canada and the U.S. remaining strong, particularly for unconventional oil and

liquids-rich natural gas reservoirs being developed with horizontal wells and larger fracturing operations, Open Range said it anticipates continued growth of the tank fleet.

Poseidon currently has 45 f luidhandling systems in the field, with appr ox i m ate ly 20 p e r ce nt of t he expanding fleet expected to be servicing U.S. operations by mid-February.

The majority of the f leet is deployed at unconventional oil and liquids-rich natural gas plays. The strong operating environment is driving a high utilization rate and solid operating margins.

For the f irst half of 2011, Open Range forecasts $8.5 million in business unit cash flow from operations and earnings before interest, taxes, depreciation and amortization. Poseidon’s capital expansion requirements are expected to be fully financed using a portion of the business unit’s cash flow from operations, with the balance of the business unit’s cash f low contributing to Open Range’s continuing exploration and development program.

— DAILY OIL BULLETIN

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Oilsands investment could reach $16B in 2011, up by $2.5B from 2010

By Elsie Ross

JAN/10

JAN/11

JAN/10

JAN/11

WELLS SPUDDED

134

209

WELLS DRILLED

131

206

Photo: Joey Podlubny

Developers Group which represents oilsands mine operators. “We’ve had one major announcement and large amounts of projects move through the regulatory process and into construction, particularly in the in situ region.”

In December, Suncor and Total E&P Canada Ltd. signed several agreements to form a strategic oilsands alliance encompassing the Suncor-operated Fort Hills mining project, the Total-operated Joslyn mining project and the Suncoroperated Voyageur upgrader project.

Under t he a l lia nce, t he compa n ies agreed to pool their combined interests in these projects, with the respective operator holding 51 per cent and the other partner 49 per cent.

Suncor suspended Voyageur construction in 2008 as high levels of activity drove up costs in the oilsands while world markets were in turmoil, but work will resume

once the front-end engineering design is updated this year.

The company has an oilsands capital budget of $4.18 billion this year, up from $3.21 billion in 2010, as it also moves forward on the proposed Fort Hills mine, begins front-end work on MacKay River 2 and expands Firebag in situ facilities. The figure includes $250 million as its share of Syncrude operations.

Although Imperial does not release forecast capital spending, in the third quarter of 2010 it reported capital and exploration expenditures of $1.2 billion, directed primarily to Kearl. The company also indicated it planned total capital spending of $3.2 billion last year but expected to exceed that. This year, its share of Syncrude will be $621 million.

At Cold Lake, plant site clearing, grading and road construction was underway in the third quarter in preparation for the Nabiye expansion project, which will add about 30,000 barrels (bbls) a day of production. Amendments to the original scheme recently approved by Alberta’s Energy Resources Conservation Board (ERCB) include a sulphur-recovery plant, cogeneration and a reduction in the number of producing well pads to nine from 22.

Canadian Natural Resources Limited has budgeted up to $2.5 billion in capital spending on oilsands projects this year.

The figure includes $1.35 billion for thermal in situ oilsands projects, including its recently acquired Kirby assets. Another $800 million to $1.2 billion will be spent on the Horizon oilsands mine along with $130 million on tailings management as required by the ERCB. Cenovus Energy Inc. could spend up to $1 billion this year with capital expenditures of $350 million to $400 million each at its Foster Creek and Christina Lake SAGD projects which it shares 50/50 with ConocoPhillips, with whom it also has

Don Thompson, head of the Oil Sands Developers Group, has “no doubt” that 2011 will be a good year.

Oilsands activity appears to be set for a resurgence this year with continued strength in oil prices and a stronger global economy contributing to renewed confidence that could boost capital spending to an estimated $16 billion, up from just under $13.5 billion in 2010.

Suncor Energy Inc. will be one of the most active players as it increases oilsands spending by 30 per cent, while Imperial Oil Limited will continue construction of its Kearl oilsands mining project and begin work on its Cold Lake Nabiye cyclic steam stimulation (CSS) expansion. In addition, Syncrude Canada Ltd. will add two new mining trains, and several new steam assisted gravity drainage (SAGD) projects are expected to break ground.

“I have no doubt it’s going to be a good year for oilsands, subject to crude prices continuing to be supportive,” said Don Thompson, president of the Oil Sands NORTHEASTERN ALBERTA WELL ACTIVITY

JAN/10

JAN/11

WELL LICENCES

107

255

▲

▲

▲

Source: Daily Oil Bulletin

OIL & GAS INQUIRER • MARCH 2011

35

Northeastern Alberta

50 per cent ownership in two U.S. refineries. Cenovus also has allocated up to $200 million for emerging oilsands assets such as Narrows Lake, Grand Rapids and Telephone Lake.

Canadian Oilsands Tr ust, which has the largest interest in Syncrude at 34.6 per cent, will spend $907 million including $176 million on tailings management, up from expected capital spending this year of about $511 million.

Syncrude’s total estimated budget for this year is $2.8 billion.

About $332 million of Canadian Oilsands’ capital budget has been allocated to relocating or replacing four out of Syncrude’s five mining trains to build a stable, more efficient foundation for future bitumen production. Once completed, these mine trains should remain in operation for 10-20 years.

Another $114 million will be spent to complete the Syncrude Emissions Reduction project. Expected to be completed this year at a total cost of $1.6 billion to Syncrude, the project is expected to bring a 60 per cent reduction in sulphur compound emissions from current approved levels once fully operational.

At Christina Lake, MEG Energy Corp. plans to invest about $900 million this year when it starts facilities construction for the second phase of its $1.4 billion SAGD project. The budget includes $80 million to $90 million for core drilling and seismic programs at Christina Lake, Surmont and growth properties on MEG’s 800 square miles of 100 per cent–owned oilsands leases.

Nexen Energy Inc., which has been struggling with production at its Long Lake SAGD project, has budgeted a total of $575 million, of which $425 million has been allocated for in situ projects (mainly Long Lake) and $150 million for its share of Syncrude expenditures. At Long Lake, the focus will be on improving the strength and reliability of plants and infrastructure with two new pads and additional steam generating capacity.

The company plans to be sanction-ready in 2012 on the first of its two 40,000 bbl per day SAGD projects at Kenosis and is moving forward with its non-operated SAGD project at Hangingstone.

BP will spend $416 million this year as its share of the first $2.5 billion of Husky Energy Inc.’s Sunrise oilsands mining project. Husky will spend an 36

MARCH 2011 • OIL & GAS INQUIRER

equal amount on the expansion of BP’s refinery in Toledo, Ohio, to enable it to process crude from Sunrise.

Harvest Operations Corp., owned by Korea National Oil Corporation, has budgeted $240 million for its BlackGold SAGD project for which facility construction and production-well drilling is scheduled to begin this year. About $190 million will be spent on construction and design of the facility while approximately $50 million will be spent on drilling 10 production well pairs and 12 observation wells, as well as other growth capital opportunities.

Total’s share of this year’s expenditures for Fort Hills and Voyageur as

project. It also will invest approximately $22 million in advancing engineering and detailed execution plans for the Kinosis project to the end of March. The OPTI board may consider further 2011 capital spending on Kinosis this year. Apart from its Nexen partnership, OPTI will invest approximately $6 million for development of its Leismer and Cottonwood assets.

With its Algar SAGD project now commercial, Connacher Oil and Gas Limited has reduced spending this year to a total of $72 million, down from $230 million in 2010. This year’s budget consists of $39 million for oilsands operations, $25 million for exploration and $8 million for

OPTI Canada Inc.’s largest expenditure this year will be $122 million as its share of the budgeted costs for Nexen’s Long Lake project. part of its new agreement with Suncor is $314 million. Pending regulator y approval, expected in the first quarter, construction could begin in 2011 on Total’s 100,000 bbl per day North Joslyn mine about 70 kilometres north of Fort McMurray, Alta., in which Suncor will have a 49 per cent interest.

Athabasca Oil Sands Corp., which is part of a joint venture with PetroChina Inter nat iona l Invest ment Compa ny Limited, has a $302-million capital budget for its own as well as its jointventure projects. Spending will include purchasing certain long-lead items for the Hangingstone SAGD project; thermal assisted gravity drainage and SAGD testing of the Dover West carbonates; drilling up to 140 wells; acquiring up to 60 square kilometres of 3-D seismic; and acquiring up to 130 kilometres of 2-D seismic.

Athabasca Oil Sands and Cretaceous Oil Sands Holdings Limited, a wholly owned subsidiary of PetroChina, formed Dover Operating Corp. to develop and manage both the MacKay River and Dover commercial SAGD projects. Athabasca Oil Sands owns 40 per cent and PetroChina 60 per cent of both projects. In late January, Dover submitted an application to the ERCB for the Dover commercial project north of Fort McMurray.

OPTI Canada Inc.’s largest expenditure this year will be $122 million as its share of the budgeted costs for Nexen’s Long Lake

an environmental impact assessment and Algar expansion engineering.

Also contributing to oilsands spending this year will be new in situ projects to be developed by new oilsands operators.

While it waits for regulatory approval for its 11,300 bbl per day SAGD oilsands project at Algar Lake, Grizzly Oil Sands ULC expects to spend between $60 million and $70 million this year on core hole drilling programs at Algar and at its Firebag lease, east of Suncor’s existing Firebag project.

BlackPearl Resources Inc. plans to spend $22 million this year on its Blackrod single well pair SAGD in the Athabasca oilsands at 77-17-W4 where it expects to start steam injection in March.

With the recent regulatory approval for its 12,000 bbl per day project at McKay, Southern Pacific Resource Corp. is now raising the $425 million required to construct the STP-McKay thermal bitumen project. Construction could begin later this year.

Privately held Laricina Energy Ltd., which last year raised $50 million in a private placement to a wholly owned subsidiary of Korea Investment Corporation, recently began injecting steam into the Grosmont carbonate formation at its pilot project at Saleski in northern Alberta. The pilot has an approved capacity of up to 1,800 bbl per day.

Another new player, Osum Oil Sands Corp., expects to receive regulator y

Northeastern Alberta

approval by mid-2011 for its proposed 35,000 bbl per day Taiga SAGD project at Cold Lake. First oil from the project is anticipated in early 2014. Osum raised gross proceeds of approximately $100 million in a private placement subscribed to by a wholly-owned subsidiary of Korea Investment Corporation.

The proceeds from the financing along with Osum’s existing working capital will be invested directly in the company’s in situ projects and general corporate purposes.

Peters & Co. Limited is forecasting total risked oilsands capital expenditures of $180 billion over the next 10 years, peaking at about $22 billion in 2014. That figure is about 20 per cent higher than the last oilsands spending cycle peak during 2007 and 2008 and will be difficult to fully execute, the investment dealer points out in a recent research report.

Additional factors that add some uncertainty to oilsands development include carbon costs and the associated legislation that could eventually unfold,

water usage and the costs associated with other potential environmental impacts such as tailings remediation, according to Peters.

Stabilized oil prices of between US$75 per bbl and $90 per bbl provide for a strong investment opportunity for SAGD operators, says Peters. It estimates that for most producers a long-term oil price of approximately $50 per bbl is required for a new SAGD project to be economic, a calculated break-even price at a 10 per cent after-tax discount rate.

The required price rises to approximately $60 per bbl for a mining (no upgrading) project and to more than $100 per bbl for an integrated mining project, due mainly to the high costs associated with the upgrader and the minimal economic lift based on the current narrow light-heavy differentials, says Peters. These required break-even prices are highly sensitive to the different input variables, most importantly the quality of the resource.

— DAILY OIL BULLETIN

Total’s Joslyn Mine conditionally approved by federal-provincial panel A joint review panel has granted conditional approval to Total E&P Joslyn Ltd.’s proposed 100,000 barrel (bbl) per day Joslyn North oilsands mining project in northeastern Alberta, finding that it is in the public interest.

In a 138-page decision released on Jan. 27 following a public hearing last year, the joint panel concluded that in meeting the conditions and recommendations imposed the project would have “no significant adverse effect” on species at risk and valued wildlife species nor a significant adverse environmental effect on water quality. The joint panel also found the mine project would meet the Energ y and Resources Conser vation Board’s (ERCB) more stringent new requirements for tailings management.

The joint ERCB-Canadian Environmental Assessment Agency panel imposed 20 conditions related to environmental and technical aspects of the project, including tailings and reclamation management. In addition, the panel made a

total of 17 recommendations to the governments of Alberta and Canada and to the ERCB. “This recommendation by the Joint Review Panel is a ver y positive first step for Total in receiving our permit to develop the Joslyn North Mine Project,” Jean-Michel Gires, president and chief executive officer of Total E&P Canada Ltd., said in a news release. “ T his affirms our commitment to developing a responsible project and improving environmental and social performance of Canada’s oilsands. We are pleased that the panel finds this project to be in the public interest.”

Total obtained the withdrawal of objections concerning the project from the Fort McKay, Athabasca Chipewyan and Mikisew Cree First Nations and the Regional Municipality of Wood Buffalo, entering into agreements with them.

The Joslyn North mine would be built in two phases, each 50,000 bbls per day, at an estimated cost of between $7 billion OIL & GAS INQUIRER • MARCH 2011

37

Northeastern Alberta

and $9 billion. Total’s Joslyn lease about 70 kilometres north of Fort McMurray will support mining activities for 20 years (2017-2037).

T he de ve lopme nt , we st of t he Athabasca River and directly south of Canadian Natural Resources Limited’s Horizon mine, would increase Alberta’s approved minable project area by about seven per cent.

Total’s plans call for final regulatory approvals in the fourth quarter of this year. Detailed engineering, procurement and construction would take place between the third quarter of 2011 and the third quarter of 2016. Commissioning and start-up would occur in the fourth quarter of 2016 with initial operation and ramp up in 2017.

The project includes the design, construction and operation of a truck and shovel mining technology for the development of one mine pit to support a production rate of about 100,000 bbls per day of partially deasphalted bitumen.

There also will be on-site energy generation infrastructure to generate electricity and steam.

Total also has ERCB approval for an upgrader near Fort Saskatchewan but will not be proceeding with it. Instead, the bitumen will be upgraded at the $11.6-billion Voyageur upgrader near Fort McMurray in a joint venture with Suncor Energ y Inc., which is acquiring 36.75 per cent of Total’s interest in

that it would not be in the public interest and would cause significant adverse effects. The group cited concerns about the adequacy of Total’s environmental assessment and questioned the adequacy and costs of reclamation and the methodologies used to determine the project’s effects on water quality.

The development, west of the Athabasca River and directly south of Canadian Natural Resources Limited’s Horizon mine, would increase Alberta’s approved minable project area by about seven per cent.

Joslyn. Total, as operator, will retain a 38.25 per cent interest in Joslyn North, with Occidental Petroleum Corporation (15 per cent) and Inpex Corporation (10 per cent) holding the remaining 25 per cent.

At t he hearing, t he Oilsands Environmental Coalition comprised of the Pembina Institute, the Fort McMurray Env ironmental A ssociation and the Toxics Watch Society of Alberta, urged that the project be denied on the grounds

To meet the requirements of the ERCB’s tailings Directive 74, Total plans to apply technologies such as thickened tailings, centrifuged tailings and sand spiking (adding fluid fine tailings to the coarse sand tailings stream to increase fines capture in the sand beach areas).

The thickened tailings would be deposited in two dedicated disposal areas at annual deposition rates of four to six metres in one area and six to eight metres in a second area.

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Northeastern Alberta

The company said that its thickened tailings technology would meet 55 per cent of the total mass of fines in the oilsands feed (compared to the required 50 per cent) and would meet the fivekilopascal strength requirement one year after deposition.

The panel found that the proposed tailings plan is reasonable based on currently available technology and that it can manage any unforeseen shortfalls because it uses a suite of technologies and it exceeds the directive requirements.

However, the panel said it was concerned that industry has not commercially demonstrated that thickened tailings with an annual deposition of six to eight metres can meet the strength requirement.

As a condition of approval for the project, Total will be required to provide Alberta Environment with a wildlife mitigation plan for approval prior to clearing any vegetation. “The plan must achieve no net significant adverse effect on species at risk and deal with mitigating impacts not only to species at risk but also valued wildlife,” said the panel.

SAGD output continues to climb despite challenges

Thermal bitumen production in Alberta climbed to 549,024 barrels (bbls) a day in October, up from 434,096 bbls a day in October 2009 and 407,558 bbls a day in October 2008. The October 2010 numbers, based on Alberta Energy Resources Conservation Board (ERCB) data and published on the Oilsands Review website, are the most recent available.

New and expanded steam assisted g r av it y d r a i nage (SAGD) projec t s accounted for most of the increase.

Alberta SAGD output in October averaged 316,508 bbls of bitumen a day, up from 255,409 bbls a day in October 2009 and 202,692 bbls a day in October 2008.

In its recently released in situ oilsands overview, Peters & Co. Limited said SAGD production has the potential to rise to nearly two million bbls a day by 2020, based on planned projects.

However, Peters added this caveat: “While such an increase would obviously — DAILY BULLETIN result in many different beneficiaries, it Canadian Products Ad OIL 2/3/11 9:02 AM Page 1

is important to recognize that, based on the number and scale of planned projects, there will most likely be timing delays and bottlenecks in the proposed development.”

The two million bbls a day total for SAGD output in 2020 is modest compared to the sum of what project proponents were proposing a few years ago. For example, a 2007 tally of planned SAGD projects found SAGD production would reach a peak of 4.32 million bbls a day by 2020 if everything proceeded.

In its in situ overview, Peters summarized key features of SAGD projects that are notable (both for positive and negative reasons): • C enovus Energy Inc.’s Christina Lake and Foster Creek are among the most energy efficient projects with cumulative steam to oil ratios (SORs) of 2.3 and 2.5, respectively.

• Connacher Oil and Gas Limited’s Pod One production has averaged 6,600 bbls a day,

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Northeastern Alberta

which represents a reliability factor of less than 70 per cent. Peters noted output rose recently, but believes production will remained constrained by steamgenerating capacity.

• Devon Canada Corporation ramped up production at its Jackfish 1 project to 90 per cent of its 35,000 bbl a day capacity in 2010 while maintaining well-pair productivity of about 1,100 barrels a day and an SOR of 2.4—both ahead of industry averages.

• M EG Energy Corp. is in the enviable position of having exceeded the target design capacity of 25,000 bbls a day at its Christina Lake project in recent months.

The design was based on an SOR of 2.8, but the star project has actually operated at a lower SOR—which allowed volumes to exceed expected capacity.

Average well pair output recently topped 800 bbls a day.

• M inimal progress has been made to increase production at Husky Energy Inc.’s troubled Tucker project. The company hopes to increase output to 10,000 barrels a day by mid-2011 from about 4,000 barrels a day now. The cumulative SOR is 10 and

• • • • • • • • • • •

the instantaneous SOR is above six. Design capacity was about 30,000 barrels a day.

• O utput at the troubled Nexen Inc.– operated Long Lake project reached about 29,000 bbls a day last year but remains far below its design rate of 72,000 bbls of bitumen a day. Steam injection rates continue to be much

a day) thanks to higher operating pressures. However, Firebag’s cumulative SOR of 3.2 is above the 2.7 SOR design capacity. “And without an improvement in the SOR, additional steam generation will be required before the project can ramp up to full-scale production,” Peters said.

In an in situ project performance update last October, Peters listed Suncor’s Firebag utilization rate at only 63 per cent, based on August 2010 production of 56,300 bbls a day. lower than planned. Peters noted production from a new pad in the northwestern corner of the project began in May “with minimal production contribution thus far.” Peters estimates an additional $600 million will have to be spent to get the project operating near its design rate.

• Suncor Energy Inc.’s Firebag project has consistently had the highest well pair productivity (recently about 1,400 bbls

In an in situ project performance update last October, Peters listed Suncor’s Firebag utilization rate at only 63 per cent, based on August 2010 production of 56,300 bbls a day.

According the ERCB data on the Oilsands Review website, Firebag’s output in October—the most recent month available—averaged 49,532 bbls a day.

—DAILY OIL BULLETIN

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Central Alberta

The liquids-rich Hoadley Glauconite play is generating good returns

Photo: ©istockphoto.com/photofellow

By Paul Wells

The Glauconite formation has recently yielded 65 barrels of liquids per million cubic feet of gas.

With its high liquids content, strong economics and proximity to infrastructure including a deep cut gas plant at Rimby, the Hoadley Glauconite play is proving to be an attractive target. Haywood Securities Inc. analyst Geoff Ready says participants include Bonavista Energy Corporation, Yangarra Resources Ltd. and Waldron Energy Corp.

“Like most other plays in west-central Alberta, the Glauconite is being exploited using horizontal multistage fracturing technology. Driving the strong economics is the fact the gas is extremely liquidsrich with yields exceeding 65 barrels [bbls] per mmcf [million cubic feet],” Ready said, noting that Bonavista is the most active operator in the play “achieving first month average rates of 460 boe [barrels of oil equivalent] per day at a total half-cycle capital cost of $2.5 million per well.”

“The play is in an established area with lots of infrastructure and lots of running room. And it’s just a thick, continuous trend so it’s got a lot of legs,” Ready added. “Bonavista is a well-respected company with a great history and this is their flagship play. They talk about it but until

company has drilled more than 50 wells into the trend since initiating its program in 2008 and plans to spend between $75 million and $80 million to drill 40-45 wells there in 2011. With greater than five years of drilling inventory in the play, Bonavista expects to spend $800 million over the life of the program.

“We’re not the discoverer of this play in any sense of the word, but rather we’re leading the charge on redeveloping it, if you will,” said Cam Deller, Bonavista’s manager of investor relations. “It’s not unlike the Pembina Cardium that’s now being developed in the areas where it doesn’t have the good quality rocks to develop it vertically.”

In the third quarter of 2010, Bonavista drilled seven horizontal wells and participated in four non-operated horizontal wells on the Hoadley Glauconite trend in its western core region. Deller said the liquids-rich natural gas development program continues to impress with its “consistency and ability to deliver meaningful economics even in today’s low natural gas price environment.”

Bonavista has now drilled 55 horizontal Glauconite wells successfully testing the resource across 60 miles of the Hoadley trend. “The production profile of the

“The play is in an established area with lots of infrastructure and lots of running room. And it’s just a thick, continuous trend so it’s got a lot of legs.”

— Geoff Ready, Analyst, Haywood Securities Inc.

recently, nobody else seems to. Yangarra’s talking about it now and it’s starting to get a little more exposure but it’s kind of flown under the radar.”

Bonav ista calls the Hoadley Glauconite “one of the cornerstones of growth” for the company. To date, the

producing wells to date continues to meet or exceed our expectations with initial onemonth production rates of 500-600 boe per day, which includes a highly valuable liquids stream of 150-180 barrels per day of natural gas liquids,” the company said in its third-quarter press release.

JAN/10

JAN/11

JAN/10

JAN/11

WELLS SPUDDED

271

237

WELLS DRILLED

255

229

CENTRAL ALBERTA WELL ACTIVITY

JAN/10

JAN/11

WELL LICENCES

214

288

▲

▼

▼

Source: Daily Oil Bulletin

OIL & GAS INQUIRER • MARCH 2011

43

Central Alberta

Since closing a strategic Hoadley acquisition in August 2009, Bonavista has increased its exposure to the play by approximately 50 per cent through successful step out development and land consolidation activities. Deller said the company’s remaining inventory of 275 horizontal drilling prospects on the Hoadley trend will result in an attractive multi-year development program with on-stream capital efficiencies of approximately $6,000 per boe per day.

“Bonavista believes that our Glauconite horizontal development program is one of the most profitable liquids-rich natural gas resource developments in North America with economics that outperform many oil projects being developed today,” he said.

“Single well economics are exceptionally attractive and provide abundant capital spending flexibility with half-cycle breakeven economics of approximately $2 per mcf [thousand cubic feet].”

According to an Alberta Association of Petroleum Geologist (AAPG) report issued in 1984, the Hoadley trend is a giant gas condensate accumulation discovered in November 1977 by Sundance Oil Company. The field covers approximately 3,900 square kilometres in south-central Alberta. The producing zone in the Lower Cretaceous Glauconitic formation comprises 7.6-24.4 metres of sandstone pay.

The sand was deposited as an extensive marine barrier bar complex with an approximate width of 24 kilometres and length of more than 200 kilometres, trending southwest-northeast. The middle and southwestern portion of the barrier bar, which is approximately 160 kilometres long, is entirely saturated with gas and natural gas liquids, trapped laterally by impermeable shale and updip by shalefilled tidal channels.

T he A A PG repor t said t he f ield is estimated to contain an ultimate potential recoverable reserve of six to seven trillion cubic feet (tcf) of gas and 350 million to 400 million bbls of associated natural gas liquids.

Dave Russum, a petroleum geologist who is vice-president of geoscience for AJM Petroleum Consultants, says it’s likely those numbers could go higher once the impact of new technology and its ability to exploit targets that were previously considered uneconomic are factored in.

“I would think they would increase. It was a pretty big number at that time, but 44

MARCH 2011 • OIL & GAS INQUIRER

I would think it’s highly likely that when those numbers were done the focus was on the higher quality rock that could be drilled vertically. Just like in the Cardium and other plays, the lesser quality rock was likely largely ignored for the calculations of gas in place,” Russum said.

While he agrees that plays like the Hoadley Glauconite have great potential, Russum was quick to caution that estimated ultimate recovery volumes should not be overestimated by industry players. “Even with the best technology, we shouldn’t assume that we’re going

Hoadley Glauconite trend in the fall of 2008, well costs were about $3.6 million all-in. But as the company gained expertise in the play, those costs have come down substantially. “We’re doing that now for about $2.5 million. That’s just a function of it being a repeatable program— we’re drilling off pads, that sort of stuff.

We’re drilling two, sometimes three wells off a pad,” he said.

Jim Evaskev ich, Yangarra’s president and chief executive officer, counts the Hoadley Glauconite as one of his company’s pillars for growth, especially

“Bonavista believes that our Glauconite horizontal development program is one of the most profitable liquids-rich natural gas resource developments in North America .”

— Cam Deller, Manager of Investor Relations, Bonavista Energy Corporation

to get out 50 per cent or 80 per cent of the product from those kinds of rocks,” he said. “It doesn’t seem realistic to me, anyway.”

According to Deller, it’s not just the fact that the play is liquids-rich that caught the company’s attention—it’s the quality of the liquids themselves that sets the Hoadley Glauconite apart from many other liquid-rich plays.

“About 30 per cent of the reserves are liquids, so that’s about 60 barrels per mmcf. Then it’s about one-third, onethird, one-third of condensate, propane and butane. Obviously, propane and butane have had their ups and downs over the last couple of years but condensate has had a nice run. Actually, it’s essentially getting equivalent to West Texas Intermediate prices.”

So, if Bonavista brings a well on at 550 bbls of oil equivalent per day and 30 per cent of that is liquids, that equates to about “165 barrels of oil per well per day essentially,” on top of the natural gas production. “That’s the real driver of the economics. That and the cost reductions that we’re achieving,” Deller said.

Deller said that when Bonavista initiated its three-well pilot program in the

in the current low natural gas price environment. “This is going to be a hot, hot play. The rate of return on the Glauc is just amazing,” he said. “Now, all the Hoadley blocks are not created equal.

One of the things that people need to recognize is there is a lot of really good locations but there are also a lot of locations that are not going to cut it. The bulk of the action will be in the defined Hoadley trend.”

The company drilled two wells into the formation in 2010 and Evaskevich said the results were encouraging—the first well had initial production (IP) over the first 30 days of 602 boe per day while the second well’s IP-30 was 761 boe per day.

“We’re into a bit of an oilier leg, so we’re actually running about 125 barrels per mmcf of liquids,” he said. “So it’s huge liquids. Now we don’t expect all of our Glauc wells to be that way, quite frankly. But what I think is key about the Glauc is the big liquids. I think Bonavista is advertising something in the order of 60 barrels [per mmcf]. There’s going to be places where it’s oilier, like some of our land.”

Evaskevich said Yangarra started its 2011 drilling program during the

Central Alberta

first week of January and will run one rig which will drill both Glauconite and Cardium wells.

“Because the area is so active geologically, we’re doing a bunch of Cardium wells as well. While we really like the Glauc, we’ve had some great success with our Cardium wells,” he said. “We’re only running one rig so we’re more or less alternating back and forth between Cardiums and Glaucs. Our current [2011] budget indicates 17 gross wells for 2011, split up between the two plays.”

Ernie Sapieha, president and chief executive officer of Waldron Energy Corp. declined to comment on the company’s activities, citing “competitive reasons.”

However, in a recent report on Waldron, Ready and Haywood Securities said the company is pursuing the Glauconite play at Ferrybank (near Red Deer) and “has identified 10 locations over six sections of land [87 per cent working interest].”

“In Fer r yba n k , c ur rent production is approximately 800 boe per day with resource plays to be developed in Glauconite liquids-rich natural gas and Belly River oil,” Ready said in a Jan. 4 note. “The near-term focus is on drilling Glauconite horizontal wells and vertical and horizontal Belly River oil wells.”

The mid-stream sector is also acknowledging the growing activity in the Hoadley Glauconite and its long-term viability. In mid-December, Keyera Facilities Income Fund announced it will build the Carlos pipeline south west from the Keyera Rimbey gas plant into the Hoadley region of central Alberta.

The pipeline will allow producers in the area to deliver liquids-rich gas to the Rimbey natural gas plant. The initiative w ill be a boon to producers active in the Hoadley trend as the Rimbey plant is able to extract a “deep cut” of natural gas liquids (NGLs), fractionate them into specification ethane, propane, butane and condensate, and deliver these products directly into the Edmonton / For t Sask atc hewa n NGL energy hub.

T he $30 -m i l l ion, 45 -k i lomet re, 12-inch raw gas-gathering pipeline is expected to be in service in the second quarter of 2011. To support this project, Keyera has secured a long-term, fee-forservice transportation and processing agreement with Bonavista.

1-888-227-4923 Phone: (403) 227-7799 Fax: (403) 227-7796 E-Mail: sales@bilton.ca Website: www.bilton.ca

— DAILY OIL BULLETIN OIL & GAS INQUIRER • MARCH 2011

45

Central Alberta

Large Cardium players will have a busy year in the field This year should be a busy drilling year for the Cardium formation in Alberta. Two of the largest players in the legacy field, Penn West Exploration and PetroBakken Energy Ltd., are each planning to spend over $300 million in the region during 2011.

The field, reinvigorated by strong oil prices and new technology, was the source of strong land sale interest over the past year. Penn West, fresh off its conversion from a trust, is already at an advantageous position corporately because it has plenty of lands which are oil-prone, noted Murray Nunns, pres­ ident and chief operating officer, who presented at the BMO Capital Markets unconventional resource conference in New York on Jan. 11.

The company continues to focus its capital investments on resource plays in the Cardium trend in Alberta, the Viking trend in Alberta and Saskatchewan, the Amaranth in Manitoba and the carbonates in northern Alberta. Its 2011 forecast expenditure budget is between $1 billion to $1.2 billion with estimated production

of 172,000-177,000 barrels of oil equivalent per day, 65 per cent of that oil. In 2010 the company spent around $900 million to $1 billion and averaged 164,000-172,000 boe per day.

“We are the single largest land holder in the Cardium asset base by a good margin,” Nunns said. “It is one of the

“It is one of the single largest oilfields in North America. It also has one of the lowest recovery rates for any field this large and that’s critical to the go-forward.”

— Murray Nunns, President and Chief Operating Officer, Penn West Exploration

single largest oilfields in North America. It also has one of the lowest recovery rates for any field this large and that’s critical to the go-forward.”

A 2010 operational update in the presentation noted that in the Willesden Green area, the company ’s first five wells were producing 280 boe per day

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MARCH 2011 • OIL & GAS INQUIRER

per well after three months. In the West Pembina drilling area, the first four wells average 125 boe per day per well after three months.

In the Cardium this year, Penn West has capital spending plans of between $300 million and $325 million with a total of 100-110 wells and it has seven

rigs currently operating. “Completions [are] ongoing as well on last year’s wells,” Nunns said. “[Willesden Green] and West Pembina will be the guts of it. We’re also opening up into the Buck Lake and East Pembina areas.”

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Central Alberta

capital projects this year. “Our growth profile will, again, be in light oil as we continue to develop in the Bakken and the Cardium,” Gregg Smith, president and chief operating officer, told the conference.

The company plans to drill 95 net wells in the Cardium this year with capital spending of $345 million. Its position now includes over 320 (240 net) sections

of land in the Cardium trend with over 650 net locations. “It was a natural for us to move into and piggyback off our experience with the Bakken,” Smith said.

Experimentation has led the company to use monobore drilling (a single lateral well) and slick water frac completions in the Cardium.

“In the Cardium, it’s been a little tighter for frac crews, so we’ve done a

two-year deal to ensure service with one frac crew from [Calfrac Well Services Ltd.] and we’ve negotiated windows with other companies to fill in that service,” Smith noted. “One frac crew can keep up with seven, maybe eight, drill crews so that one frac crew can probably provide most of what we need in the Cardium with just the odd window from other players.”

— DAILY OIL BULLETIN

Sure drills Redwater Viking horizontals Sure Energy Inc. has reported production test results of its 11-2 Redwater North horizontal well. The Viking formation was tested for 50 hours and flowed a total of 569 barrels (bbls) of clean light oil and 442 thousand cubic feet of solution gas. Rates were restricted through a 3/8-inch choke with drawdown estimated at 50 per cent.

Sure said it expects the well to produce in excess of 200 bbls of oil per day initially while flowing and to stabilize at 120-150 bbls of oil per day when placed

on pump. The company’s two offsetting producers f lowed for approximately a month. The well is 100 per cent owned by the company and will qualify for the Alberta government’s Horizontal Oil New Well Royalty Rate of five per cent for 18 months, to a maximum of 50,000 bbls.

The well will be placed on production following the drilling and completion of a follow-up well at 12-2, which will be drilled from the same surface lease. This well will be the seventh and last well planned for

North Redwater in the current program.

Including the 11-2 well, Sure Energy said it has experienced a 100 per cent success rate with its North Redwater horizontal drilling program to date. The company owns 7.75 sections of 100 per cent working interest lands in the Redwater North Viking play.

These lands have regulatory approved holdings allowing up to four wells per quarter section. In total, Sure Energy has 7,495 acres of net undeveloped land on the Redwater Viking oil trend.

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Southern Alberta

Peters boosts drill, case and complete forecast to $21.9B for 2011

Photo: Aaron Parker

By Pat Roche

Well type, not just a simple well count, has become essential for measuring oilfield activity.

Drill, case and complete spending in the Western Canada Sedimentary Basin (WCSB) this year will total about $21.9 billion, predicts Peters & Co. Limited.

That’s up significantly from Peters’ forecast in its Fall 2010 North American Energy Overview which projected 2011 spending of about $17.2 billion in the WCSB for drill, case and complete.

At the time, Peters was forecasting 10,500 wells would be drilled in the basin in 2011.

Peters now forecasts about 11,500 wells will be drilled in the WCSB this year, about 70 per cent targeting oil (including bitumen). It expects the average well cost will be about $1.9 million.

The investment firm also released its 2012 forecast for drill, case and complete expenditures. It expects the figure will total $23.2 billion as 12,000 wells are drilled next year.

“We continue to forecast an increase in horizontal multi-frac wells, thereby benefiting those service companies with equipment leveraged towards these types of wells,” Peters said in the oilfield services chapter of its Winter 2011 North American Energy Overview.

T he repor t emphasizes t he wel l count is less important than the type of wells drilled.

For example, about 18,500 wells drilled in 2007 required a total of about 123,600 drilling days. In contrast, only about 12,200 wells drilled last year resulted in 124,800 drilling days, Peters says.

“Additionally, operators continue to drill wells deeper, which will result in an increase in drilling days, thereby resulting in improving equipment utilization levels for deep drilling contractors and directional drilling providers,” the report notes.

“Also, given the increasing well depth,

the number of fracturing stages per well will rise, thereby resulting in continuing strong demand for fracturing equipment.”

Peters says pressure pumping companies recently signed fracturing equipment to take-or-pay contracts.

The investment firm’s 2011 and 2012 forecasts include about 975 and 1,000 horizontal gas wells, respectively—or about 30 per cent of its total 2011 and 2012 gas well forecasts, up from only about seven per cent in 2009.

The evolving WCSB well profile continues to benefit directional drillers, pressure pumpers and drilling rig contractors with deep rig fleets—particularly those with expertise in northeastern British Columbia, west-central Alberta and southeastern Saskatchewan, the report says.

“Our 2011 forecast includes 11.1 drilling days per well, as well as a 44 per cent WCSB drilling rig utilization level, while our 2012 forecast calls for 11.2 drilling days per well and a 46 per cent drilling rig utilization level,” Peters says.

Due to the expected oilsands spending boom, Peters foresees significant increases in demand for coring, infrastructure construction, remote accommodations, tailings pond reclamation and maintenance services. Peters points out most new sizable oilsands projects are controlled by majors with less financing risk and lower cost of capital than juniors.

The investment firm expects that

by March 31, outstanding tenders for ConocoPhillips Company’s Surmont, MEG Energy Corp.’s Christina Lake and Suncor Energy Inc.’s Firebag 3 and 4 projects will be awarded—resulting in an estimated $850 million in 2011 construction revenues.

That includes about $250 million for Surmont, $100 million for Firebag 3, $250 million for Firebag 4 and $250 million for MEG’s Christina Lake.

— DAILY OIL BULLETIN

SOUTHERN ALBERTA WELL ACTIVITY

JAN/10

JAN/11

WELL LICENCES

242

203

▼

JAN/10

JAN/11

WELLS SPUDDED

287

264

▼

JAN/10

JAN/11

WELLS DRILLED

283

254

▼

Source: Daily Oil Bulletin

OIL & GAS INQUIRER • MARCH 2011

49

Southern Alberta

Pipeline construction outlook improves but not for big-inch projects W hile the outlook for new pipeline construction in western Canada has improved, contractors say a revival in mainline construction might not occur until 2012 or beyond as some major projects get approved.

The Daily Oil Bulletin spoke to several firms, from mainline contractors to smaller contractors that build shorter pipelines and gathering systems, as well as engineering, procurement and construction (EPC) firms.

Techint E&C Inc., an EPC firm, said small-inch projects—many tied to local capital expansions or debottlenecking projects—have shown the highest increase in activity this year. Techint added that mainline bid activity has not returned to pre-recession levels and will not likely do so for a few years, at least not until the next major projects, including some in the regulatory or planning stage, are put out for tender.

An executive at Parkland Pipeline Contractors Ltd., a contractor that builds pipelines in two- to 24-inch diameters, also sensed a positive change in the market. “Compared to 2010, activity levels should be a little bit better [this year] than they were,” said Mark Breakell, Parkland’s vice-president of marketing. “It’s still pretty early to tell, and [companies] are hanging on to their wallets pretty tightly, but if you look at $90 oil, we’re oilsands specialty guys, and we’ve got work to go to in the oilsands.”

Indeed, most of Parkland’s work this year is oilsands-related, a trend other contractors confirmed. Wes Waschuk, president of Red Deer–based Waschuk Pipe Line Construction Ltd., estimated 85 per cent of his firm’s market is oilsandsdriven. “Right now, the [work] is from Fort McMurray, trying to get [product] down to the Edmonton area,” he said. “In the last few years, they’ve been taking more [product] down from Edmonton to the U.S. market.”

Within A lberta, Park land is currently building a 24-inch pipeline, several shorter lines and a 50-kilometre pipeline that connects oilsands facilities for Suncor Energy Inc. Roughly 75 per cent of Parkland’s current pipeline work serves steam assisted gravity drainage 50

MARCH 2011 • OIL & GAS INQUIRER

(SAGD) projects. Last year, Parkland built nearly 450 kilometres of pipe, Breakell said.

At Flint Energy Ser vices Ltd., bid activity is up five per cent over last year on construction of smaller-gauge pipeline (up to 24 inches). In another Flint division that builds tie-ins, gathering lines and laterals, activity is expected to be flat this year with 2010, which was up from 2009 levels, according to Guy Cocquy t, investor relations director.

Pipeline and facilities construction make up 25-30 per cent of Flint’s production services revenue.

A focus on oilsands was evident in the new budget of pipeline carrier Inter Pipeline Fund, which plans to invest $223 million this year, two-thirds of it in its oilsands transportation unit. In all, about

“There’s really not much out there on the market at the present,” said Rod Ruston, president and chief executive officer of North American Construction Group, a mainline contractor with construction divisions in other sectors, but he does see improvement coming.

After a “very significant ” drop in demand for mainline construction in Canada last year, the market is on the point of turning, he said. “We’re just seeing the turn now. You probably won’t see too much in 2011, but I think in 2012, there will be a lot of pipeline construction activity.”

Among mainline contractors, some have noticed a narrowing of the field as competitors have dropped out of the business. “We’re in the very early stages where we’re seeing the number of bidders

“In 2009-10, [clients] just said, ‘build our pipe.’ But public and government pressure on being safer, executing better and being environmentally sensitive has resulted in probably a few of the smaller [contractors] getting out of the business.”

— Rod Ruston, President and Chief Executive Officer, North American Construction Group

$143 million will be spent on the Corridor, Cold Lake and Polaris pipeline systems.

Most of the capital is allocated to building the Polaris pipeline, which will move diluent to the Kearl and later the Sunrise oilsands projects.

Included in the $143 million is about $25 million that Inter Pipeline will spend on the Cold Lake pipeline system, while the company will invest just $5 million on conventional pipeline work this year.

According to Techint, ongoing oilsands development is the main driver for many of western Canada’s pipelines, whether taking product out of the Fort McMurray area or bringing natural gas to its plants and upgraders. Exceptions to the rule include the proposed CO 2 trunk line and others designed to move Canada’s natural gas to Asian markets, the firm said.

Waschuk estimated mainline bid activity this year is up 25 per cent from last year. “In our market, things are definitely starting to pick up,” said Waschuk.

is fewer,” said North American’s Ruston.

“The demand for better process and safety in operations has grown. In 2009-10, [clients] just said, ‘build our pipe.’ But public and government pressure on being safer, executing better and being environmentally sensitive has resulted in probably a few of the smaller [contractors] getting out of the business.”

Other executives agreed the number of contractors has narrowed, but differed over the reasons why. “Some [contractors] did not survive lean times in the early 2000s,” said Waschuk. “They maybe weren’t efficient and a few big players were knocked out. In the 1990s, it was the same thing.”

He underscored the stiff barriers to entry in mainline construction, noting the heavy capital investment required of anyone building national oil and gas pipelines. Others said Canada’s stiffer environmental and regulatory requirements are here to stay, and the current rules affecting mainline construction will only grow, not diminish, over time.

Southern Alberta

D e spite t he st r ong out lo ok for oilsands-driven pipelines, not ever y contractor is relying on bitumen and synthetic crude. Ruston, for one, acknowledged that the lion’s share of current Canadian pipeline work is oil-focused, but b e l ie ve s n at u r a l g a s pip e l i ne de­velopment will eventually resurface.

“Gas will still be a player,” Ruston said.

“Even though [it’s] down on its bum, ultimately, the Horn River Basin will be built, and gas will be extracted from it,” he said.

“It’s started now and will build up over time. There are multiple players and contracts up there, and there will [also] be multiple pipelines,” he said.

While mainline projects have seen a narrowing of the field of bidders, the same is not true on smaller pipelines and gathering systems. “There are bigger barriers to entry in big-inch pipelines and almost zero in small-inch pipe,” said Ruston. “It’s dead easy for a [big pipe contractor]...to bid on gathering systems, [but] almost impossible for a mom-and-pop [contractor] to bid on 30-40 inch pipeline.”

— DAILY OIL BULLETIN

Oilpatch asset transaction activity jumped during 2010 Oil and gas deals in the exploration and production sector reached US$73 billion in the fourth quarter of 2010 with deals for the year totalling $238 billion, up from $151 billion in 2009, according to Evaluate Energy’s database of transactions. The total deal value in the third and fourth quarters of 2010 even outscored the fourth quarter of 2009—a three-month period that included ExxonMobil Corporation’s $41-billion acquisition of XTO Energy Inc. At least four key trends emerge from the pattern of oil and gas deals in 2010, according to Evaluate Energy: • A marked shift in Chinese activity away from Africa towards the Americas.

• A growing interest in shale plays containing liquids and some interesting new innovative approaches to monetizing shale resources, prompted by the widening gap between gas and oil prices.

• A trend towards taking companies private.

• T he nearing completion of a dramatic series of divestitures by BP.

Following a quarter of inactivity in the third quarter, Chinese state companies satisfied their appetite for foreign assets with a flurry of deals in the fourth quarter of 2010, ending the year with a total of $31 billion in exploration and production (E&P) acquisitions. This compares with a total of $19 billion spent by Chinese companies on E&P assets in 2009.

In this time, the Chinese government has been broad-based towards the location of their acquisitions, with major deals being conducted across 14 different countries, Evaluate Energy said. While Africa was the main focus of acquisitions in 2009, Canada and South America dominated China’s deals in 2010, accounting for eight of the top 10 deals by Chinese companies during the year.

Among the key drivers of deal value during the fourth quarter was the spending

by Chinese companies in Latin America.

The largest deal of the quarter came from Sinopec acquiring a 40 per cent

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51

Southern Alberta

stake in Repsol Brasil for $7.1 billion and gaining a foothold in the increasingly popular Brazilian offshore pre-salt reserves. This sector is about to undergo major development with the massive $43-billion deal by Petrobras and consequent financing paving the way for a development charge.

The second largest deal of the quarter came from the acquisition by Bridas Corp.

(50 per cent owned by the China National Offshore Oil Corp., or CNOOC) of BP’s 60 per cent stake in Pan American Energy, the second largest oil and gas producer in Argentina for $7 billion. Sinopec added further to China’s Argentinean assets by acquiring Occidental Corp.’s Argentinean E&P portfolio for $2.5 billion.

The final major deal by a Chinese company came from CNOOC farming into a 33 per cent stake in Chesapeake Energy Corp.’s liquids rich Eagle Ford shale assets. The deal marks the first major Chinese acquisition in the U.S. since CNOOC’s failed attempt to acquire Unocal Corporation in 2005.

In an effort to secure energy supplies to China’s booming economy, the government has also entered into various

loans for oil agreements. This strategy capitalized on the disparity of economic performance between China and the majority of the rest of the world, without the risk of potential hostility from another

shale is due to the large difference in realizations from oil and gas in the United States.

Talisman Energ y Inc. has taken another route to attracting increased

While shale gas emerged as a key driver of U.S. mergers and acquisitions in early 2010, shale oil has now started to take a more prominent position among the shale-focused deals.

Chinese asset grab. Agreements are now in place with Brazil, Russia, Kazakhstan, Ecuador and Venezuela, with the latter receiving a loan of $20 billion.

While shale gas emerged as a key driver of U.S. mergers and acquisitions in early 2010, shale oil has now started to ta ke a more prom i nent posit ion among the shale-focused deals, with the Eagle Ford shale play in particular attracting a lot of interest during the quarter. There were 10 deals during the quarter involving the liquids-rich portion of the Eagle Ford shale play, with a total value of $4.5 billion. The switch from gas-bearing shale to liquids-rich

realizations from one of its shale properties. Talisman accepted a $1-billion farmin from the South African integrated company Sasol Ltd. in its Montney shale play in Canada. The key reason Sasol was taken on as a partner is due to the company being among the global leaders in gas-to-liquids technology. The companies will be conducting a feasibility study for the construction of a gas-to-liquids plant and the case for the construction will gain strength should the gas prices remain low relative to liquids realizations.

Shale gas deals still took the majority of the value amongst shale deals in the fourth quarter however with $7.4 billion

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MARCH 2011 • OIL & GAS INQUIRER

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Southern Alberta

worth of deals. The value was considerably boosted by the $4.3 billion acquisition by Chevron Corporation of Atlas Energy Inc., a company with holdings in the Marcellus and Utica shale plays.

BP continued its asset divestiture program with $10 billion of asset sales in various countries during the quarter.

The most significant sales by BP include

the $7-billion sale of the company’s 60 per cent stake in Pan American Energy to Bridas, the $1.8-billion sale of the com­p any’s Venezuelan and Vietnamese assets to TNK-BP, the $775-million sale of the company’s Pakistan assets to United Energ y Group and the $650-million sale of certain Gulf of Mexico assets to Marubeni Corporation.

Since BP’s Macondo oil spill in April 2010, which prompted a $30-billion provision to be made by the company, $21 billion worth of divestitures have now been conducted by BP. In July, BP reported that it is aiming for $30 billion of asset sales, which coupled with the company’s dividend freeze is aimed at fully satisfying the oil spill costs.

— DAILY OIL BULLETIN

Service sector companies post share value gains in 2010 The shift in operator focus to oil and the application of horizontal, multi-stage frac technology to known reservoirs previously labelled uneconomic helped boost activity levels in Western Canada and put wind in the sails of service sector share prices in 2010.

Peters & Co. Limited’s Peters Energy 100 oilfield services sub-index posted a gain of 27 per cent in 2010, led by Canyon Services Group Inc. (up 361 per cent) and Pure Energy Services Ltd. (up 182 per cent). The worst performer on the index was Calmena Energy Services Inc., down

29 per cent. Pressure pumpers Calfrac Well Services Ltd. and Trican Well Service Ltd. finished up 65 per cent and 44 per cent, respectively, on the Peters Energy 100 oilfield services index.

John Tasdemir, an analyst w ith Canaccord Genuit y, noted that the focus on complex reservoirs in western Canada will continue to benefit the pressure pumpers. “Those guys generally led the way [last year],” he said. “The companies that kind of underperformed were generally more the traditional drilling

companies just because we generally have plenty of drilling rig capacity in Canada, particularly for the shallower drilling.”

Activity in the oil-focused plays in the basin should remain strong in 2011, but Tasdemir noted the stocks “get a little more tricky. We’ve seen a pretty big run-up in several already. That’s going to make it a little more interesting to pick stocks in 2011.”

“Obviously the big winners in 2010 were the pressure pumpers, with [Calfrac] and [Trican] being up over 40 per cent each,” added Scott Treadwell, a research analyst

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Southern Alberta

with Macquarie Securities. “Canyon’s share price appreciated by 360 per cent in 2010, on top of 200 per cent in 2009, as the company shifted to mainstream pressure pumping and growth. Precision led the drillers group with 26 per cent growth in 2010, driven in large part by the horrible 2009 they had and is a testament to the focus shown by the team to right the ship and get back to leading the pack.”

Total Energy Services Inc., which saw over a 100 per cent share price increase, stands out as its drilling and compression arms recovered from the downturn in 2009 and it acquired and integrated DC Energy Services Inc. into its rental arm, Treadwell added.

On the losing side, he noted that Trinidad Drilling Ltd. was one of the few names with a loss in share price in 2010, driven largely by the impact of its Mexican operations and concerns about its ability to retire debt. “With its recent debt issue, it looks like the balance sheet concerns have been resolved,” he said.

Over the last two years, which starts in some of the darkest days of the downturn (January 2009), Trinidad is the best

performing driller at 40 per cent gain, while Calfrac has outpaced Trican 194 per cent to 153 per cent. Flint Energy Services Ltd. is up over 150 per cent, while ShawCor Ltd. is up almost 80 per cent, Treadwell said.

For the past 18 months, oil service activity has ramped up significantly largely due to North America, but a Canaccord report stated there’s upside left globally. Service intensity in North

multinational Halliburton, equipment manufacturer National Oilwell Varco and small-cap directional driller Phoenix Technology Income Fund, the Canaccord report said.

In North America, the firm expects a “range-bound” rig count environment during 2011 as growth in oil-directed drilling offsets a decline in gas activity.

There should be continued growth in

For the past 18 months, oil service activity has ramped up significantly largely due to North America.

America should remain elevated due to further growth in unconventional activity and the long awaited acceleration in international exploration and production spending will finally start to more meaningfully contribute to the service sector.

The capital equipment cycle has also started its recovery with equipment builds in North America (rigs and completion equipment) and in the offshore markets for both deepwater and jack-up rigs. This sets the stage for outperformance for

directional drilling, completion services and purpose-built drilling rigs.

Oil and liquids–rich directed activity is expected to remain strong, led by continued development in the Bakken, Eagle Ford, and Permian in the U.S. and Cardium, Viking and Bakken plays in Canada. As for the drillers, the Canadian winter drilling season was off to a strong start, and Canaccord expects to see the first big push on rig day rates in the last three years.

— DAILY OIL BULLETIN

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Southern Alberta

Ziff says rising oilsands demand for gas will offset weaker exports The United States could “easily” become self-sufficient in natural gas, eliminating the need for Canadian imports, but growing consumption in the oilsands and power generation sectors will provide new demand for Canadian gas, says a gas analyst.

“The shale gas tsunami really is... going to require new pipelines. It’s going to require storage facilities—all of which are going to turn the way the industry has been doing business on its head,” Simon Mauger, director of gas services at Ziff

Energy Group, told a Canadian Institute conference in January.

But the good news for Canadian gas exporters is that gas demand for oilsands production and processing will grow by two billion cubic feet (bcf) a day by the end of the decade—just from known projects. “We have [oilsands gas demand] growth going out far beyond that as well.

So it could grow to six or seven bcf a day and essentially replace all of the exports on TransCanada or some of the other pipelines,” Mauger said.

He cited t wo developments t hat will push outward-bound gas back into Alberta. One is the Bison pipeline in North Dakota, which just went on stream and feeds into the Northern Border pipeline, pushing out Canadian gas.

Later this year, the Ruby pipeline in the U.S. Northwest will push gas back into Alberta as well.

Mauger expects North American gas production to grow by about 10 bcf a day over the next decade.

— DAILY OIL BULLETIN

Canadian gas prices are unlikely to recover in 2011, AJM forecasts Current North American natural gas oversupply issues and the strong Canadian dollar have led Calgar y-based A JM Petroleum Consultants to lower its price forecast for Canadian natural gas prices. In its quarterly domestic oil and gas price forecast dated Dec. 31, 2010, AJM has maintained its AECO natural gas price forecast at $4.10 per thousand cubic feet (mcf) for 2011, but has lowered its prediction for 2012 to $4.50 per mcf from the $4.70 per mcf anticipated in its prior forecast.

“For Canadian natural gas to remain competitive with U.S. natural gas, our prices have to be lower than the American prices,” said AJM economist and vicepresident Ralph Glass. “A high Canadian dollar, and an increased supply of natural gas from American shale plays, combined with the U.S. economic recovery strategy to ‘keep America working,’ is pushing Canadian natural gas out of the U.S. markets. We have to maintain

bargain basement prices to keep natural gas moving until we develop viable alternative markets. That will mean a tough year for Canadian natural gas producers.”

With the goal of developing alternative gas markets, Apache Canada Ltd. and EOG Resources Canada Inc. submitted a joint application to the National Energy Board (NEB) to export natural gas volumes out of Kitimat, B.C., on Canada’s West Coast.

On the crude oil side, Enbridge has filed its own application with the NEB to construct a pipeline from Alberta to Kitimat.

Glass notes that these pipeline applications are critical to the development of alternative markets for western Canadian hydrocarbons, and while they may eventually change the Canadian natural gas market, this change is not happening fast enough to correct current imbalances.

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final weeks of 2010,” said Glass, “we anticipate the 2011 yearly averages for both commodities will remain relatively unchanged from 2010 actual prices. The continued weakness of the U.S. dollar is prompting commodity traders to turn to crude oil in particular. But with the U.S. economy showing early signs of recovery, the U.S. dollar should strengthen and reduce the speculation that is driving current price premiums.”

Outside the decrease on AECO natural gas pricing, AJM’s Dec. 31, 2010 oil and gas price forecast remains consistent with its Sept. 30 forecast: NYMEX natural gas is predicted to be US$4.50 per mcf in 2011, with long-term NYMEX price rising to $6.75 by 2022. In the near future, AJM anticipates West Texas Intermediate crude oil prices will average US$85 per barrel for 2011, $87.50 per barrel for 2012 and $88 per barrel in 2013.

— DAILY OIL BULLETIN

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OIL & GAS INQUIRER • MARCH 2011

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Oilweek, Oilsand Review, Oil and Gas 7.0625” x 4.625”

Saskatchewan

PetroBakken sets 2011 capital budget at $800M, versus $675M in 2010

PetroBakken Energy plans to spend $325 million this year in southeastern Saskatchewan.

PetroBakken Energy Ltd. plans to invest $800 million on capital projects this year, up from $675 million in 2010.

Current plans anticipate capital development expendit ures of $680 million focused predominantly on horizontal drilling and completions in the Bakken and Cardium light oil plays. The company also plans to spend $120 million on land, seismic, well recompletions and direct administration expenses.

“We expect that this drilling-focused capital plan will generate a 2011 exit production rate between 46,000 and 49,000 barrels of oil equivalent [boe] per day.

Our funds flow from operations and our $1.2-billion credit facility are expected to fund this activity and maintain our $0.96 per share per annum dividend,” PetroBakken said in a news release.

Capital plans for 2011 will focus primarily on light oil resource plays in central

Alberta for the Cardium and in southeastern Saskatchewan for the Bakken as well as Mississippian conventional light oil plays.

The majority of 2011 capital spending will be used to to drill, complete and equip over 200 net wells (due to bilateral wells this

e x ist i ng produc t ion ef f ic iencies. A further $20 million will be spent on enhanced oil recovery (EOR) pilots within the Bakken.

I n s out he a s te r n Sa sk atc he w a n , PetroBak ken expects to drill 75 net wells (including approximately 55 net bilateral wells) in the Bakken and over 30 net conventional wells. Facilities expenditures of approximately $65 million in this area are expected to further optimize operations and bring currently constrained Mississippian production on stream.

T he c omp a ny w i l l c ont i nue to invest in EOR pilots to evaluate several injection conf igurations and f luids, including natural gas. Overall, in southeastern Saskatchewan, PetroBak ken plans on spending $325 million, comprised of $250 million in the Bakken and $75 m i l l i o n o n t h e c o n v e nt i o n a l Mississippian plays.

In central Alberta, the company plans on spending approximately $350 million to drill 95 net wells. Consistent with its acreage position, approximately 65 per cent of the wells will be drilled in western Pembina, 25 per cent in eastern Pembina and the balance at Garrington and

“We expect that this drilling-focused capital plan will generate a 2011 exit production rate between 46,000 and 49,000 barrels of oil equivalent [boe] per day.”

— PetroBakken news release

represents over 255 net horizontal wellbores) for approximately $590 million.

T he plan also includes facilities investments of $70 million, primarily in southeastern Saskatchewan, to handle new production as well as improve

Lochend. The majority of drilling will be limited to one well per section as the company proves up its extensive acreage position. In addition, first quarter 2011 spending will include carry-over activity as PetroBakken completes and adds

JAN/10

JAN/11

JAN/10

JAN/11

WELLS SPUDDED

242

272

WELLS DRILLED

206

280

SASKATCHEWAN WELL ACTIVITY

JAN/10

JAN/11

WELL LICENCES

271

424

▲

▲

▲

Source: Daily Oil Bulletin

OIL & GAS INQUIRER • MARCH 2011

57

Saskatchewan

production from wells that were drilled in the fourth quarter of 2010.

The remainder of the 2011 program is more explorator y in nat ure, and PetroBakken expects to drill between four and seven net wells. Two net wells will be drilled in northeastern British Columbia at Monias to preserve acreage, while the remaining wells will be drilled in other areas. The majority of the planned $45 million of capital spending for this program is for drilling

and completions, with approximately 10 per cent allocated to facility costs in northeastern British Columbia. These capital invest ments are planned to enhance the long-term value of the company’s drilling inventory by preserving its extensive natural gas options in northeastern British Columbia and evaluating new resource plays.

Exit production for 2011 is expected to be between 46,000 and 49,000 boe a day, up from 42,500 boe a day for

year-end 2010 (based on field estimates), including replacing 2011 base production decline of approximately 40 per cent. Most of the production growth is expected to come from the Cardium area in central Alberta while t he compa ny ’s more mat ure assets i n sout hea ster n Sa sk atc hewa n a re ex pec ted to remain relat ively f lat.

Approximately 85 per cent of production is light oil and natural gas liquids.

— DAILY OIL BULLETIN

Researchers will study alleged carbon dioxide leakage into farm near Weyburn T he International Performance Assessment Centre for Geological Storage of CO2 (IPAC-CO2) is assembling a team of international experts to conduct an independent performance assessment of protocols and practices in the Weyburn carbon capture and storage (CCS) project following complaints from a Saskatchewan family about the possibility of CO2 leaks at their farm.

The report, Geochemical Soil Gas Survey, was conducted by Paul Lafleur of Petro-Find Geochem, Ltd., and submitted to Cameron and Jane Kerr. That report is currently under review by Saskatchewan’s Petroleum Technology Research Centre. A response to this report will be provided once it has been thoroughly reviewed.

I PAC - CO 2 i s a n env i ron ment a l, non-government organization created in 2009 to gain public and regulator confidence in the geological storage of CO2 as a sustainable energy and environmental option by providing independent performance assessments of the projects.

“This will be a fact-based review,” said Carmen Dybwad, IPAC-CO2 ’s chief executive officer. “The object is not to determine fault or point fingers. It is simply an analysis of whether there is leakage and, if so, to discover its root cause. Results of this independent study will help establish the ‘best practices’ for future CCS projects that include an enhanced oil recovery component.”

A detailed list of the team members will be released once all of the experts have been con f i r med. Pa r t icipa nts 58

MARCH 2011 • OIL & GAS INQUIRER

in the project, so far, include experts from the Gulf Coast Carbon Center at the Universit y of Texas and Carbon Management Canada Ltd., a network of 22 Canadian universities researching large-scale ways to reduce carbon emissions in the fossil fuel industry. To participate in the independent review, each expert must not have had any previous association with the Weyburn project, Dybwad said.

“We will apply the nine-step protocol for site assessment we developed while working with the Canadian Standards Association to draft the world’s first standard for geologic storage of carbon dioxide,” Dybwad said.

The draft, which establishes a binational standard, is being reviewed by a technical committee of almost three dozen experts from Canada and the United States. The new standard will also be used as a basis for international standards through the International Organization for Standardization.

Cameron and Jane Kerr held a news conference on Jan. 11, 2011, in Regina demanding a full public investigation of problems at their farm located near the Cenovus Energy Inc. CCS site. The Kerrs said they had first noticed changes in surface water and well water on their property in 2004, one year after CO2 injection in the area had begun.

About 17 million tonnes of CO 2 have been injected into the Weyburn oilfield over the past decade. It is recognized as the largest, commercial-scale CCS project in the world.

The International Energy Agency’s Greenhouse Gas Weyburn Midale CO2 Monitoring and Storage Project has been involved in measuring and monitoring injection of CO2 into the Weyburn and Midale oilfields in southeastern Saskatchewan since the year 2000.

As part of this research, an extensive program of sampling soil gases and shallow water wells across the CO2 injection area has been undertaken for almost 10 years. Baselines for CO2 in the soils and wells were taken in multiple locations starting in July, 2001, prior to any injection, and several surveys have been repeated periodically since injection began.

The soil gas surveys were conducted by independent research organizations including the British Geological Survey, the French Geological Survey and the Italian Geological Survey. These tests all have indicated that soil gases sampled are in the normal range for these soil types given variations in organic matter content, moisture, temperature and seasonal variations.

No evidence of CO2 originating from the 1.5-kilometre deep Midale reservoir (the geological unit at the Weyburn f ield) has been obser ved in a ny of t hese sur veys under ta ken by t hese international scientific organizations.

Similarly shallow well water samples taken repeatedly throughout this study over 10 years have not indicated any evidence of CO2 from the deep geological reservoir.

— DAILY OIL BULLETIN

Saskatchewan

CanElson buys Eagle Drilling for $78M CanElson Drilling Inc. has entered into an agreement to acquire Eagle Drilling Services Ltd., a private corporation that owns eight telescopic double drilling rigs in the Bakken area of southeastern Saskatchewan. CanElson has agreed to make an offer to acquire all of Eagle’s outstanding common shares for $61 million (plus the assumption of debt of approximately $17.1 million).

The pre-acquisition agreement provides for a break fee of $2.5 million payable by Eagle to CanElson under certain circumstances. CanElson will acquire eight f ully crewed, modern, heav yduty, telescopic double rigs (ratings of 3,500 metres vertically, 4,300 metres horizontally); positive working capital estimated at $6 million; land and buildings with an estimated value of $3.5 million; and rental and ancillary equipment with an estimated value of $3.5 million, which equates to a purchase price per rig of approximately $8.1 million.

The company expects that key employees and management of Eagle will be

retained and continue with CanElson. Daily Oil Bulletin records show Eagle drilled 152 wells last year while CanElson drilled 105 wells in Canada. Eagle’s key customers were Crescent Point Energy Corp. (57 wells) and PetroBakken Energy Ltd. (35 wells).

cent of CanElson’s owned drilling rig fleet is deep, small footprint telescopic double drilling rigs rated greater than 3,500 metres with an average age of less than three years designed for horizontal and resource play drilling.

“Eagle is one of the most respected contract drilling providers operating in southeast Saskatchewan and southwest Manitoba that has consistently realized higher-than-industry utilization levels and also has a reputation as an efficient and safe drilling contractor.”

— Randy Hawkins, President and Chief Executive Officer, CanElson Drilling Inc.

By the end of the first quarter of 2011, and including the closing of the acquisition, CanElson will operate a combined rig fleet of 27 (net 23) rigs which includes 18 drilling rigs in western Canada, five (net four) drilling rigs in the Permian Basin west Texas, two (net one) subcontracted drilling rigs in Mexico and two (net one) service rigs in Mexico. 100 per

“Eagle is one of the most respected contract drilling providers operating in southeast Saskatchewan and southwest Manitoba that has consistently realized higher-than-industry utilization levels and also has a reputation as an efficient and safe drilling contractor,” said CanElson president and chief executive officer Randy Hawkings.

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Reef Resources outlines Ontario enhanced oil recovery program

Photo: ©istockphoto.com/ahopueo

Newsman Peter Kent named federal environment minister

Reef plans to use recycled natural gas for enhanced oil recovery in a pinnacle reef formation.

Reef Resources Ltd. says its corporate objectives for 2011 include drilling a new Ausable No. 5 oil well in Ontario this winter. The well will increase overall production and will provide valuable geological data for future gas storage, the company said. Reef also plans to fish frac tools that have impeded production from the Ausable No. 2 using the drilling rig available after Ausable No. 5 is drilled.

The company said it achieved production of oil and natural gas condensates in 2010 by executing a gas recycling and enhanced oil recovery (EOR) program on its Ontario property.

The EOR and gas-recycling program initiated in October has so far produced 20-40 barrels (bbls) per day of oil and petroleum condensate since start-up. The company will be optimizing its downhole pumping configuration in the near future to increase production including the installation of a hydraulic pump in Ausable No. 1 on a trial basis.

The current EOR program confirms t he company ’s assessment t hat t he Ausable pinnacle reef will produce considerably more oil and natural gas liquids

by re-pressurizing and recycling natural gas through the reservoir, Reef said.

The proposed EOR program involves purchasing low-cost natural gas to pressurize the reef and increase recycle volumes, thereby increasing production; drilling four new horizontal wells; and installing a refrigeration plant to strip natural gas liquids.

It is anticipated that up to five mmcf a day of natural gas will be injected and recycled through the reef using two of the four new horizontal wells. The goal is to produce significant levels of oil and natural gas liquids (propane, butane and condensate) from the other two new horizontal production wells in addition to the existing four wells. The recycled natural gas will be processed using a minus 40 degrees Celsius refrigeration plant to recover propane, butane and condensate.

Reef’s goal is to have the four horizontal wells and associated on-site infrastructure in operation by summer 2011. The company said it has identified three additional Silurian pinnacle reefs within its 23,000acre 3-D seismic database.

— DAILY OIL BULLETIN

A former television journalist is Canada’s new environment minister. MP Peter Kent, who represents Thornhill near Toronto, replaces Ca lga r y M P Ji m P rent ice who lef t t he gover n ment late last year for a job in the private sector. Prime Minister Stephen Harper announced the appointment as part of a cabinet shuffle in January.

Prior to his election in 2008, Kent was a broadcast journalist, spending more than 40 years working as a writer, reporter, producer, anchor and senior executive in Canada, the United States and around the world after beginning his career in Calgary.

Calgar y MP Diane Ablonczy will replace Kent as minister of state of foreign affairs (Americas and consular affairs). In that role she will further promote Canada’s political and trade interests in the Americas and help protect Canadians travelling and working outside the country.

As minister, Kent will be in charge of his government’s efforts to improve Alberta oilsands water monitoring systems as Canada comes under increased global scrutiny for its environmental regulation of the oilsands.

Late last year, John Baird, acting environment minister, announced he has directed senior department officials to work together to design a water monitoring system by the end of March. The government will then consult with a group of independent scientists to ensure that the proposed design is appropriate and then move immediately to implementation, he said.

The announcement followed the release of a report by a Prentice-appointed panel that was critical of the existing monitoring efforts by provincial and federal governments and other stakeholder groups, including industry.

OIL & GAS INQUIRER • MARCH 2011

61

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Bidding is ramping up this year for Newfoundland’s Hebron project

Photo: Joey Podlubny

By Pat Roche

If all goes well, the Hebron initiative will become Newfoundland's fourth offshore oil operation.

Bidding is expected to ramp up this year for most of the contracts for the biggest construction project in NewfoundlandLabrador since Hibernia was developed in the 1990s. The Hebron offshore project will be the province’s fourth standalone oil development after Hibernia, Terra Nova and White Rose.

Like Hibernia, Hebron will be produced from a concrete gravity-based structure (GBS) sitting on the seabed. Capable of storing about 1.13 million to 1.45 million barrels (bbls) of oil, the Hebron GBS will be 120 metres tall—about the height of a 40-storey building. Construction of the GBS is scheduled to start in the second quarter of 2012.

From a logistical standpoint, the decision to develop Hebron with a GBS makes it impossible to build the main structure overseas. The structure—the equivalent of a high-rise office building—has to be built as close as possible to the oilfield it will produce because near-perfect sea and weather conditions are needed for the slow and painstaking operation of towing it to the desired location.

In addition to building the towering gravity base in Newfoundland, operator

ExxonMobil Canada Properties, a unit of Exxon Mobil Corporation, has said it will also build most of the steel topsides components in the province if capacity exists.

The exception is the utilities and processing module, which will be bid internationally.

Hebron topsides components will include a drilling rig, production equipment, a control centre, a f lare boom, utilities, a helicopter landing pad, living quarters and lifeboat stations.

It is unclear whether the province has sufficient spare capacity to absorb a $4billion to $6-billion megaproject—especially since the St. John’s area is already in the midst of a construction boom.

The Hebron field was discovered in 1981, but the total project will tap three oilfields—Hebron, Ben Nevis and West Ben Nevis. The project is expected to recover 566 million bbls of oil over about 30 years, starting in 2017. Most of the oil is about 20 degrees API gravity. Oil production is expected to be in the 120,000175,000 bbls a day range.

Owners are: ExxonMobil (36 per cent); Chevron Canada Limited (26.7 per cent); Petro-Canada Hebron Partnership,

now owned by Suncor Energy Inc. (22.7 per cent); Statoil Canada Ltd., a unit of Norway’s Statoil ASA (9.7 per cent); and Nalcor Energy—Oil and Gas Inc., which is owned by the Newfoundland government (4.9 per cent).

Hebron’s main construction site will be the currently idle Bull Arm onshore and near-shore fabrication complex in Trinity Bay, 150 kilometres northwest of St. John’s. According to regulatory filings, initial work—slated to start in the second quarter of this year—will prepare Bull Arm and re-establish the temporary drydock that was originally built for Hibernia GBS construction in the 1990s.

Early activ ities include blasting, dredging and drydock construction. A row of sheet piles will be pounded into the seabed to create a rock-fill dyke, or “bund wall.” This will dam off the inner portion of a cove, which will be then be dewatered for use as a drydock. The GBS drydock area is about 16.5 metres deep and 180 metres in diameter.

Topsides fabrication is expected to take about 30 months at several sites.

Final assembly and integration of all topsides modules will occur on the topsides pier at Bull Arm. A partly finished GBS will be floated out of the drydock and towed to Bull Arm’s nearby “deepwater” site. Here the concrete base will be moored in 180 metres of water for final construction and mating with the steel topsides modules.

The massive structure will be towed to the Hebron field, 340 kilometres east of St. John’s, where it will be weighted with ballast until it rests on the sea floor in about 100 metres of water. The intended location isn’t far from the Hibernia platform, Canada’s first and only GBS. Most of the Hebron contracts are expected to be awarded this year once the front-end engineering and design (FEED) has been completed. A few years ago the Hebron price tag was estimated at $4 billion and $6 billion, but the FEED will narrow that range. Both FEED contracts were awarded last year.

— DAILY OIL BULLETIN OIL & GAS INQUIRER • MARCH 2011

63

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International

ExxonMobil sees natural gas as the world’s fastest growing fuel to 2020

Photo: ©istockphoto.com/MsLightBox

By Pat Roche

ExxonMobil expects natural gas to fuel more than a quarter of global electricity generation by 2030.

Natural gas will be the world’s fastest growing major energy source in the next two decades, overtaking coal as the second-largest global energy source behind oil, says energy giant ExxonMobil Corporation. The company made the prediction on Jan. 27 in releasing the 2011 edition of its Outlook for Energy: A View to 2030.

Asia is forecast to have the largest growth with gas demand almost tripling by 2030. Substantial growth is also expected in Europe and North America. “The forecasts...show a shift toward natural gas as businesses and governments look for reliable, affordable and cleaner ways to meet energy needs,” said Rex Tillerson, ExxonMobil’s chairman and chief executive officer. “Newly unlocked supplies of shale gas and other unconventional energy sources will be vital in meeting this demand.”

U.S. President Barack Obama’s new plan to double U.S. clean power output is expected to help boost gas usage. U.S. Energy Secretary Steven Chu said the plan represents roughly a doubling of electricity generation from cleaner power

sources in less than 25 years. The plan, introduced by Obama in his State of the Union speech on Jan. 25, would require power plants to generate 80 per cent clean electricity by 2035.

Ex xonMobil expects total global energy demand to be about 35 per cent higher in 2030 than in 2005 and energy demand in the developing nations to rise more than 70 per cent. However, global growth would be far higher without projected efficiency improvements, the forecast says.

Efforts to ensure reliable, affordable energy—while also limiting greenhouse gas emissions—will lead to policies in many countries that put a cost on CO2 emissions, the report predicts. As a result, gas will become increasingly competitive as an economic fuel for electricity generation as its use results in up to 60 per cent less CO2 emissions than coal in generating electricity.

Demand for gas for power generation is expected to rise by about 85 per cent from 2005 to 2030 when gas will provide more than a quarter of the world’s electricity needs. Gas demand is rising in every

region of the world and is strongest in developing countries, particularly China, where demand in 2030 will be about six times what it was in 2005.

ExxonMobil said its outlook is based on a detailed analysis of about 100 countries, 15 demand sectors and 20 fuel types, and it is underpinned by economic and population projections and expectations of significant energy efficiency improvements and technology advancements.

Rising electricity demand—and the choice of fuels used to generate that electricity—represent a key focus area, which will have a major impact on the global energy picture over the next 20 years, the company says. ExxonMobil expects the number of cars and trucks on the road to increase by 400 million vehicles by 2030—and oil will remain the main transportation fuel source.

“No technology has been able to outperform gasoline and diesel as con­venient and economic fuels for consumers,” said Bill Colton, Ex xonMobil’s vicepresident of corporate strategic planning. “The weight of a fuel is critical for transportation.... Even for cars, it’s hard to beat the high energy density of gasoline. A typical car gas tank contains...only 100 pounds of gasoline, yet it can motor a 3,000-pound car for 400 miles at 60 miles an hour,” he said.

Nuclear also shows strong growth.

“We believe nuclear is an attractive alternative, yet we acknowledge there’ll be practical limits as to how fast new nuclear plants can be sited and built,” Colton said.

And while solar and biofuels will be the fastest-growing fuel sources—almost 10 per cent growth—by 2030 they’ll still account for only 2.5 per cent of the global energy demand, ExxonMobil predicts.

CO2 emissions are expected to increase by about 25 per cent by 2030, significantly less than overall energy demand increases. Efficiency gains across all sectors of economies worldwide should curb energy demand growth through 2030 (compared to historical trends) by an estimated 65 per cent.

— DAILY OIL BULLETIN OIL & GAS INQUIRER • MARCH 2011

65

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JOB Careers in the Oilpatch

Jonathan Hokanson Age: Title: Company: Location:

40 Owner Standard Scaffold Incorporated Sherwood Park, Alta.

Have you been in the scaffolding business your whole life?

My first job was in 1989. I was hired by Rick Moran at U-Max (now it’s Aluma Systems). I started quite young, but it took me several years to finish my apprenticeship, because I kept on going and doing other things. I went to university for three semesters and just decided that wasn’t for me.

Scaffolding appealed to me on an adrenalin basis—work hard and get up high in the air, travel around a fair bit because you’re usually not in one place for too long.

So is the appeal that you like working with heights?

It’s not that I like them. I enjoy the focus that hard work at heights brings, because you have to concentrate or you’re going to get hurt—or hurt somebody else, even worse. I found two things: I was well equipped for it personally in that I’m a pretty big, strong guy, and I’m pretty nimble. So I could get around, get things done comfortably. I don’t have a lack of fear of heights; I don’t have a serious fear of heights.

Certainly, I’ve always been respectful of them. That being said, I can move a lot of gear.

Do you find it rewarding to have your own company?

I just love it. My whole life has been a challenge to fight boredom. I used to read books under my desk—just hold them under my desk—because whatever was going on at the front of the classroom was boring, and I could find a book that was more interesting. It’s been a theme through my whole life. I’ve always played fast moving sports—rugby, football, squash—because the focus required to do those things is pleasurable. And I’ve got to say the focus required to operate a business...I mean, it’s the most difficult thing I’ve ever done, but I’m not bored, and I’m grateful for that.

What’s the biggest challenge you’ve faced with this job?

The biggest challenge I find is that I’m wearing so many hats.

I’m trying to track so many things. It’s a job probably best suited to a woman who has raised several children. My goal in life these days is to take off a hat and give it to someone—I don’t care which one it is. I’m my own project manager/super-

Photo: Aaron Parker

intendent/sales and marketing guy, and it all goes through me. And I’m acutely aware that if we’re going to grow this business, I’m going to have to delegate these things. But of course you have to be confident you can make enough money in the next 12 months that you can bring someone in to do that. It’s a tricky equation.

OIL & GAS INQUIRER • MARCH 2011

67

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BPC Trenchless Pipeline System

Who is BPC Services Group?

BPC provides pipeline integrity and construction services to midstream pipeline companies and pipeline services to upstream producers. Our service area includes Alberta, Saskatchewan and Manitoba.

What is the BPC Trenchless System?

Smaller pipelines—less than 1,000 metres in length—have traditionally required the same ground disturbance as larger projects in terms of topsoil removal, trenching and reclaiming the pipeline right-of-way to its original condition. BPC has developed a system to install these lines with far less disruption to the environment and property stakeholders. We utilize horizontal directional boring along with state-of-the-art mapping and product-coating integrity surveys after pipe placement, ensuring the pipeline is fully compliant with all regulations and customer requirements.

What are the competitive advantages of trenchless installation?

Installation through directional drilling greatly reduces disturbance to the en­vironment as well as lease pads, containment barriers, roads, canals, irrigation equipment and other infrastructure that may be encountered along a pipeline route. The minimal disturbance to the environment allows for construction within delicate ecosystems such as native prairie and forested areas.

As an example, BPC recently completed an 800-metre pipeline from an operating multi-oilwell production pad to a compressor station. The right-of-way traversed arable farmland, forested areas and an existing highway complete with overhead power lines, underground telephone and fibre optic lines. The forestry owner expressed great concern over the removal of large trees along the route. When the petroleum producer offered to install the pipe using BPC’s trenchless techniques, this land owner agreed to approve construction without further delay. The pipeline was then installed in one continuous pass from location to location. No disruption whatever occurred beyond the boundaries of the existing leases, and this project was completed at a cost equivalent to open cut pipeline construction methods. The line is now in service, with no future rightof-way concerns such as soil settling and revegetation.

Thanks to reduced ground disturbance, our clients typically report many savings such as frost ripping, topsoil conservation and reseeding right-of-ways and contouring. The construction window for BPC’s form of construction is also seasonally extended, enabling producers to achieve cash flow more quickly.

Photos: BPC Services Group

What future development path do you see for trenchless pipelining?

Responsible operators in the oil and gas industry are continually striving to reduce their environmental footprint. For that reason, our customers are very receptive to trenchless installation. In fact, BPC believes that its trenchless techniques will become an industry standard for short infield tie-ins and longer projects in sensitive areas.

Look, Ma, no trench: BPC drilled horizontally between the two sites above.

Information supplied by: Martin Campbell, Manager, BPC Trenchless Pipeline Systems

OIL & GAS INQUIRER • MARCH 2011

69

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MARCH 2011 • OIL & GAS INQUIRER

dmg events . . . . . . . . . . . . . . . . . . . . . . . . . 38 & 54 Ecoquip Artificial Lift Ltd . . . . . . . . . . . . . . . . . . 68 EITI Electrical Industry Training Institute . . . . . . 48 Enform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Falvo Electrical Supply Ltd . . . . . . . . . . . . . . . . . 42 FDI Acoustics Inc . . . . . . . . . . . . . . . . . . . . . . . . . 34 Hotsy Water Blast Manufacturing LP . . . . . . . . . 33 Infosat Communications . . . . . . . . . . . . . . . . . . . 15 Insight Information . . . . . . . . . . . inside back cover Iron Brothers Construction . . . . . . . . . . . . . . . . . .11 Jasper Tank Mfg Ltd . . . . . . . . . . . . . . . . . . . . . . . 34 Joule Technical Sales Inc . . . . . . . . . . . . . . . . . . . 59 LJ Welding & Machine . . . . . . . . . . . . . . . . . . . . . 60 Lockhart Oilfield Services Ltd . . . . . . . . . . . . . . . 29 LoTech Manufacturing Inc . . . . . . . . . . . . . . . . . . 42 Marv Holland Apparel Ltd . . . . . . . . . . . . . . . . . . 62 MCI Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Meyers Norris Penny . . . . . . . . . . . . . . . . . . . . . . 25 MPI-Marmit Plastics Inc . . . . . . . . . . . . . . . . . . . 42 NAIT Corporate and International Training . . . . . . . . . . . . . . . . . . . . 47 Nexus Exhibits Ltd . . . . . . . . . . . . . . . . . . . . . . . . 37

Norseman Structures . . . . . . . . . . . . . . . . . . . . . 32 Northstar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Norwesco Canada Ltd . . . . . . . . . . . . . . . . . . . . . 46 Penfabco Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Phoenix Fence Inc . . . . . . . . . . . . . . . . . . . . . . . . 46 Platinum Energy Services Corp . . . inside front cover Propak Systems Ltd . . . . . . . . . . . . . . . . . . . . . . . 3 Prostate Cancer Canada Network . . . . . . . . . . . 68 R & M Energy Systems . . . . . . . . . . . . . . . . . . . . . 39 RE/MAX Real Estate Centre . . . . . . . . . . . . . . . . 56 SIW Manufacturing . . . . . . . . . . . . . . . . . . . . . . . 24 Suncor Energy Inc . . . . . . . . . . . . . . . . . . . . . . . . 56 TARM Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 TCA Marketing Ltd . . . . . . . . . . . . . . . . . . . . . . . . . 7 Telus World of Science . . . . . . . . . . . . . . . . . . . . . 30 The Weyburn Review #414-Oil Show . . . . . . . . . . 62 Trans Peace Construction (1987) Ltd . . . . . . . . . . 53 Vertigo Theatre Society . . . . . . . . . . . . . . . . . . . 56 V.J. Pamensky Canada Inc . . . . . . . . . . . . . . . . . . 62 Waydex Services LP . . . . . . . . . . . . . . . . . . . . . . . 19 Wellhead Distributors Int’l Ltd. . . . . . . . . . . . . . . 20

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NORTH AMERICAN PIPELINE FORUM Balancing Environmental, Economic and Energy Demands April 27, 2011 | TELUS Convention Centre | Calgary

As North America undergoes a transformation, from consumer to a major supplier of energy, there is an ongoing need to address sustainable, environmentally safe and efficient ways to transport the energy that is produced across the continent.

This Insight Information conference will provide you with a timely overview of all aspects of energy transportation and help you evaluate: the long term vision and strategies for the pipeline industry; the latest policies, regulation and reform; environmental risks and how to address them; best practices to enhance safety and integrity management; as well as risks and opportunities in heavy oil, shale gas and LNG transportation.

Keynote Presentations From: Brenda Kenny, President and CEO, Canadian Energy Pipeline Association lyne Mercier, Board Member, National Energy Board

Participating organizations: Dorsey & Whitney LLP Enbridge Pipelines Fraser Milner Casgrain LLP

Imperial Oil Limited Kinder Morgan Energy Partners Macleod Dixon LLP

Steptoe & Johnson LLP TERA Environmental Consultants WorleyParsons Canada

PoST ConFErEnCE WorKSHoPS | april 28, 2011 a | Effective aboriginal and First nations Consultation: Balancing Social, Environmental and Economic needs of the Communities B | Managing leaks , disruptions and Preventive Maintenance Copper Sponsor

Media Partners

Register online at www.insightinfo.com/pipeline

Enroll Today! 1 888 777-1707

building local partnerships for success

As a leading provider of oilfield services around the world, Baker Hughes is committed to supporting the communities where we operate. From Fort St. John, British Columbia to St. John’s, Newfoundland, our people

To find out how our global experience,

make valuable contributions in these communities everyday – coaching

well-trained local workforce, and

youth sports teams, sponsoring and hosting community events, and leading

unmatched technology portfolio can

the charge in many ways that improve our neighborhoods.

improve your recovery, contact your

Baker Hughes continues to invest in both the infrastructure and our people

local Baker Hughes representative or

across Canada with growing operations in key locations including Grande

visit us online.

Prairie. As we further develop our business in the area, employment opportunities and community involvement will persist. www.bakerhughes.com/canada © 2011 Baker Hughes Incorporated. All Rights Reserved. 31715