Oilweek December 2011

includes DECEMBER 2011 market monitor

quarterly report

producer Canadian Publications Mail Product Agreement No. 40069240

OF the

YEAR

Bonavista Energy Corp.

Keith MacPhail (left) and Jason Skehar have moved Bonavista out from the trust model and created a dividend-paying powerhouse

people power It’s the folks behind the scenes that drive the Calgary energy sector’s United Way success Plus: After a year of gathering your Patch photos, we reveal the winner

They can copy us. They just can’t be us.

If imitation is the sincerest form of flattery, we’re one flattered group.

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DECEMBER 2011

Volume 62

contents

Number 12

on the cover

marke

t

2011 PRODUCER OF THE YEAR

MONIT

OR

21

WINNER | Bonavista

HONOURABLE MENTION | Progress

HONOURABLE MENTION | Peyto

Standing tall

On the gas pedal

Right time to grow

Bonavista combines what was best

Progress Energy’s aggressive growth

Peyto Exploration & Development’s

about income trusts with what is

in natural gas has new markets in

Deep Basin pure play charges ahead

best about corporations to create a

mind

with modern multi-frac technology

dividend-paying powerhouse

By R.P. Stastny

By R.P. Stastny

By R.P. Stastny

22

32

28 FEATURES corporate philanthropy

39 People power Calgary ranks high on the national United Way scale, but it’s the people behind the campaign that make a difference

By Peter McKenzie-Brown

market monitor

39

44 Squeeze play As producers found themselves caught between falling crude prices and the potential for rising costs, investors pulled back from the resource sector in the third quarter

t arke

m

MO

OR T I N

t arke

m

TOR

PHOTO CONTEST

NI MO

44

By DALE LUNAN

51 Your photos in the Patch

51

Featuring the year’s best overall photo, as well as a selection of 2011’s honourable mentions

Oilweek.com

|

3

contents President & CEO

DEPARTMENTS

9

9 The Patch

Interim publisher

Chaz Osburn | cosburn@junewarren-nickles.com

9 They like her! They really like her!

10 Someone always has to be different

11 $200-million gas liquids projects in

Editorial Editor Dale Lunan | dlunan@junewarren-nickles.com Staff Writer R.P. Stastny | pstastny@junewarren-nickles.com Editorial Assistance Manager Samantha Kapler | skapler@junewarren-nickles.com

the works

Bill Whitelaw | bwhitelaw@junewarren-nickles.com

14 Former Canadian GM to head ConocoPhillips

Editorial Assistance Brandi Haugen, Marisa Kurlovich proofing@junewarren-nickles.com

AND MUCH MORE

Contributors Joseph Caouette, Leah Lawrence, Peter McKenzie-Brown, Wes Reid, David Yager

18 Alternative/Renewable Energy

creative

11

57 Wealth & Wisdom

Ken Bessie | kbessie@junewarren-nickles.com Creative Services Manager Tamara Polloway-Webb | tpwebb@junewarren-nickles.com

ignore, but there’s cause for hope

Senior Designer Cathlene Ozubko | cozubko@junewarren-nickles.com Creative Services Christina Borowiecki, Angie Castaldi, Janelle Johnson production@junewarren-nickles.com

BY Kevin dehod

70 Rewind

Contributing Photographers Charles Hope, Joey Podlubny

A look back at this month in Oilweek’s

sales

history

Director of Sales Rob Pentney | rpentney@junewarren-nickles.com

18 includes deceMBer 2011 Market Monitor

quarterly report

producer YeAr

Senior Publications Manager Audrey Sprinkle | asprinkle@junewarren-nickles.com Art Director

A second dip?

Today’s financial turmoil is hard to

oF the

Production, Pre-Press and Print Manager Michael Gaffney | mgaffney@junewarren-nickles.com

Bonavista Energy Corp.

Keith MacPhail (left) and Ron Poelzer have moved Bonavista out from the trust model and created a dividend-paying powerhouse

people power It’s the folks behind the scenes that

on the cover

United Way success

Ad Traffic Coordinator – Magazines Denise MacKay | atc@junewarren-nickles.com Senior Account Executive Diana Signorile | dsignorile@junewarren-nickles.com

From new digs in Eighth Avenue Place in Calgary, Bonavista Energy’s Keith MacPhail and Jason Skehar are directing steady growth for the former trust and are this year’s Oilweek Producer of the Year.

Sales Nick Drinkwater, Ellen Fraser, Rhonda Helmeczi, Nicole Kiefuik, Jeff LeHoux, David Ng, Sheri Starko For advertising inquiries | adrequests@junewarren-nickles.com

marketing Marketing & Trade Show Coordinator Jeannine Dryden | jdryden@junewarren-nickles.com Marketing Designer Corinne McKetiak | cmcketiak@junewarren-nickles.com

drive the Calgary energy sector’s

Plus: After a year of gathering your Patch photos, we reveal the winner

Sales Manager – Advertising Maurya Sokolon | msokolon@junewarren-nickles.com

Photo: Charles Hope

offices

Calgary 2nd Floor, 816–55 Avenue N.E., Calgary, Alberta T2E 6Y4 Tel: 403.209.3500 Fax: 403.245.8666 Toll-free: 1.800.387.2446 Edmonton 6111-91 Street N.W., Edmonton, Alberta T6E 6V6 Tel: 780.944.9333 Fax: 780.944.9500 Toll-free: 1.800.563.2946

columnists Association Corner

Rock Ramblings

59 Time to man up

63 The detrimental act of coasting

Labour shortages have become a fact of life, and the CAODC is now dealing with a critical shortage of one of the most critical positions on rigs

By Cindy Soderstrom

Eye on the environment

|

By Wes Reid

61 Eye on the Environment

Our Industry

65 What’s next

4

Federal legislation barring foreign seismic vessels from Canadian waters acts as an anchor on future exploration

With advancing technology, the oil and gas industry’s environmental performance is under a more powerful microscope—and anyone can watch

By Leah Lawrence

Oilweek December 2011

Alison Redford represents change at the top of the Tory ladder, but is it the right kind of change for Alberta’s energy industry?

By David Yager

subscription RATES In Canada 1 year $89 plus GST, 2 years $139 plus GST Single copies and back issues $10 each plus GST and $2.50 postage and handling Subscription inquiries Tel: 1-866-543-7888 | Email: circulation@junewarren-nickles.com Oilweek is owned by JuneWarren-Nickle’s Energy Group and is published monthly.

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We are Albertans and we are energy. Whether inside municipal offices in Fort Saskatchewan or between neighbours on a farm near Crossfield, an informed discussion about a vibrant and competitive oil and gas industry is important.

Recognizing the contribution of oil and gas to Alberta’s communities allows us to address the important relationship between a thriving economy, a healthy environment and a high quality of life.

Alberta is Energy showcases the men and women of Alberta, their careers, challenges and accomplishments.

These people may be from your community. Read about a student at SAIT, a farmer near Crossfield, and the Mayor of Fort Saskatchewan, and see how the oil and gas industry plays a role in their lives.

Visit our new website and join the conversation on our blog at albertaisenergy.ca Alberta is Energy is supported by several Alberta business associations, many of which are focused on the oil and gas sector.

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frontlines Seven billion Asian gas markets take a step closer At one point this year, supposedly on

picture actually seem happy. Or maybe they’re simply grateful for the

billionth citizen. Hurray!

momentary diversion from the heat and the madness of the situation.

Or rather not hurray. Most news sources ran the story with some scary pictures of what a world with seven billion

R.P. Stastny

Not only are the rubber toys happy-coloured, but the people in this

Halloween, the world woke up to its seven

So this picture has become my desktop background to remind me of a number of things.

One is that travelling at 120 to 140 kilometres an hour from

people looks like in developing countries.

Calgary to British Columbia on the TransCanada Highway on a

One shows elbow-to-elbow, tire-to-

Friday afternoon before the August long weekend in a bumper-

tire throngs of scooter-riding motorists

to-bumper cascade of cars is actually worth it, especially if I’m

in what looked more like a scooter rights

packing my own inflatable crocodile.

rally than just another day of rush hour in Taipei, Taiwan.

Another is of a solitary man walking on a pedestrian bridge

It also reminds me that despite the vagaries of world markets, the long-term demand for oil and gas is underwritten by a world

overlooking 10 lanes of seemingly parked trucks and cars amidst

that is boldly stepping ever further out on the limb of energy-

thousands of people with umbrellas sharing the road in Lagos,

dependent urban civilization.

Nigeria, a city of about 15 million people, a six per cent growth rate, soon expected to overtake Cairo as Africa’s largest city.

And my personal favourite, a pool party of epic proportions in Suining, China, with thousands of people crammed into a pool to escape the summer heat wave of July 4, 2010—quite possibly not

And thirdly, it seems Royal Dutch Shell plc knows an opportunity when it sees one. This fall it became the third partnership to propose a liquefied natural gas export terminal on Canada’s Pacific Coast (after Progress Energy/Petronas and Kitimat LNG).

With three viable LNG export projects, the prospects for

a single one of them knowing how to swim since everyone has

­natural gas in the Western Canadian Sedimentary Basin are

a happy-coloured inflatable swimming ring wedged under their

looking up, which would be icing on the cake for Oilweek ’s 2011

armpits while splashing, shouting, laughing, wiping water from

Producer of the Year, Bonavista Energy and its two runners-up,

their eyes….

Progress Energy and Peyto Exploration & Development.

pstastny@junewarren-nickles.com

next month The year before us

All’s quiet on the M&A front

Our stable of industry pundits weigh in on

The past year wasn’t exactly one for the books on the

what they see on the horizon for 2012. The

mergers and acquisitions front, as a few major proposed

past year met some expectations, fell short

deals fell through at the last minute. We’ll look at what the

of others, surpassed yet others; time will

climate might be for 2012, and delve into what makes a

tell if the forecasts this time around are

good M&A leader.

any better.

Oilweek.com

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7

the patch BITS & TRIPS FOR THE CANADIAN OILPATCH

15

16

FirstEnergy’s outlook

Experts predict below-

Primary and secondary

for natural gas

average oil prices for

oil recovery holds up

producers optimistic

winter 2012

spread of EOR

Photo: Reuters

10

Newly elected premier Alison Redford celebrates her win.

They like her! They really like her!

Back in the summer and fall, when wags in Alberta were pontificating on who might emerge from the six-pack of contenders for Ed Stelmach’s top job with the Progressive Conservatives, Alison Redford wasn’t high on too many lists. Before the first vote, most figured the fight would come down to a battle between Gary Mar and Ted Morton.

Before the second vote—with Mar facing off against unlikely opponents Doug Horner and Redford—the betting money seemed still to be with Mar. But in the end, Redford squeaked out a narrow victory over Mar, thanks to many Horner voters making her their second choice.

Redford’s selection prompted our latest Oilweek web poll, in which we asked our readers whether they thought the PC choice would turn out to be a wise one; would Redford, in fact, prove to be an effective leader of the party, and lead them to a win in the next provincial election, whenever that might be.

Nearly 43 per cent of respondents thought Redford was just the ticket for the PCs, while 26 per cent stated a definite uncertainty about whether she could do the job. The rest— 31 per cent—were undecided.

Oilweek.com

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9

the patch Photo: Joey Podlubny

Someone always has to be

different

Every crowd has a contrarian. When it comes to natural gas forecasts, that role falls to FirstEnergy Capital Corp.

While most don’t see much reason for natural gas producers to be optimistic for the coming year, FirstEnergy’s outlook is comparatively hopeful.

The firm believes AECO natural gas prices will average C$4.54 per thousand cubic feet in 2012, compared to $3.84 this year.

10

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Oilweek December 2011

That’s still a slight drop from its earlier predictions of $4.63 per thousand cubic feet in 2012, but it’s still well above other predictions.

AJM Deloitte, for example, is expecting AECO gas prices to average $4.10 per thousand cubic feet next year.

So what makes FirstEnergy so positive about gas prospects next year?

The company is banking on a “deceleration” of U.S. gas supply, which should help ensure that demand will remain robust for the year.

But whatever FirstEnergy is seeing, AJM doesn’t share the view.

“There is some positive news in that the U.S. storage levels forecast for the November withdrawal period are near the prior fiveyear minimum,” says Ralph Glass, director of energy valuation and operations at AJM. “We, however, have not seen the turn in overall U.S. production. Wells are still being drilled to hold land leases and for liquids recovery.”

Photo: Copyright © Pembina Pipeline Corporation. All rights reserved.

the patch

$200-million gas liquids projects in the works Pembina Pipeline Corporation plans to construct a 200-million-cubic-feet-per-day enhanced natural gas liquids extraction plant, and associated natural gas liquids and gas-gathering pipelines in the Berland area of west-central Alberta.

Cost of the project is approximately $200 million and will contribute annual EBITDA of around $30 million (including pipeline tolls), the company says.

Called the Saturn facility, it will be connected to Talisman Energy Inc.’s Wild River and Bigstone gas plants through existing and newly constructed gas-gathering lines.

Once operational, Pembina expects the Saturn facility would be able to extract up to 13,500 barrels per day of liquids.

Pembina plans to construct an 83-kilometre, eight-inch pipeline to transport the extracted natural gas liquids to Pembina’s Peace Pipeline, which delivers product into Edmonton.

The new plant, combined with Pembina’s Musreau Deep Cut Facility and its recently announced Resthaven Facility, are expected to bring the company’s total enhanced natural gas liquids extraction capacity to approximately 600 million cubic feet per day.

$3.41 Amount raised from land sales by Canadian governments in the first three quarters of 2011. That’s the third-highest amount in the past decade.

Oilweek.com

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11

the patch

Raining on his parade

Photo: Photos.com

It’s not every day you get selected as the best of the best. For Pat Daniel, 2011 is his year: he’s been named Canada’s Outstanding CEO of the Year by Caldwell Partners, joining such luminaries as TD Bank president Ed Clark (2010), former TransCanada president Hal Kvisle (2008), RIM chairman Jim Balsillie (2006), Encana founder Gwyn Morgan (2005), CNR president Paul Tellier (1998) and ATCO’s Ron Southern (1996).

But that, it seems, matters not to the environmental community. In a tersely worded release, Pierre Iachetti, conservation director with Forest Ethics, pooh-poohed the award, and did his best to be nominated for Oilweek’s inaugural Green Grinch of the Year (which we shall bestow next spring) by suggesting that designating Daniel the CEO of the Year Award is “like the foxes giving each other awards for raiding the chicken coop.”

Transforming energy puT a liTTle Torque in my sTep.

Rashid Hamid at THE NEW SCIENCE CENTRE

DiscovEr hoW amaziNg you arE Now open | sparkscience.ca 12

|

Oilweek December 2011

the patch

That’s what he said

‘‘

I’ve seen the land reclamation progress at oilsands sites. It’s a necessary, staggeringly complex process, and evidence shows the land will be reclaimed as thriving ecosystems after oilsands are developed to help meet the world’s growing energy needs.”

‘‘

— Dr. Patrick Moore, co-founder and former leader of Greenpeace, and current chair and chief scientist of Greenspirit Strategies Ltd.

OLD SCHOOL.

Dig, stage, weld, weld, weld… operate, corrode, rupture, repair, operate, corrode, rupture, replace.

Oilweek.com

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13

the patch

Former Canadian GM to head

ConocoPhillips

Photo: ConocoPhillips

When ConocoPhillips announced in July that it would split its refining arm from its exploration and production operations, all that was known was that current chief executive officer Jim Mulva would not be a part of either business.

Now the company has revealed who will be replacing the retiring CEO—and there’s a familiar face for Canadians.

Senior vice-president of international exploration and production Ryan Lance will be stepping into the chief executive’s role for the exploration and production business. Over the years, he has held a number of leadership positions with ConocoPhillips, including serving as general manager of Canadian operations for Phillips Petroleum Company before it merged with Conoco Inc. in 2002.

Greg Garland, senior vice-president of exploration and production for the Americas, will become head of the refining and marketing operation.

ConocoPhillips expects the split to be completed by the second quarter of 2012.

Experience, leadership, performance.

Since it was established in late 2008, CanElson Drilling Inc. has grown quickly to become one of Canada’s premier drilling contractors. In addition to building its own drilling rigs, the company is expanding its fleet of drilling and service rigs through acquisition. CanElson now operates a fleet of 33 rigs (30 net).

With operations in Western Canada, West Texas, North Dakota and Mexico, CanElson Drilling Inc. is setting new standards for rig utilization.

With right-sized, purpose-built rigs built for horizontal and resource play drilling and experienced, well-trained crews, the company is achieving new records for cost-effective, efficient drilling operations.

Suite 700, 808 - 4th Avenue SW, Calgary, Alberta, Canada T2P 3E8 Phone 403.266.3922 Fax 403.266.3968 www.CanElsonDrilling.com

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Oilweek December 2011

TSX: CDI

the patch

Oil price chill expected in

early 2012

Experts are forecasting below-average temperatures throughout much of Canada and the United States during the winter of 2011-2012. Now it seems the chill is setting in on oil prices as well.

Morgan Stanley has cut its initial 2012 forecast by $30, down to $100 per barrel, prompted largely by rising oil output from Libya and the still-shaky global economy, Reuters reports.

Prices are expected to drop as low as US$85 per barrel during the first half of the year before rising to $110, although the direst scenario suggests prices could dip as low as US$60 per barrel before recovering.

“We see downside risk in the first half of 2012 as growing supply should coalesce with slowing GDP, a stronger U.S. dollar and elevated risk aversion to push down oil prices,” the investment bank says in a research note.

Brent crude prices reached as high as $127 per barrel earli­er this year—their highest level since mid-2008.

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Oilweek.com

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15

the patch

EOR no more?

In hindsight, it seems so obvious.

What has been holding up the spread of enhanced oil recovery (EOR), sometimes referred to as tertiary oil recovery, across western Canada? Primary and secondary oil recovery, of course.

According to the Daily Oil Bulletin, Edmonton-based consulting engineer Bruce Peachey laid out the problem in even blunter terms at a Petroleum Technology Alliance Canada conference on CO2 management in early October. “[EOR] can’t just be economic,” he says. “It has to be more economic than anything else that shareholders’ money can be invested in.”

And as long as Canada lacks a ready supply of affordable CO2 for use in EOR, that situation isn’t likely to change anytime soon.

While the United States has the advantage of cheap, natural CO2 deposits for use in EOR, western Canada’s most economical supplies are generated by gas plants.

“And you need the gas plants to recycle the CO2,” he explains. “So not only do we need the gas plants as potential CO2 sources, we need them to collect the gas and treat it so we can re-inject it.”

Oilsands reputation tarred by EU 16

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Oilweek December 2011

Peachey sees some potential for EOR development in several mature oilfields around the province close to natural gas plants. But he also admits it’s likely that investors will continue to prefer primary oil recovery over the more expensive EOR process.

“It’s what shareholders expect oil companies to do,” he says.

Even secondary recovery, which typically involves waterflooding, will likely remain more popular than EOR, Peachey says.

“If you look at the cost options, it is always cheaper to inject water than to inject a gas.”

If producers are interested in tertiary recovery, Peachey says, they’ll likely look south of the border, where the United States has the advantage of existing EOR operations, affordable CO2 and supportive public policy.

“They’re not doing EOR to get rid of greenhouse gases, they’re doing it to make money. The same as Weyburn,” he says.

That 11-year-old Saskatchewan project, owned by Cenvous Energy Inc., remains the last major EOR project launched in western Canada.

The European Commission has proposed that the oilsands be ranked as a higher pollutant than other oil sources in the European Union’s fuel quality directive, Reuters reports.

Under the guidelines, fuel from the oilsands would have a greenhouse gas value of 107 grams per megajoule, compared to 87.5 grams for conventional crude oil.

The news was met with much concern in Ottawa, which had been arguing against the inclusion of the oilsands in the directive.

“Should the European Union implement unjustified measures which discriminate against the oilsands, we won’t hesitate to defend our interests,” says federal Natural Resources Minister Joe Oliver, adding that the government would look at taking the issue to the World Trade Organization.

According the Canadian Association of Petroleum Producers, Canada does not currently export oil to the European Union.

Photo: Photos.com

the patch

Dying for a cigarette A government organization in the United States known as the Chemical Safety Board is urging oil and gas companies to take swift steps to beef up security at oil and gas storage tank sites.

The reason: Too many deaths—especially among those 25 and younger—by people who make recreational visits to the sites and end up dying.

In a report on the incidents that was carried by the news media in Texas, the board highlighted three recent lethal explosions, including one in April 2010 that killed a 24-year-old woman and injured a 25-year-old man after they lit a cigarette while on top of a oil tank.

The board said there were 23 similar incidents that involved mostly teens out partying or children—at oil and gas storage sites from 1983 to 2010. Texas, Oklahoma and Louisiana led the United States in the number of the deaths.

ATCO Pipelines provides reliable and efficient delivery of natural gas and is committed to operational excellence and superior customer service while ensuring the safety of our employees and the public.

Experience. Growth. Commitment.

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Phone 403.245.7060

4,000 Estimated number of people who have registered to speak before the Joint Review Panel on Enbridge’s Northern Gateway pipeline proposal. Each speaker will be allotted 10 minutes at the hearings, which are scheduled to begin in January 2012.

Source: Daily Oil Bulletin

Oilweek.com

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17

blank page for duplexing

ene a l t erna t i ve

Green Mountain Normally, skiers don’t want Whistler, B.C., to be green.

But they might be willing to make an exception in this case.

The popular mountain ski resort has fulfilled its pledge to be carbon neutral by 2012 ahead of schedule, making good on a promise it made when it signed the Climate Action Charter with 178 other B.C. municipalities in 2010.

To reach that goal, Whistler pursued numerous emission reduction initiatives, such as lighting upgrades and the $900,000 installation of geoexchange and solar heating systems at the local Meadow Park Sports Centre.

Whatever emissions the resort couldn’t reduce were counterbalanced with the help of Offsetters, a B.C. carbon management consultancy. The firm purchased carbon offsets on behalf of the municipality from a renewable energy project run by SunSelect Produce in Aldergrove, B.C., and a wind turbine project in Turkey.

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Oilweek December 2011

Trucking company pumped on LNG A trucking company in British Columbia has devised a simple plan to cut its fuel bill in half—and all it had to do was build its own fuelling station.

Well, that’s one way to ensure you don’t get gouged at the pump.

It probably helps that Vedder Transport Ltd. won’t be fuelling its trucks with diesel, but rather liquefied natural gas (LNG) provided

by FortisBC, which will run the service for the company. At current rates, LNG is 50 per cent below the cost of diesel.

In addition to the cost savings, the move will also help the company slash its greenhouse gas emissions by 27 per cent when compared to diesel. In total, Vedder expects to reduce its annual greenhouse gas emissions by 3,500 tonnes per year.

Vedder expects to have a fleet of 50 LNG-powered trucks running by early 2012.

rgy rene w ab l e

Mills mull biomass prospects Could pulp mills be the power plants of the future?

The president and chief executive officer of the Forest Products Association of Canada thinks so, and he’s gone before the Canadian senate to make the case for generating biomass energy from pulp waste.

Speaking to the Senate Standing Committee on Energy,

Image: Canadian Wind Energy Association

the Environment and Natural Resources, Avrim Lazar says the Canadian forestry industry currently produces the power equivalent of three nuclear reactors, and that number could triple over time.

“Already we are self-generating about two-thirds of our energy needs and about a half-dozen of our mills are now net exporters of energy to provincial grids,” he says.

Biomass power ranks behind only hydroelectricity among Canada’s largest sources of renewable energy.

Record-breaking wind in Canada The final numbers aren’t in just yet, but it’s looking like Canada is heading towards a record number of windenergy installations this year.

According to estimates from the Canadian Wind

Everything you always wanted to know about wind power (but were afraid to ask) What sort of threat does a wind farm pose to birds?

How does a wind turbine affect television reception?

And just what happens if one is hit by lightning?

These are just some of

Energy Association (CanWEA), Canada will see 1,338

the concerns addressed

megawatts of new wind-energy capacity added to

in An Introduction to Wind

the power grid in 2011, bringing with it $3.5 billion in

Energy Development in

investment.

Canada, a new document

That represents a sizable increase from 690 mega-

released by the Canadian

watts in 2010, and is the highest new capacity ever

Wind Energy Association

added in a single year in Canada.

(CanWEA).

When everything is tallied up, the country should

The 36-page guide is

have more than 5,300 megawatts of wind-energy cap-

aimed at helping both public stakeholders and developers

acity by the end of 2011.

understand the issues surrounding wind power in Canada. It

And that number could possibly double in the near

covers everything from proper site identification to clarifying

future. CanWEA says over 6,000 megawatts of wind-

jurisdictions, as well as various other safety and environ-

power projects have been contracted and could come

mental concerns.

online in the next five years.

The document is available on CanWEA’s website.

Oilweek.com

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19

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PRODUCER OF THE YEAR

Years ago, when the majors were shedding dead weight— those stodgy assets in the Western Canadian Sedimentary Basin that tended to drag on production growth—who was buying? The answer: Energy income trusts.

Corporation

1

Bonavista Energy

These trusts then went about building value by practic-

ing fiscal discipline, production optimization and doling out their profits to a growing investor segment eager for cash flow, while returning to a seemingly inexhaustible pool of money to raise more capital for more land, more junior oil and gas companies, and more development. The model seemed to work brilliantly until one Halloween day four years ago.

A lot has happened since then—none of it particularly good—with perhaps one big exception: horizontal multifrac technology, as noted by Keith MacPhail, chairman and

Resources Corp.

2

Progress Energy

chief executive officer of Bonavista Energy Corporation and former Canadian Natural Resources Limited executive, really doesn’t have an industry analogue in how quickly and profoundly it has changed the oil and gas industry.

In 2007, Bonavista drilled four per cent of its wells using horizontal multi-frac technology. Today, it drills 80 per cent of its wells that way. It’s not alone.

And the most prospective assets in the basin for the application of this technology are largely the ones income trusts are already sitting on like golden eggs.

Still fiscally disciplined, focused and knowledgeable of Development Corp.

3

Peyto Exploration &

their assets’ geology, former income trusts are now corporations that have, to a greater or lesser extent, layered growth into their strategies. They are the most exciting companies on the block these days.

Not surprisingly, after tallying the votes, Oilweek’s Producer of the Year as well as its two runners-up all happen to be former income trusts: Bonavista Energy, Peyto Exploration & Development Corp. and Progress Energy Resources Corp. In the pages that follow, learn about how these companies have morphed in the last few years, and where they go from here.

Oilweek.com

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21

Photo: Bonavista Energy Corporation

Winner | Bonavista Energy

STANDING TALL Bonavista combines what was best

It’s not that MacPhail doesn’t like talking about the

about income trusts with what is

success of the company he and Ron Poelzer, Bonavista’s

best about corporations to create a

current executive vice-president and vice-chairman,

dividend-paying powerhouse ­

founded in 1997—how they started as a junior with a $20-million market capitalization, worked that into an

By R.P. Stastny

intermediate in three years, providing investors with a dizzying $0.75–$8.15 stock ride, then grew production at 20–40 per cent per year up until the accretive

Bonavista Energy

22

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1

Oilweek December 2011

expansion years of the income trust era and, more Keep it low-key. Don’t stand out in the

recently, emerged as a dividend-paying corporation

crowd too much. And because ­success

with a market cap of $4 billion and production of 73,000

is a team effort at Bonavista Energy

barrels of oil equivalent per day. All that is fine. You

Corporation, bring in your ­p resident

can read it on the website. And while there’s room in

and chief operating officer to focus

MacPhail’s world to celebrate success, there’s no point

the discussion on the company and its

attracting too much attention. More important than

­people—these are just some of the things

talking up your business is going about your business,

Keith MacPhail, Bonavista’s chairman

and that’s getting oil and gas to market as efficiently

and chief executive officer, seems to have

and cost-effectively as possible.

considered before sitting down to discuss

Chalk up this no-nonsense business approach to

his company’s achievement as Oilweek’s

growing up on a farm in the Medicine Hat area of

2011 Producer of the Year.

Alberta. It’s a work ethic and demographic story made

Photo: Bonavista Energy Corporation

cost operator in terms of drilling and completing this

Bonavista’s president and chief operating officer, Jason

play to date. But that’s not good enough for the asset

Skehar, who grew up on a farm outside of a little town

team. They want to find a more effective, lower-cost

called Theodore in southeastern Saskatchewan.

alternative to develop this resource. So they’re con-

Like MacPhail, Skehar is an engineer. Like MacPhail,

tinually looking for better ways to do the business.

he has a strong entrepreneurial bent. And his career

That kind of spirit creates a healthy, competitive en-

trajectory seems to mirror MacPhail’s, who in the

vironment to work in.”

2

Peyto Exploration &

Development Corp.

data that we’ve seen suggests that we’re the lowest-

oil and gas executives. It’s also a history shared by

Progress Energy

Resources Corp.

famous by some of western Canada’s most esteemed

Bonavista Energy

Corporation

2 3 1

PRODUCER OF THE YEAR

Bonavista Energy drills 80 per cent of its wells today with horizontal multi-frac technology versus four per cent in 2007. The company is focused on three core regions in western Canada.

1

3

mid-1990s was being groomed for the top position at Canadian Natural Resources Limited.

People

But in MacPhail’s case, that entrepreneur spirit side-

In thinking about Bonavista as Oilweek’s Producer

tracked him and prompted him to launch Bonavista

of the Year, MacPhail probably also decided that the

through a reorganization of Bonavista Petroleum Ltd.

right amount of publicity could be a good thing, at

in the fall of 1997.

least in considering that one of the main challenges

Fortunately, an enterprising spirit remains alive and well at Bonavista today, which seems to amply satisfy Skehar.

facing the industry today is finding employees.

Burgeoning oilsands development and the renaissance of opportunities in the Western Canadian

“The entrepreneurial spirit radiates in the halls

Sedimentary Basin ignited by the application of mod-

here,” he says. “A good example of this is the evo-

ern horizontal multi-frac technology have spawned a

lution of our Glauconite play. We’re coming up on

strong demand for talent. So shedding the remnants

100 horizontal wells drilled into this play and all the

of the image that came to be associated with income

Oilweek.com

|

23

producer of the year

Photo: Bonavista Energy Corporation

Jason Skehar (left), president and chief operating officer, with Keith MacPhail, chairman and chief executive officer, Bonavista Energy Corp.

Bonavista Energy

trusts—as somewhat conservative, uninspiring places

outwardly sloping glass spanned by white trellis beams.

to work—could actually help it today.

Tropical trees, sand-coloured stonework and cascades

Employees want to feel good about their companies,

of natural light fill the space—and the theme of light

they want a variety of opportunities and a runway of

is repeated in its office spaces as well. Bonavista occu-

advancement potential. In these and other aspects,

pies three and a half floors high up in the building

Bonavista is a heavy hitter.

overlooking Calgary and the mountains. Its corri-

“The people challenge in our industry cannot be

dors are modern, incorporating the latest trend in

understated,” MacPhail says. “I think we need to change

floor-to-ceiling glass walls and sliding doors to keep

our mindset a little bit. Historically, at Bonavista we’ve

things uncluttered.

hired people with five, 10 or 15 years’ experience

“I think this creates a better image for our com-

who could come in and hit the ground running. As of

pany without a lot of extra expense,” MacPhail says.

late, we’ve recognized that we have to settle for less

Attracting employees is one thing. Retaining

­experience or even start focusing on new grads and

them is aided by encouraging Bonavista’s manage-

establish good mentorship and training programs in

ment, directors and employees to maintain high

the organization.”

levels of ownership, something in the order of

Across its three core regions, Bonavista has a wide

15 per cent. This isn’t particularly unique in the

spectrum of play types, from liquids-rich gas, deep sour

oilpatch; what is unique is that 14 of its top man-

gas, shallow gas to conventional oil, waterfloods and

agers have spent an average of 11 years with the

heavy oil. That’s good variety for attracting employ-

company. Ownership in the company also has a way

ees and it’s good asset diversity for the company and

of focusing attention on creating shareholder value.

its investors.

24

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As for how things get done at Bonavista, MacPhail

“Since we moved from a trust structure to a

says, “We believe that more heads are definitely

­corporation at the end of 2010, we’ve increased our

better than one in making a decision. So we tend

drilling and our spending and, of course, geologists

to work in teams and reach a consensus. Of course

and engineers love that,” MacPhail adds.

that can’t always be achieved. Ultimately, somebody

More visibly, the company also shed its old skin by

has to make the final decision if there’s a stalemate

moving to a newly built tower in downtown Calgary.

but, generally, I think it’s a very good environment

The expansive lobby of Eighth Avenue Place features

to work in.”

Oilweek December 2011

Photo: Bonavista Energy Corporation

Peyto Exploration &

Development Corp.

Progress Energy

Resources Corp.

didn’t throw the baby out with the bathwater. Today,

Skehar notes that the Western Canadian Sedimentary

it pays a hefty dividend of about six per cent per year

Basin happens to be about the same percentage so,

(based on a $25 stock price). Combined with produc-

as the company grows, it makes sense to reflect the

tion and stock valuation growth targets of about five

basin’s gas weighting. But ultimately, Bonavista’s gas

to seven per cent, that adds up to about a 12 per cent

weighting is a function of its opportunities. And right

annual return to investors.

more profitable than its oil opportunities.

2

3

In its conversion back to a corporation, Bonavista

Bonavista’s current gas weighting is about 62 per cent.

now, many of its liquids-rich gas opportunities are

Bonavista Energy

Opportunities

Corporation

PRODUCER OF THE YEAR Bonavista Energy has a wide spectrum of play types, from liquids-rich gas, deep sour gas, shallow gas to conventional oil, waterfloods and heavy oil.

1

“I believe investors are more receptive to dividendpaying companies during a volatile market than they

“It wouldn’t bother us to increase our gas weighting

are just to a pure-growth company,” MacPhail says.

if that’s where we think we can make more money,”

“Without the dividend, you are totally at the whim of

MacPhail says. “Quite frankly, because everybody is so

the commodity price movement.”

focused on oil right now, it’s driving the cost of doing

A strong balance sheet allowed Bonavista to take

oil drilling and oil acquisitions up. So going against

advantage of a major opportunity in the summer of

the grain, acquiring and developing low-cost gas right

2009 when it was layering in growth-oriented assets.

now, could be the right strategy a few years out.”

It paid about $700 million—its largest transaction to

Bonavista’s strength is built on a strategy put in

date—for about 492,000 acres of contiguous land, of

place 14 years ago: stay focused in a few core areas,

which approximately 156,000 (136,000 net) acres are

complement those areas with acquisitions along the

undeveloped. That provides it with extensive explora-

way, maintain a high working interest, and control

tion and development potential in many zones within

your operations, from drilling to production to facili-

the area. But currently, its primary development pro-

ties. Its long-term averaged recycle ratio (netback less

gram is focused on drilling horizontal wells in the

finding development costs) of 2.1:1 probably ranks it

Glauconite and Rock Creek formations using hori-

in the top 10 per cent of the pack.

zontal multistage fracture techniques.

“As licensee and operator, just being able to con-

“Our entry into the western region came when we

trol when you make that expenditure, how much

acquired a producing asset just north of Calgary from

you’re spending, what you’re spending it on, is very

a major,” Skehar says. “It came with a lot of controlled

important to us,” Skehar says.

infrastructure and operatorship. We’ve grown the

Oilweek.com

|

25

producer of the year

Bonavista Energy’s current gas weighting is about 62 per cent—something company chairman and chief executive officer Keith MacPhail says the company would increase “if that’s where we think we can make more money.”

Bonavista Energy

26

|

western region from 3,000 barrels a day in 2002, to

four per cent of its wells with horizontal multi-frac

46,000 barrels a day currently. It’s definitely been

technology in 2007, today it drills 80 per cent of its

the fastest growing and most profitable region for

wells with this technology.

us and it will continue to be so. We’re allocating

With its growth target of five to seven per cent

80 per cent of our exploration and development cap-

per year, combined with a few strategic acquisitions,

ital to the western region this year.”

Bonavista should become a 100,000-barrel-a-day com-

In applying new technology to older reservoirs and

pany with 300 or 400 employees in five to 10 years. And

assets that have been underexploited, Bonavista has

no matter how low-key you play it, a company of that

tracked a remarkable statistic. Where it drilled only

size will, by its very nature, stand out in the crowd.

Oilweek December 2011

Photo: Bonavista Energy Corporation

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Photos: Bonavista Energy Resources Corp.

Runner-up | Progress Energy

ON THE GAS PEDAL Progress Energy’s aggressive growth in natural gas has new markets in mind

Better yet, this Asian energy tiger comes with a wealth of liquefied natural gas (LNG) shipping experience, access to high-paying gas markets and

By R.P. Stastny

is intent on building an LNG facility on the west coast of Canada, in which Progress Energy will have a 20 per cent stake.

Meanwhile, the prospects for Canadian LNG

Progress Energy

28

|

2

Oilweek December 2011

Think Montney and, by association,

exports are looking up with the National Energy

Encana Corporation comes to mind. Yet

Board’s recent issuance of an LNG-export licence

the largest owner of Montney rights

to Kitimat LNG, a producer-owned facility proposed

of any producer in the play is actually

for a fog-shrouded inlet south of Prince Rupert, B.C.

Progress Energy Resources Corp., with

The more definite step in opening North American

some 1.1 ­million acres. And, not to rub it

natural gas to world markets is expected in the first

in, but where Encana failed to consummate

quarter next year when the Kitimat LNG partners—

its proposed partnership with PetroChina

Apache Canada Ltd., EOG Resources Canada, Inc.

International Investment Company to

and Encana—make their business decision to go

speed development of some of its key

ahead with the plan.

natural gas assets in northeastern British

Of course, pending a favourable decision, the facility

Columbia, Progress succeeded in tying

will still need to be built, which will take time—years,

the knot with Malaysia’s state energy

in fact. And Progress Energy’s plans are at an even

company, PETRONAS.

earlier stage. But when you’re among the lowest-cost

Photos: Bonavista Energy Resources Corp.

tion even more dramatically than it has to date. The

a junior to ultimately, what we see now, as being a

2,000 barrels of oil equivalent (boe) per day of pro-

multinational company,” Culbert says.

duction it started with as a junior a decade ago is

Early in his career with Encal Energy Ltd.—and

now about 50,000 boe a day. By 2015, Progress Energy

even before that when he was with Home Oil—Culbert

expects to be producing 100,000 boe a day, accord-

recognized one of the challenges in a maturing basin

ing to Mike Culbert.

was finding sufficient resources to take a company

Progress Energy’s president and chief executive offi-

3

to the next step. So Progress always headed for areas that could provide scalability.

cer since 2004. He was also one of its founders in 2001

“We were also looking for technology enhance-

when the company recapitalized under new man-

ments that could leverage those assets. So if you could

agement. Today, on the eve of the company’s 10th

crack the nut on one of these plays, it would yield a

anniversary, Culbert is feeling pretty good about the

hundredfold opportunity,” Culbert says.

company’s prospects.

2

Peyto Exploration &

repeatability of the asset base to be able to grow from

The third-generation Alberta oilman has been

Development Corp.

“What it’s all about [for Progress] is having the

By then, Progress will have grown its produc-

Progress Energy

asset position.

afford to wait.

Resources Corp.

once it found what worked, it set about fortifying its

most economic gas plays in North America, you can

Bonavista Energy

producers of liquids-rich natural gas in one of the

Corporation

Progress Energy is the largest landholder of any producer in the Montney with well over a million acres.

PRODUCER OF THE YEAR

2 3 1

1

Progress Energy gravitated to British Columbia,

“It’s a very aggressive growth plan,” he says. “But

where its management was familiar with the plays from

the joint venture fits into it. New market development

their Encal Energy days. There, Progress made a small

fits into it. All of these are stepping stones to that goal.”

acquisition and started building around a predominantly tight gas position in the Halfway trend while

Trust in growth

experimenting with different fracturing techniques.

The rapid growth Progress is planning may raise

In 2004, it turned to the Deep Basin and made

eyebrows considering its income trust roots. But it’s

a major acquisition in the Wapiti/Elmworth area

worth remembering that Progress spun out two ex-

south of Grande Prairie, Alta. It focused on the Deep

ploration companies when it converted to the trust

Basin in northwestern Alberta and the B.C. foothills,

model in 2004. One was ProEx Energy Ltd., which was

built its own infrastructure and bought ownership

managed from within the income trust. It continued

in gas plants.

pursuing exploration opportunities until 2007 when

“Today, we have 100 per cent ownership in most

Progress bought it back: exploration and a strong

of these assets,” Culbert says. “We’re able to control

growth orientation were always part of the Progress

our pace of development and, along with owning our

Energy skill set. Testing new technologies to unlock

infrastructure, that allows us to be one of the lowest-

production was another part of its game plan. And

cost operators in the region.”

Oilweek.com

|

29

producer of the year Photos: Bonavista Energy Resources Corp.

Mike Cuthbert, president, Progress Energy Resources

By 2015, Progress Energy expects to be producing 100,000 barrels of oil equivalent a day.

Progress Energy

Montney

in with the gas. Progress Energy’s production typically

The Montney showed up on the industry’s radar

yields about 20 barrels of liquids per million cubic feet

in about 2005. Progress had been drilling through

of gas, a ratio which doesn’t strictly meet the level of

the Montney in the foothills with some shows and

true liquids-rich gas, but which is enough to provide

decided to frac the formation through vertical wells

a nice little price bump.

to see what it could get. Encouraging results spurred

In times of more robust gas prices, producers have

further experimentation until 2008, when it drilled

been able to fund their gas development with cash

its first horizontal well in the formation.

flow, but the current low-price environment has forced

“We were drilling horizontally into the Halfway,

many producers to either go to the capital markets for

but the Halfway is such hard rock [that] it’s difficult

more money or to sell some of their portfolio assets or

to go horizontal. Like others, we found that once you

look for joint ventures. Last August, Progress chose the

get down to the Montney, it drills pretty effectively,”

latter as its preferred route to growing in the Montney.

Culbert says. “And like others at the time, we were using the poly-CO2 frac technique. The results were fairly

The road ahead

encouraging—not out of the park but quite encour-

With the U.S. shale gas revolution came weaker

aging—so we evolved the play and drilled additional

Canadian gas exports to the United States. North

horizontal wells.”

American gas prices normalized at their current low

Then Progress piloted a new frac method in the

levels, and producers recognized that the massive

Deep Basin with Calfrac Well Services Ltd., which

natural gas potential in western Canada faced an

became Calfrac’s Slick Pro product. Slick oil comple-

uphill battle if they couldn’t find some creative solu-

tions opened up the Nikanassin formation for Progress

tions to staying in the game.

and produced some good results.

joint-venture partnerships were struck and new markets

technique called slick water, which was being used

for gas were sought. Apache Canada, EOG Resources

in the U.S. shale gas plays. Essentially a soapy water

Canada and Encana played their LNG export card.

mixture, slick water reduces friction. It improved

Talisman Energy Inc. formed a $1.05-billion partner-

Progress Energy’s Montney well productivity by almost

ship with South African chemical and energy giant

threefold.

Sasol Limited to develop Talisman’s Montney Farrell

“It was a game changer,” he says.

Creek assets, but also to assess the viability of Sasol’s

The company then reshuffled its geographic priori-

synthetic gas technology for the conversion of nat-

ties and weighed in on the Montney. It bought additional

ural gas into transportation fuel. And now Progress

rights in the stratigraphic column as a risk-mitigation

Energy has weighed in with its PETRONAS partner-

strategy and set out to chase sweet gas, which doesn’t

ship and LNG plans.

require costly additional processing to remove hydrogen sulphide and CO2, and gas with liquids.

30

|

So finding and development costs came under fire,

In the Montney, it tested a related completions

Clearly, many of western Canada’s gas producers and, in particular, Progress Energy, aren’t sitting

The Deep Basin actually tends to have a higher

around waiting for commodity prices to turn. They’ve

liquids content, but the Montney is a very thick forma-

rolled up their sleeves, and something big is going to

tion along the foothills with varying levels of liquids

come out of all this effort.

Oilweek December 2011

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Photo: Peyto Exploration & Development Corp.

Runner-up | Peyto Exploration & Development

RIGHT TIME TO GROW Peyto Exploration & Development’s

You could easily do these talks by teleconference,

Deep Basin pure play charges ahead

and Gee, president and chief executive officer of Peyto

with modern multi-frac technology

Exploration & Development Corp., has done them electronically in the past. But the financial markets haven’t

By R.P. Stastny

been kind to investors in recent years. Unrepentant money markets, unbridled fear and greed, virtual trading and a moral code seemingly rooted only in profit have investors desperate for an edge before pulling

Peyto Exploration & Development

32

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3

Oilweek December 2011

You’ll have to excuse Darren Gee for

the trigger. So they want to see the company heads

­sounding a little flat in telling the com-

in person, gauge the tenor of their voices, watch their

pany story yet again. It’s just that he’s

gestures, get a sense of their attitudes and tally up the

returned from New York and Toronto

clues before handing over their money.

where he’s been plugging his company to

And actually, Gee can appreciate that. He would do

investors, ­education trusts and everyone

the same in their place; cut through the hype, get to

else because, these days, they want to

the facts. In his role as president of Peyto, hype doesn’t

hear it directly from the horse’s mouth.

seem to be part of Gee’s repertoire—even though, if any energy company stock deserves to be hoisted on investors’ shoulders these days and paraded around the stadium, it’s Peyto Exploration.

In an era of floundering natural gas prices, this pure play, Deep Basin, natural gas producer has grown with

Photo: Peyto Exploration & Development Corp.

maintaining a stock price above $20.

“We’ve had periods in our history when it was the

“Our growth is partly tied to the technology and

erating weren’t strong enough,” Gee concedes. “There was too much volatility in the royalty regime, too much

is right,” says the Calgary born and raised engineer.

uncertainty in the corporate trust tax model and,

Warming up to the task of retelling the Peyto story,

for that matter, too much volatility in the gas price.”

that before is, well, us—when we were smaller.”

Gee is one of the few people in the industry who is perfectly content with today’s gas prices. While

Peyto outgrew its junior breeches in a growth spurt

­others steer their companies towards oil and those

that took it from 10,000 barrels a day to 20,000 bar-

who have stayed with gas lament the soft prices and

rels a day. A lot of companies manage to do that with

wait for a turnaround, Peyto has been wildly success-

external funding, but Peyto did it with cash flow.

ful at current prices. In fact, Peyto actually prefers

“It’s all about growing production per share,” Gee

low commodity prices.

says. Today, with a $2.5-billion market cap, closing in

“The biggest stick in the spokes right now would

on production of 40,000 barrels of oil equivalent per

be higher gas prices,” Gee says. “I know it sounds

day and with only 34 employees, Peyto quite possibly

crazy for a gas producer to say that the last thing he

has the best gas-to-ass ratio in the industry.

wants is for gas prices to go up, but as soon as we get

“If commodity prices are relatively flat as they’ve been, then your cash flow per share is growing at the

3

wrong time to grow because the returns we were gen-

partly to our ability to move quickly when the time

Gee adds, “The only company that I’ve ever seen do

2

Peyto Exploration &

Development Corp.

company’s view, is the right time to grow.

gains in the recent energy sector value backslide,

Progress Energy

Peyto’s growth is by choice. And right now, in the

this year. It’s also managed to protect most of those

Resources Corp.

Deep focus

from a $6.35 low in March 2009 to $23.15 in August of

Bonavista Energy

astonishing determination. It rebuilt its stock price

Cororation

PRODUCER OF THE YEAR

With a $2.5-billion market cap, Peyto Exploration, a pure play Deep Basin natural gas producer, is nearing production of 40,000 barrels of oil equivalent per day.

1

$5 or $6 gas, everybody and their dog sinks money into drilling gas wells.”

same rate as your production per share along with the

That’s when things get crazy. Service costs go

rate of your reserves growth,” Gee says. “So all your

through the roof. And Peyto ends up making the same

value creation metrics are going up lockstep—assum-

rate of return for its capital dollar invested but at the

ing that you’re not seeing any contraction in your cash

top of the commodity price cycle rather than at the

flow multiple. So we’ve been growing at 40 per cent

bottom of it. Eventually, the market reaches a point

per share per year. I think that’s one of the fastest-

of oversupply, commodity prices drop and the indus-

growing oil and gas companies in North America.”

try’s stuck with high service costs.

Oilweek.com

|

33

producer of the year

Scott Robinson, executive vice-president and chief operating officer, Peyto.

Photos: Peyto Exploration & Development Corp.

Darren Gee, president and chief executive officer, Peyto.

Peyto owns and operates its own gas plants.

Peyto Exploration & Development

“So would you rather build at the top of the com-

and other fluids. Peyto targets only sweet gas, so it

modity price cycle or at the bottom?” he says. It’s a

doesn’t pay extra to extract and dispose of the sour

rhetorical question. Gee expects Peyto would make

components and CO2. Peyto also made an infrastruc-

the same 30 per cent rate of return at either end of the

ture investment decision to own its own facilities.

commodity price cycle, so why not do it when things

And its focus is on what it builds itself.

are relatively calm?

“Everything Peyto owns, we went out and de-

The bigger strategy is that Peyto is after investment

veloped,” Gee says. “I don’t think you’ll find any com-

rate of return, not netbacks. This is one reason you

pany even close to our size that built it all by itself.

don’t see Peyto chasing the latest and greatest tight oil

Effectively 99 per cent of our production goes through

resource play in the Western Canadian Sedimentary

one of our five 100 per cent owned and operated nat-

Basin and paying top dollar for the choicest assets,

ural gas plants.”

taking the time to learn the geology, test it and then build out.

Now add in the production gains of deploying modern horizontal multifrac technology since Peyto’s

Chasing rate of return on investment means that

conversion back to a corporation in 2009 and you

Peyto isn’t even pursuing its most liquids-rich gas

start to see how it grew its production 40 per cent per

assets in the Deep Basin. The Spirit River package,

share and why it expects to continue growing at this

which typically yields seven to 15 barrels (sometimes

rate for at least some time to come, with a seven-year

even 20 barrels of liquids per million cubic feet of gas),

drilling inventory in front of it.

is where Peyto gets its best rates of return.

“Ironically, these are better rates of return even

Higher gas prices may throw a stick in the spokes of

twice the liquids yield,” Gee says.

the Peyto’s chariot, as Gee claims, but the race would

Yes, the Cardium has a $36 netback while Spirit River has a $24 netback but, as it turns out, drilling

see prices increasing any time soon.

“I personally don’t see a correction to the over-

and the wells have better productivity, higher recov-

supply situation we have in North America till 2015

ery and quicker payout.

or 2016,” he says. “I just don’t see anything material

Basin, Peyto knows its strengths, its assets and its

hitting the horizon other than LNG [liquefied natural gas] exports.”

numbers so well in this region that it has the lowest

Today, North America is producing more gas than

operating costs in the business. A number of reasons

it can consume to support higher gas prices. So gas

account for this, starting with the fact that when it

wallows at $4 per mmBtu while Japan pays $17 per

entered this relatively expensive play as a junior, it

mmBtu for its LNG imports. Gee likens this to the

had to be an ultra-low-cost, disciplined producer. It

1980s when Alberta had a natural gas supply bubble

didn’t even drill its own wells. It re-entered old wells,

and the lack of any long-haul capacity to markets in

re-completed them and did whatever it could on the

the United States.

cheap to bring cash flow on.

|

be far from lost should that happen. And Gee doesn’t

wells in the Spirit River formation is easier and cheaper

After a decade of working nothing but the Deep

34

Up from here

than our shallower Cardium, which has more than

But change is inevitable. As more gas-fired power

Early success with a disciplined approach became

generation is built and as North American natural

a way of life during Peyto’s trust years. It didn’t stray

gas finds world markets through LNG exports, gas

from natural gas, which has lower lifting costs than

prices will firm up and you can bet that won’t hurt

oil because it doesn’t require the disposal of water

Peyto’s stock price.

Oilweek December 2011

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HOW YOU VOTED

PRODUCER OF THE YEAR To determine Oilweek’s 2011 Producer of the Year,

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we first asked our readers to let us know who

25%

they thought would be worthy candidates for consideration. Then, late last spring, the editorial team here at JuneWarren-Nickle’s Energy Group met to discuss those nominations and add their own to the discussion.

In the end, more than a dozen companies were

20%

considered, but a consensus amongst the editorial team was quickly reached to include five com-

20%

panies who have achieved a high profile in the Western Canadian Sedimentary Basin: Bonavista Energy Corporation, Penn West Petroleum Ltd.,

17%

Peyto Exploration & Development Corp., Progress Energy Resources Corp. and Trilogy Energy Corp.

Throughout September, we asked our readers to vote for who they thought deserved to be Oilweek’s 2011 Producer of the Year, and the results couldn’t have been any closer: less than 100 votes separated all five finalists, and Bonavista just managed to edge out both Peyto and Progress,

Bonavista Energy Corporation

Progress Energy Resources Corp.

Peyto Exploration & Development Corp.

Penn West Exploration

Trilogy Energy Corp.

who finished in a virtual dead heat.

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36

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Oilweek December 2011

counts.

The more we know, the less water we use to produce a barrel of oil. With today’s technology, over 80% of the water used in our oil sands process is recycled over and over. But we’re not stopping there. We continue to improve and are designing even further reductions in water use.

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oilsandstoday.ca A message from Canada’s Oil Sands Producers.

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ENERGYSERVICESSUMMIT.COM

Photo: United Way of Calgary

corporate philanthropy

e l p o Pe er pow Corporate participants help the United Way kick off its annual campaign in September.

Calgary ranks high on the national United Way scale, but it’s the people behind the campaign that make a difference

By Peter McKenzie-Brown

A relative newcomer to Calgary—Manzoni came to Calgary from Britain four years ago to assume Talisman’s top job—he also acknowledges business reasons to become involved.

“From a selfish perspective, I’m new to the city and it’s a great way to get to know more people. There are many advantages to doing this in addition to the fact that you can do some good.”

Manzoni’s co-chair this year is Susan Riddell Rose, chief

“While the world is getting better, the disparity between the top

executive officer of Perpetual Energy Inc., which has about 180

and the bottom is getting greater,” says John Manzoni, Talisman

employees locally. A native of the city, Rose says she’s “involved

Energy Inc.’s chief executive officer and a volunteer campaign

in the program because it aligns perfectly with my goals and my

co-chair this year for the United Way of Calgary. “Those of us

husband’s goals and my family’s goals, and our vision of what

at the top who have benefitted from an astounding couple of

we want the city of Calgary to be.”

decades of prosperity often forget that the things that have con-

“The United Way has been a presence in the community for

tributed to that prosperity have actually made things worse for

quite a long time,” she continues. “It’s often been said that every

some people.”

dollar given to the United Way contributes six dollars of benefit

“Calgary itself plays a role in that,” he says. “It’s an oil town,

to the community. That’s because the United Way helps fund

a hydrocarbon city. As the price of oil goes up, so do costs…the

high-impact programs that help the city avoid certain kinds of

cost of food, the cost of accommodation, the cost of fuel. As a

outcomes down the road. If you do that, you can save the sys-

result, people get left behind. All that’s happening in the finan-

tem quite a bit of money.”

cial sector is just exacerbating the situation. I am increasingly

Campaign co-chairs “come from every part of the spectrum

of the view that business has a moral obligation and responsi-

of the Calgary community—sports figures, small business, tech-

bility to help to bridge those gaps.”

nology. It just happened that this year they’re both executives

Those comments represent the windup to Manzoni’s reply

from the energy industry,” according to Ruth Ramsden-Wood,

to a pretty simple question: “Why did you agree to co-chair this

who has been the chief executive officer of the Calgary and Area

year’s United Way campaign?” Now comes the pitch. “If you can

United Way organization for the last 14 years.

do something locally, that’s all the better. Based on that perspec-

On average, each co-chair dedicates 46 hours to the annual

tive, [the United Way] is a great opportunity to do something

campaign. “They lead a cabinet of 50 people who represent

that helps.”

every segment of our society, from major energy companies to Oilweek.com

|

39

corporate philanthropy Photo: United Way of Calgary

United Way volunteer campaign co-chairs John Manzoni (left) and Susan Riddell Rose (second from left) at the campaign’s kickoff event in September.

universities to unions,” she says. They “work with those people

crowd went wild. The event got wide-eyed publicity across the

and they meet with people throughout the community for the

full spectrum of media—from TV to Twitter.

whole year leading up to the campaign. It’s a pretty hefty role.

They become very visible in the community.”

“We put a lot of time into developing our cabinet and they develop additional cabinets in their own sectors,” Riddell Rose adds. “That enables our efforts to trickle down and into the community.”

The superhero stunt reflects a corporate culture that strongly supports the charity. A year ago, Nexen and its 1,900 Calgaryarea employees contributed a jaw-dropping $1.4 million to the United Way. Half the total was a corporate contribution.

Nexen’s media success was the envy of other companies.

According to Peter Ingle, surplus property manager for Imperial Oil Limited and co-chair of that company’s campaign, “We have

Fun

fun events, but I have to admit I’m a bit jealous of what Nexen

Manzoni, Ramsden-Wood and Riddell Rose give the big-picture

did. I’d like to do something like that. Our events have tended

look at the United Way. If you narrow your focus to the work-

to be more internal. For example, we have large-scale Wii com-

place campaign, matters get much more interesting.

petitions among our employees.”

“Every company has its own fun events,” says Riddell Rose.

Ruth Ramsden-Wood never tires of telling stories about cor-

“It’s part of the intrigue that you can use these events to express

porate fun. For example, “A few years ago a law firm auctioned

your own creativity. Something like 1,200 United Way campaigns

a goat for its chairman, and I can’t tell you how many emails

will take place this year, and they will all be different. Lots of

came in from around the country making pledges.”

creativity comes into play, and that can be defining for companies’ cultures.”

What kind of fun? Ask Melanie Swanson, an integrity analyst at Nexen Inc. and chair of that company’s 2011 United Way campaign. Nexen’s theme is “Be a superhero,” and that theme led to a public relations home run for the company.

She adds that many companies find imaginative ways to raise money. For example, for three months each year Esso markets $25 United Way gift cards at its service stations—while supplies last, of course. From each sale, $2 goes to the charity.

When it comes to individual campaigns, companies can do anything. According to Manzoni, “To kick off our campaign we

As the United Way season kicked off in September, hordes

had a breakfast for our employees, and about 300 or 400 came.

of company employees donned superhero costumes to test the

We need events like that to tell people the stories out there—for

previous world record for “most superheroes in a single place.”

example, to tell them about the children who go to school without

According to Swanson, “It was a lot of fun to organize the event,

breakfast. The number in Calgary is stunning—I think it’s 20,000.

but the purpose was to breathe life into the campaign. There was

People need to know that, and we need to find ways to fix it.”

an adjudicator from the Guinness Book of World Records present, and we had to meet particular criteria.”

Corporate Support

When the adjudicator announced that Nexen’s 437 super-

The high level of corporate support within Calgary has helped

heroes had blown away the previous world record, a jubilant

make the city a champion within Canada’s United Way network.

40

|

Oilweek December 2011

Photos: United Way of Calgary

corporate philanthropy

Led by volunteer campaign co-chair John Manzoni, president of Talisman Energy, the United Way of Calgary gets significant support each year from Calgary oil and gas companies.

Last year’s campaign raised about $52 million. In terms of total

while we train somebody else for the year after that. We have

funds raised, that amount put Calgary in Canada’s number-

a really active cabinet, and we have floor leaders,” whose job is

three spot. However, at $39.20 the city was fifth in terms of per-

to see whether their colleagues will open their hearts and wal-

capita giving. Fort McMurray, Alta., was tops, with contributions

lets to the charity.

of $64.78 per head.

While Imperial Oil has a notional target of $1.2 million in

Corporate support involves much more than cash, of course.

contributions from Calgary-area employees, Ingle stresses that

First and foremost, it involves the work and commitment of indi-

this is strictly an internal number. “Philanthropy is a very per-

vidual volunteers. “If employees want to take time to work on

sonal thing,” he says, “and we don’t do anything to influence

the campaign, we let them have it,” says Manzoni, “and we find

where people direct their gifts. We designed the campaign to

ways to make them feel special.”

help people learn more about United Way and how it can help

Some companies lend people from their staff to the United Way. “We usually get them involved at the beginning of fall, and they

in our community, but we also send out a really clear message that [giving] is up to the individual.”

work throughout the campaign,” according to Ramsden-Wood.

Nexen’s Swanson says that during this year’s peak campaign

“They become our arms and legs. I believe we have 35 this year,

period she invested half of her time in the company’s campaign.

but in previous years we’ve sometimes had more. Companies do

A lot of that time went into the superhero event, which she says

this to some extent because they see it as a leadership develop-

was designed to “increase participation in and awareness of the

ment opportunity for their employees.”

event.” Like Ingle, Swanson was assisted by people on each floor

Nexen’s Melanie Swanson worked as a loaned rep with the

who went from office to office, talking up United Way giving.

United Way last year, and says she got a great deal out of the

In her case, they were called “Floor Superheroes,” and most of

experience. “It gave me a sense of how much the United Way

them trotted around with brochures in their Guinness-adjudicated

actually does. So this year I wanted to contribute again by chair-

superhero outfits.

ing our corporate campaign.”

Swanson and Peter Ingle are two good examples of how the system works and how much effort is involved.

“I’m a big believer in the United Way and I have been ever since I joined the company 27 years ago,” Ingle says. “I think it’s a good way to be involved. The United Way targets funds in a very focused way.”

Asked how much time she and the other volunteers in her company have given to the cause this year, all she could say was “hundreds of hours.” She estimates that the cash cost of the campaign represented one to two per cent of the total money raised.

Virtually all the larger companies in the energy industry make direct contributions to the United Way, but they follow

“At Esso we have two campaign chairs, and there is an over-

quite different models. According to Ramsden-Wood, how con-

lap,” he says. “The lead co-chair is putting in maybe 20 per cent

tributions are made is “really driven by the philosophy within

of her time during the peak period of our campaign; I’m putting

the company.” The most common approach is gift-matching,

in about 10 per cent. Next year I will do the bulk of the work

by which companies match employees’ and often annuitants’

Oilweek.com

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41

corporate philanthropy Photos: United Way of Calgary

Susan Riddell Rose, president of Perpetual Energy and co-chair of the United Way’s volunteer campaign.

Nexen president Marvin Romanow accepts congratulations from a Guinness Book of World Records representative at a United Way awareness event in September.

contributions. Gift-matching is usually dollar for dollar, but some

In United Way parlance, leaders are those who give from $1,000

companies match at even higher levels: in at least one case, three

to $10,000 in a year and major donors are those who give more.

dollars for every dollar given by the employee.

According to Riddell Rose, “We have a Leaders initiative, but we

Gift-matching can be a powerful motivator, especially since

also have a Major Donors initiative and I’m very involved in those

there is often no limit to the size of your gift, and you can actu-

relationships.” As Manzoni elaborates, “The vast amount of money

ally direct your gift to a specific charity among those the United

comes from Leader level giving, so we want to increase leadership

Way serves. Thus, whether you donate $10 or $10,000, matching

giving.” That is one area of the organization’s focus.

funds will double the amount the charity receives. As Riddell

The other is to bring new people into the United Way—“to engage

Rose explains it, gift-matching is a way “to show that the cor-

the younger generation.” Organization insiders describe this effort

poration is passionate about what our employees are passionate

as their BeCause initiative. According to Riddell Rose, it “originated

about. The United Way is not the only area where we match

10 years ago to try to get the aged 23–35 demographic—people who

employee giving.”

often don’t have the means to actually give—to become ambassadors

Gift-matching can also cost a company dearly. According to

spreading the good word about what the United Way is doing in our

Ramsden-Wood, “Some years ago a retiree from Shell was giving

community. Our company actually has two BeCause ambassadors—

huge amounts to the community [through the United Way], and

young, high-potential employees. They are leading our United Way

the company matched him for every dollar he gave.” Last year,

campaign. Ambassadors focus on the idea that if we work as a vil-

Shell and its people contributed five per cent of the total raised

lage we can make the city a better place.” It’s all about people power.

in Calgary. Between 2000 and 2010, their contributions exceeded

According to Peter Ingle, Imperial Oil also focuses “on getting

$32 million—a vivid illustration of the energy industry’s impact

newer employees engaged in the United Way. We encourage them

on the city’s not-for-profit agencies.

to just give their time through our Days of Caring, for example.”

Unlike most other companies, Imperial doesn’t use the gift-

This is a program in which a team from the company will go out

matching model. Its Esso Foundation treats corporate United

and work in the community—helping repair and repaint a shel-

Way funding as part of its nationwide community investment

ter for street kids, for example.

program. According to the company’s Jon Harding, “The total

At Talisman, Manzoni says, “We dedicate a week to the idea of

budget is based on community need in the regions where we

having [our working groups share] ‘A Day That Makes a Difference.’

live and operate. Over 17 communities across Canada receive

Members of our executive team get involved in volunteering some-

funding as part of our annual United Way grants.”

where, and people get involved with them.”

People Power

in the United Way campaign actually do,” says Ruth Ramsden-Wood,

While workplace campaigns are an extremely important part

who will retire this winter. “We are a chronically understaffed

of the United Way calendar, the organization’s volunteers are

not-for-profit organization, and it is these people who make pos-

active throughout the year.

sible what we do each year.”

“I am inspired by the amount of work the many people involved

42

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Oilweek December 2011

830101 Beijing Zhenwei Exhibition Co, Ltd full page • fp

market monitor

SQUeeZE play ket

mar

R

ITO N O M

As producers found themselves caught between falling crude prices and the potential for rising costs, investors pulled back from the resource sector in the third quarter

By Dale Lunan

It appears that the oil-price honeymoon in western Canada may be over. For the better part of the last two years, producers have been riding a groundswell of financial largesse based on robust global oil prices that at times exceeded the century mark.

But in the third quarter, the bloom from the commodity price rose, not only globally as markets responded to the ongoing European debt crisis, but also in North America, where structural barriers impeded the flow of crude to key refining markets.

The result was that West Texas Intermediate (WTI) crude, the benchmark North American stream, was discounted heavily from Brent blend, sending investors in North America scurrying for more secure places to park their cash.

In the third quarter, WTI averaged US$89.74 per barrel, a discount of about US$22 per barrel to Brent. That compares to the second quarter, when WTI averaged US$102.59 per barrel, about a US$15 discount to Brent. Year-to-date through September, Brent averaged US$111.47 per barrel, a US$16 per barrel premium to the WTI average of US$95.46 per barrel.

Traders, speculators, hedge funds and other players in commodity markets took their money and ran for safer harbours as fears of financial contagion in the Eurozone spread to Spain and Italy, while weaker employment and manufacturing datapoints 44

|

Oilweek December 2011

market monitor

DOW JONES/UBS ENERGY INDEX | July – Sept. 2011 Oil and gas took one of the wilder rides in the market last quarter.

First off, energy prices have been falling steadily since the middle of April and this definitely affected the index. But there were some big finds in the quarter, including Chevron’s discovery in the deepwater Gulf of Mexico, and Norwegian company Statoil’s Triton in the North Sea. But the market has a habit of battering companies that are on the periphery of pricing, and that seems to be the case with this sector and the ongoing woes in the Middle East. The index also saw big losses due to European fears in September.

$125 $120 $115 $110 $105 $100

23 pt Se

9 pt Se

6 Au

Au

g2

g1 2

29 ly Ju

Ju

Ju

ly

ly

1

15

$95

S&P/TSX CAPPED ENERGY INDEX | July – Sept. 2011 Traders, speculators, hedge funds and other players in commodity markets took their money and ran for safer harbours as fears of financial contagion in the Eurozone spread to Spain and Italy, while weaker employment and manufacturing datapoints from the United States raised fears of economic contraction, perhaps even recession. Stock markets gyrated wildly, as the big indexes posted consecutive days of steep gains and losses on heavy volume, and finally slid into correction territory, usually defined as a 10 per cent drop from a recent high. Commodities followed suit, as rising concern about faltering demand resulted in a rush to lock in profits through August.

$330 $320 $310 $300 $290 $280 $270 $260 $250 $240 23 pt Se

9 pt Se

6 Au

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29 ly Ju

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15

$230

Source: Croft Financial Group

ENCANA CORPORATION | July – Sept. 2011 $31 $29 $27 $25 $23 $21

ECA-T: Daily Close g1 2 g1 9 Au g2 6 Se pt 2 Se pt 9 Se pt 16 Se pt 2 Se 3 pt 30 Au

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$19

Encana Corporation’s third quarter was destined for troubles even before it began, with the June collapse of a joint venture with PetroChina International Investment Co. Ltd. that would have put development of Encana’s Cutbank Ridge gas reserves in northeastern British Columbia on a fast track. And the quarter ended on a sour note: third-quarter earnings of just US$120 million, down from more than US$600 million in the third quarter last year, and blamed the decline on the volatility of the Canadian and American dollars over the past year.

IMPERIAL OIL LIMITED | July – Sept. 2011 $47 $45 $43 $41 $29 $37

IMO-T: Daily Close g1 9 Au g2 6 Se pt 2 Se pt 9 Se pt 16 Se pt 2 Se 3 pt 30

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$35

If ever an example exists of a good company caught in a bad market, Imperial Oil is that example. In the second quarter, the granddaddy of Canadian integrated companies trotted out performance metrics chief executives can only dream of: net income was up 40 per cent; cash generated from operations doubled to $656 million; capital expenditures were five per cent higher; its Cold Lake heavy oil project achieved yet another production record; and its Kearl oilsands project is developing on time and on budget, headed towards first oil late next year. But still, the market hammered the company, driving its shares down from more than $45 in early July to less than $37 in late September.

Oilweek.com

|

45

market monitor

crescent point energy CORP. | July – Sept. 2011 $45 $44 $43 $42 $41 $40 $39 CPG-T: Daily Close

$38 g1 2 g1 9 Au g2 6 Se pt 2 Se pt 9 Se pt 16 Se pt 2 Se 3 pt 30 Au

Au

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$37

The third quarter proved something of a roller coaster for Crescent Point Energy, Oilweek ’s 2009 Producer of the Year and a longtime darling of the market. With a leadership position in the emerging Beaverhill Lake light oil resource play, Crescent Point stands to duplicate its pioneering successes in Saskatchewan’s Bakken light oil play. Second-quarter earnings soared to $185 million from $72 million, while crude oil and liquids production for the period was 21 per cent higher than in the comparable 2010 period.

And at the end of the summer, it strengthened its position in the North Dakota Bakken play with a pair of acquisitions that brought production of 750 barrels of oil equivalent per day and prompted a 1,000-barrel-per-day increase to its estimated exit rate this year.

husky energy INC. | July – Sept. 2011 $28 $27 $26 $25 $24 $23 HSE-T: Daily Close

$22 g1 2 Au g1 9 Au g2 6 Se pt 2 Se pt 9 Se pt 16 Se pt 2 Se 3 pt 30

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$21

Like Imperial Oil, Husky Energy saw earnings, cash flow and production grow in the second quarter, but that positive momentum failed to sway investors through much of the third quarter. The company received a tiny boost from the market in late September when it announced that it would be proceeding with the development of the Liwan gas field in the South China Sea, one of its three growth pillars. Gas is expected from Liwan in late 2013 early 2014, with full production of 500 million cubic feet per day expected in 2015.

legacy oil + Gas Inc. | July – Sept. 2011 $13 $12 $11 $10 $9 $8

LEG-T: Daily Close g1 2 Au g1 9 Au g2 6 Se pt 2 Se pt 9 Se pt 16 Se pt 2 Se 3 pt 30

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$7

Legacy Oil + Gas, Oilweek ’s 2010 Producer of the Year, saw its shareholder base grow dramatically in 2010, to nearly 143 million shares outstanding at the end of March this year from 74 million a year earlier. While market capitalization of the growing company reached $2.1 billion in March this year, it has since tracked oil prices lower and sat at around $1.4 billion in mid-October.

paramount resources Ltd. | July – Sept. 2011 $36 $35 $34 $33 $32 $31 $30 $29

POU-T: Daily Close

$28

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Oilweek December 2011

Pursuing a course to get steadily oilier, Paramount Resources reported in July that its Hoole in situ oilsands leases southwest of Fort McMurray, Alta., held 20 per cent more bitumen than was initially thought.

A new evaluation pegged the best estimate for the “economic contingent bitumen resource” on the 56-section lease at some 763 million barrels.

market monitor

WESTERN CANADA WELL COMPLETIONS | JAN – SEPT. 2011 Operators rig released 9,181 wells across Canada over the first nine months of 2011, up close to 14 per cent from the 8,062 wells drilled in the January-to-September period last year. Many of the wells drilled this year are still under confidential status, but of those with a reporting status, about 70 per cent are listed as oil or bitumen wells, which would make 2011 the “oiliest” year for Canadian drilling over the past decade. Only 20 per cent of the rig released wells with a status are listed as gas wells—a decade low.

16,000 14,000 12,000 10,000 8,000 6,000

SERVICE

4,000

DRY

2,000

GAS

0

OIL

2007

2008

2009

2010

Source: Daily Oil Bulletin

2011

METRES DRILLED & completions | JAN – SEPT. 2011

14,000

completions

10,000

15.00

8,000 10.00

6,000 4,000

5.00

metres drilled (millions)

20.00

12,000

2,000 0

2008

2007 metres drilled

2009

2010

2011

0.00

Reflecting the steadily increasing volume of horizontal drilling in western Canada, metres drilled through September were up, as were the number of completions. With more horizontal wells, average number of days to drill a well increased to 9.3 days through September this year from 9.1 days one year ago. The increase was more dramatic in Alberta, where the number rose to 12.11 days from 9.98 days in the first nine months of 2010.

Source: Daily Oil Bulletin

completions

from the United States raised fears of economic contraction,

Cenovus Energy Inc., which has downstream operations that

perhaps even recession, Croft Financial Group reported in a third-

actually benefit from the WTI discount to international oil prices,

quarter market commentary. Markets in Canada and elsewhere

was the leader among FirstEnergy’s group of integrated energy

gyrated wildly and finally slid into correction, and commodities

companies, and showed only a three per cent decline through the

followed suit, as rising concerns over faltering demand persuaded

end of September. Talisman Energy Inc., on the other hand, has

investors to lock in profits through August.

twice reduced its 2011 production guidance due to operational

Players in the energy markets were equally reluctant to stay in

issues in North America and, more importantly, in the North Sea,

the game, as the U.S. economy struggled to recover, and demand

and suffered the worst share-price performance through nine

projections remained weak. Canadian energy stocks felt the

months of all the companies tracked by FirstEnergy.

brunt, as jittery investors headed to the sidelines to await more positive direction.

Cenovus shares actually climbed early in the third quarter, from about $36.50 per share as the quarter opened to more than

Most Canadian energy subsectors performed dismally in the

$38 towards the end of August, before riding a roller coaster over

third quarter, as oil prices fell and investors looked to derisk,

the rest of the period and ending September at around $31. Since

Calgary brokerage FirstEnergy Capital Corp. said in an October

then, the company’s shares have seen some recovery and, by late

FirstEnergy Synopsis research report. Only the refining and

October, had climbed to around the $36 mark.

market, and storage and transportation subsectors, First Energy

Talisman’s performance, however, paints a decidedly different

said, showed strength, as investors sought yield and safety in

picture. From a second-quarter closing quote of $19.40 per share,

turbulent markets.

it fell 35 per cent through the third quarter, ending September

Stocks in FirstEnergy’s coverage universe were impacted to greater or lesser degrees by this flight of capital, the report

at $12.50 per share, just half its 52-week high of $24.82. In early October, the stock set a new 52-week low of $11.34 per share.

noted, and the evidence of that flight showed up in significant

For 2011, Talisman is now anticipating production of 425,000

multiple contractions as debt-adjusted cash flow and net asset

barrels of oil equivalent per day, about a six per cent increase

value multiples fell to lows seen during the crash of late 2008

over 2010 but far short of its initial expectations.

and early 2009.

“In line with our priority of safe operations, we are conduct-

As a group, the stocks multiples are approximately 15–20

ing extended maintenance work on our Tartan platform in the

per cent below where we would normally expect them to be,

North Sea,” Talisman president John Manzoni said, in provid-

FirstEnergy said.

ing the company’s latest guidance in early October. “While we Oilweek.com

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47

market monitor

Horizontal Wells Drilled in Canada | JAN – SEPT. 2011 6,000 5,000

OTHER

Alberta continues to lead the way on the horizontal drilling front, with exploitation of light tight oil resources like the Cardium, the Alberta Bakken and the Duvernay driving an increasing amount of activity. Saskatchewan is seeing some growth as well.

BC

Source: Daily Oil Bulletin

4,000 3,000 2,000 1,000

SK AB

0 2007

2008

2009

2010

2011

WELL Licences in canada | JAN – SEPT. 16,000 14,000 12,000 10,000 8,000 6,000

OTHER

4,000

BC

2,000

SK AB

0 2008

2009

2010

2011

Producers across Canada licensed 1,552 wells in September, bringing the nine-month tally to 13,440 permits, up 16 per cent from last year. The 13,440 permits for January to September include 6,973 horizontal wells, a record to the end of the third quarter. In fact, at the year’s three-quarter mark, operators have licensed more horizontal holes than the year-end horizontal permit total for 2010 (6,668).

For September, Daily Oil Bulletin records show 904 licences granted in Alberta, 437 approved in Saskatchewan and 69 issued in Manitoba. British Columbia assigned 138 new licences during the month (76 were approved, or input).

Source: Daily Oil Bulletin

CRUDE OIL PRICES | JAN – SEPT. $120 $100 $80 $60 $40

WTI CASH

$20

OPEC BASKET

$0

BRENT BLEND

2007

2008

2009

2010

Crude oil prices continued to gain strength on a year-to-date basis through September, but the third quarter was particularly volatile for oil, as events surrounding the European debt crisis and the struggling recovery of the U.S. economy sent crude down sharply in the latest three-month period. North American producers were especially hard-hit, as infrastructure constraints kept West Texas Intermediate trading at a discount to Brent blend.

2011

WESTERN CANADA LAND SALES | JAN – SEPT. 2011

$/HECTARE

$

1,000 $

800

$

600

$

400

$

200

$541.64

$518.61

$183.05

$873.98

$847.94

2007

2008

2009

2010

2011

$0

Canadian governments raised $3.41 billion from land sales to the end of September, up from $3.04 billion in 2010, and the thirdhighest tally in the last 10 years. A total of $4.12 billion was raised in 2008, with $3.71 billion spent in 2006. Average land prices in western Canada over the three quarters slipped to $847.94 per hectare from $873.98 in the January-to-September period of 2010. Of the four western provinces, only Alberta saw increased bonus bids from last year, as spending on resource plays such as the Duvernay helped to stoke spending in the province. Alberta led all provinces with bonus bids totalling $3.06 billion at its land sales over the first nine months of the year, at an average of $884.50 per hectare. The per-hectare value is a record for the province at the three-quarter mark.

Source: Daily Oil Bulletin

48

|

Oilweek December 2011

market monitor have seen a number of successes across the portfolio in 2011, for instance the strengthening of our shale portfolio in the Eagle Ford and Duvernay plays, strong growth from the Marcellus, and continuing exploration success in Colombia, the production misses have been disappointing, and reflect poor delivery and execution in a few areas of our portfolio.�

Despite the market concerns, field activity in western Canada remained strong through the third quarter, led by a dramatic rebound in land sale activity and increased drilling activity, with a strong focus on oil and bitumen targets.

Interest in western Canadian land sales has continued to recover following the lows witnessed in [the second half of 2009], FirstEnergy said in its third-quarter report. The raw amount of acreage purchased since then has snapped back quickly, while [the price] paid for this land is approaching an all-time high, as seen by the $331 per acre attracted in 2011 to date.

The brokerage expects land sale activity to remain strong through the rest of this year, but remains uncertain of what 2012 might bring, suggesting that with large tracts of emerging resource plays already secured, broader macroeconomic issues and volatile commodity prices, industry will find it difficult to finalize 2012 investment decisions.

Through the first nine months of 2011, Alberta remained on pace to set a new record for bonus payments, thanks largely to the emerging Duvernay shale play, which has generated bonus bids of more than $2.3 billion since December 2009. Average bids in the province reached $884 per hectare through the end of September, topping the $811.50 per hectare average price generated through all of 2006, when the oilsands frenzy sent bonus bids soaring.

In Saskatchewan, land sale activity in the third quarter essentially tracked historical averages, as operators consolidated positions in existing exploration fairways and expanded the boundaries of known pools and plays. Land activity in British Columbia, however, has dropped steadily since the second quarter of 2010, and through September 2011 bids were off 56 per cent while purchased acres were off 65 per cent, FirstEnergy said.

It appears most of the prime Montney acreage was secured over the last six years, while operators also continue to look over the fence at the oil and liquids-rich natural gas prospects in Alberta or Saskatchewan, who both now have competitive royalty incentive programs, the brokerage added.

On the drilling front, operators rig released 9,181 wells across Canada through September, a 14 per cent increase from the comparable 2010 period, according to Daily Oil Bulletin (DOB) records.

Nearly 70 per cent of the non-confidential completions were reported as oil or bitumen wells, which would make 2011 one of the oiliest in the past decade, the DOB said.

Alberta rig releases were up nine per cent through nine months, to 5,816 wells from 5,316 wells, while metres drilled reflecting the almost total move to horizontal multi-stage fracture stimulation jumped 23 per cent through the period, to 10.35 million from 8.39 million.

Saskatchewan drilling was up 38 per cent through September, from 1,839 the year before to 2,536 wells from 1,839 in the prior year period, while metres drilled rose to 3.86 million from 3.13Â million. British Columbia drilling was down nearly 10 per cent, to 466 wells from 517 wells, while metres drilled slipped to 1.68Â million from 1.74 million.

Oilweek.com

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49

CONGRATULATIONS

2011

PRODUCER & SUPPLIER

OF THE YEAR

CANADA’S OIL & GAS AUTHORITY :: NOVEMBER 2011 :: $10

SUPPLIER OF thE Newalta Corp.

Troy McElgunn (left) and Doug Pecharsky have helped Newalta reshape oilfield waste management

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CALGARY RISING A cow town no more, Canada’s oil capital has loftier goals

BABY STEPS Momentum grows to develop Yukon gas potential

Plus: Using gas to find oil, the Canadian Gas Association sounds off, and M&A activity sinks to recession-era levels

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21 55 15

SUPPLIER OF THE YEAR 2011: How Black Diamond Group and GE Power & Water made the top three Ex-oilsands exec Neil Camarta on starting the 21st Century’s bitumen rush Firebag Stage 3: Why Suncor is confident it can meet its new capacity

includes deceMBer 2011 Market Monitor

quarterly report

C

oF the

Bonavista Energy Corp.

YeAr

Keith MacPhail (left) and Ron Poelzer have moved Bonavista out from the trust model and created a dividend-paying powerhouse

people power

E

It’s the folks behind the scenes that drive the Calgary energy sector’s United Way success

EA

Plus: After a year of gathering your Patch photos, we reveal the winner

R

PRO

U

OF T H ER

producer

Y

D

Winners will be recognized at the Oilweek | ATB Financial Annual Report Awards luncheon in Calgary, in November.

2011 O I L S A N D S R E V I E W. CO M : : T H E U N CO N V E N T I O N A L O I L AU T H O R I T Y : : D E C E M B E R 2 0 1 1 : : $ 1 0

we would like to thank our readers and followers for helping us select this year’s industry leaders!

maker ConoCoPhilliPs Canada anD sEniOR viCE-PREsiDEnt niChOlas OlDs aRE On a COURsE fOR OilsanDs DOminanCE basED On PaRtnERshiP anD

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COllabORatiOn

& junewarren-nickles.com

21 17 36

PRODUCER Of thE YEaR 2011: Baytex Energy and Canadian Oil Sands ride successful strategies to the top three The environmental reason why Syncrude is sinking $4.5 billion into its mine trains How a Fort McMurray artist plans to use bitumen on canvas to change the oilsands dialogue

photo contest

Your photos in the Patch This issue marks the end of the first year of Oilweek ’s Patch in Pictures photography contest. For the past 12 months we’ve been publishing your interesting photos, selecting winners each month based on oil and gas relevance, creativity and photographic quality. On these five pages you’ll not only learn about the photographer behind the winning photos, but also view a selection of 2011’s honourable mentions.

winner

2011

This photo from Jamie Angus, a geologist with Reservoir Dogs Geological (pictured above), was featured in the November issue of Oilweek, and was chosen as the winner of this year’s contest. Jamie, who took this dramatic shot of lightning behind a Savanna Drilling rig while working for Crescent Point Energy near Dollard, Sask., lives in Regina and will be receiving his new iPad by mail.

Oilweek.com

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51

January

Honourable mentions

Entries

52

|

The Safety Boss crew planning the next state of their assault on a gas well blowout in northern Alberta.

February Process vessels at Connacher Oil and Gas’s Great Divide steam assisted gravity drainage project south of Fort McMurray, Alta.

March A pastoral scene near a compressor station in the Willesden Green region of west-central Alberta.

Afsaneh Akmali

Jeffery Borchert

Peter Davis

january

February

March

1. Rory Gibson Rigging up a single free-standing service rig

1

2

3

4

5

6

7

8

2. Peter Davis Custom Caterpillar building enclosure 3. Afsaneh Akmali Gas well blowout 4. Kelly Weber Layout of a FracStar 5. Jeffery Borchert 6. Afsaneh Akmali Gas well blowout 7. Peter Davis Full moon over gas plant 8. Katherine Hodges Oil seed skyline

Oilweek December 2011

photo contest April A row of SAGD injection wells at Cenovus Energy’s Christina Lake operation.

May The setting sun through a wellsite near Shaunavon in southwestern Saskatchewan.

June A process gauge at a Legacy Oil + Gas compressor station in the Turner Valley area of Alberta.

9

Matthew Goffinet

Jamie Angus

Rob Watt

April

May

June

10

11

  9. John McPherson Rock trucks 10. Bryan Alexander Screening building under construction 11. Ben Barnes Natural gas storage well

12

12. Linda Gardiner Methot Pipelines

13

13. Afsaneh Akmali Gas well blowout 14. Brad Wetterstrand Thunderstorm near a rig 15. Jeffery Borchert 16. Joshua Trahan Welder

14

15

16

Oilweek.com

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53

July

Honourable mentions

Entries

54

|

Hurley’s Rig 9, of Hurley Well Service, a Class III mobile freestanding single service rig in Grande Prairie, Alta.

August An aging heavy oil storage tank just outside Kindersley, Sask.

September Concrete-coated pipe being pulled across the North Saskatchewan River as part of Enbridge’s Waupisoo pipeline project.

Trevor Rubak

Gerald Ford

Don Gunn

July

August

September

17. Sylvia MacBean Flooded oil pumpjack

17

18

20

21

19

18. Peter Davis Oil service rig 19. Gerald Ford Cold Weather Technologies heaters 20. Jamie Angus Pumpjack at night 21. Brad Wetterstrand Pumpjack at sunset 22. John McPherson Suncor Firebag site 23. Mark Capaldo Sunrise at Christina Lake

22

Oilweek December 2011

23

photo contest October A unique shot on a lease site south of Shaunavon, Sask.

November Dramatic shot of lightning behind a Savanna Drilling rig near Dollard, Sask.

December Two key western Canadian energy forms near Gull Lake, in southwestern Saskatchewan.

24

Brittany Smolders

Jamie Angus

Jamie Angus

October

november

December

25

26

24. Bryan Alexander Night shot of crusher building 25. AnnaMae Terry Sunrise at Cenovus 26. Brad Wetterstrand Aging oil tank

27

27. Gerald Ford Historic wooden pumpjack

28

28. Afsaneh Akmali Gas well blowout 29. Chris Sakell Slant service rig 30. Brittany Smolders Precision rig at sunrise

29

30

Oilweek.com

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55

Help Us

catcH a risiNg star NomiNatioNs are Now opeN for

oilweek ’s 2012 class JuneWarren-Nickle’s Energy Group of risiNg stars full page • fp

rising stars ins#4999 Oilweek is searching for the best and brightest in the Canadian oil and gas industry to be our Rising Stars of 2012. We’ll profile them in our May 2012 issue and honour them during our Rising Stars celebration in June.

Visit oilweek.com/risingstars for details. Nominations close December 31, 2011.

NomiNate YoUr risiNg star todaY! Nominees must be under the age of 45, a Canadian citizen or landed immigrant and working in Canada as of December 31, 2011.

Premier sPonsor:

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Wealth & Wisdom McLean & Partners Wealth Management provides investment advisory services to high net-worth individuals, trusts and not-for-profit organizations. The firm manages portfolios through both segregated accounts and pooled investment vehicles. While we invest in public equity and fixed income markets across the globe, our primary focus is to invest in dividend-producing growth stocks. Find out more at www.mcleanpartners.com.

Kevin Dehod

A second dip?

Today’s financial turmoil is hard to ignore, but there’s cause for hope

Recently there has been no shortage of negative news. The

yield spread between U.S. 10-year bonds, and the dividend yield

global stock markets have been under heavy selling pressures.

on the Standard & Poor’s 500 went negative (dividend yields were

Given that the scars of the last recession/bear market in 2008 have

higher than bond yields) for only the third time since 1955, and the

not fully healed, a large number of investors lack confidence and

first time in negative territory since 2008.

have become paralyzed and fearful in the global economy and financial markets. While this market correction has distinctly dif-

Yield Spreads (scotia capital)

ferent causes than the correction in 2008, it is a very worthwhile

Another example of the dramatic spread between dividend

exercise to review some of the key indicators and fundamentals this

yields and bond yields here at home in Canada can be gleaned

time around to gain insight into future investment opportunities.

One of the major similarities this time is the dramatic rally in

by comparing guaranteed investment certificate (GIC) rates at the Bank of Nova Scotia with the actual dividend yield on the

bond prices and, hence, record-low interest rates. United States

underlying stock. The Bank of Nova Scotia is currently advertis-

long-term treasuries, as measured by the TLT Index, were up

ing three-year fixed GIC rates at 1.7 per cent interest. However,

30 per cent in the third quarter, the best-ever quarterly return

BNS common stock currently pays a four per cent dividend yield.

since the Index was established in 2002. U.S. 10-year bond yields

The company has grown the dividend at 5.9 per cent per year

declined to 1.74 per cent—even lower than where they were at the

over the last five years, and 11.2 per cent per year over the last 20

height of the Lehman crisis in 2008. At the end of September, the

years. Lastly, we feel the dividend is very secure as Scotiabank only pays out about 40 per cent of its annual earnings in the form of a dividend. Even if the share price goes nowhere for the next

10-Year Bond Yields Spread With S&P 500 Dividend Yield (1956-2011) 1,200

three years, the dividend yield alone provides a significant pickup in after-tax return over a 1.7 per cent GIC.

1,000

While a number of Group of 7 and European Union member countries have been piling on debt and living beyond their

800

means, the corporate sector has been generally prudent. With reduced debt, increased dividends and solid cash reserves, they

600

are in a good position to weather the storm.

Even though the oil and gas business can be extremely cyclical, I thought it would be interesting to compare some of the

200 0

-23

financial metrics for Canadian Natural Resources Limited (CNQ) as they are in 2011 with where they were in December 2008.

Dec-11

Dec-06

Dec-01

Dec-96

Dec-91

Dec-86

Dec-81

Dec-76

Dec-71

Dec-66

Along the same lines, one of the sectors with low debt levels Dec-61

-200

Dec-56

Source: Scotia Capital, Shiller

400

and growing cash flow is the technology sector, and by reviewing the same metrics for Intel, investors can get a sense of just how strong some companies are today. I also want to highlight Oilweek.com

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57

wealth & wisdom 1940, there have been just 30 trading days when the U.S. stock

CNQ

2011

2008

Short-Term Assets

$2.6 billion

$3.3 billion

Total Debt

$8.6 billion

$13.0 billion

Cash Flow

$5.8 billion

$6.7 billion

Dividends Paid

$392 million

$208 million

market fell by five per cent or more. Half of those occurrences have happened since January 2000, and 30 per cent of these one-day trading extremes have occurred in the last 3.5 years.

The upside tells an even more volatile story as 50 per cent of all occurrences since 1940, when the stock market was up five per cent or more on one day, have occurred in the last

Intel

2011

2008

3.5 years. The average investor hold period for a New York

Short-Term Assets

$23.0 billion

$19.9 billion

Stock Exchange–listed stock went from seven years in 1960 to

Total Debt

$2.0 billion

$1.3 billion

eight months today. So volatility in financially traded assets

Cash Flow

$19.0 billion

$10.9 billion

Dividends Paid

$4.0 billion

$3.1 billion

is likely here to stay, and it will continue to test our conviction and confidence when it comes to investing and maintaining a ­longer-term perspective.

The factors causing a de-stabilization in financial markets are

the fact that both CNQ and Intel have raised dividends and

different today than in 2008. Investors need to recognize this and

returned cash to shareholders since 2008.

allocate capital accordingly.

European governments and European banks have signifi-

Investing in companies at a reasonable valuation with grow-

cant challenges ahead with the reality of a Greek default, bank

ing dividends provides attractive income for your portfolio in the

re-­capitalization and serious government spending cuts and

short term when market volatility and one-off risk events domi-

austerity on the way in 2012 and beyond. However, economic

nate the headlines.

indicators in the United States, China and Canada like auto sales,

Over a five-year time horizon, dividend yield and dividend

durable goods, the ISM (Institute for Supply Management) Index,

growth accounts for almost 80 per cent of an investor’s return,

jobless claims and corporate earnings, while all somewhat slug-

and given today’s level of interest rates versus dividend yields,

gish, are not collapsing and are generally coming in better than

investors with a five-year time horizon should be allocating cap-

expected. This indicates that we are not headed towards an eco-

ital to global dividend growth stocks.

nomic recession and ensuing free fall in corporate earnings.

Volatility in financial markets is structurally higher in a ­globally interconnected world of computers and traders. Since

Kevin Dehod, vice-president & portfolio manager, McLean & Partners Wealth Management Ltd.

create storms, sculpt mountains Now Open SparkScience.ca

“As a company built on a foundation of science and engineering, MEG Energy is proud to support the new Science Centre’s Earth & Sky gallery and its exploration of the relationships between the forces that have shaped and continue to shape our landscape.”

- Bill McCaffrey, Chairman, President & CEO MEG Energy

A special thank you to all of our imagineaction partners including:

58

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Oilweek December 2011

Association Corner Each month, a Canadian energy industry association speaks out on issues affecting its members.

Time to man up Labour shortages have become a fact of life, and the CAODC is now dealing with a critical shortage of one of the most critical positions on rigs

The shortage of skilled labour has

are readying to step into the crew’s senior position, the driller.

been on industry’s radar for the last

And as skilled experienced crewmembers, they are critical in

decade. It’s hardly a “new” hot topic, but,

helping junior crewmembers learn the ropes. A rig fleet that suf-

as can happen, a long-present problem

fers a shortage of derrickhands faces a skills shortage.

can get sudden urgent play when it seeps

Cindy Soderstrom

This winter, like last winter, rig contractors will struggle, and

into public discourse. Recent government

their struggles will be felt across the industry. Without enough

policy discussion and media coverage

senior crewmembers in the sector, rigs will shut down when

have turned to the issue of skills shortages,

crews need time off. It’s a short-term solution to the manpower

and the statistics are dire enough to cap-

gap that will hit the bottom line for many companies, contractors

ture the public’s attention. The Petroleum

and their clients alike.

Human Resources Sector Council has forecasted that, in oil and

The longer-term solution requires training up a new work-

gas, the services sector alone could need as many as 72,000

force, a monumental task. That workload is equal parts

additional workers between now and 2020.

recruitment and retention.

The Sector Council’s assessment is a forecast. However, drill-

To help address the recruitment piece, the Canadian

ing and service rigs already feel this shortage keenly. This winter,

Association of Oilwell Drilling Contractors (CAODC) is retool-

the workload will fall heaviest not to the lease site or wellsite, but

ing its online presence. Since 2006, www.RigTech.ca has been

rather, in the months ahead, personnel departments will shoul-

an online resource for future and current rig employees. The

der the weightiest task: staffing rigs.

site was originally commissioned to help drilling rig employees

This year’s manpower challenge is not the usual winter ramp-

access information about the rig technician trade. It also offered,

up. In a typical winter ramp-up, rigs draw in vast numbers of

as a secondary function, general employment information for

new hires to work entry-level crew positions for the frantic first

job seekers who would be new to rig work.

quarter. The task presents a challenge every year, but what con-

This online resource will undergo big changes. CAODC

tractors saw through 2011’s first quarter and will see again in the

is overhauling www.RigTech.ca, scheduled for completion

coming first quarter is a different manpower issue.

Industry is short derrickhands. That’s the consistent response from drilling and service rig contractors. It’s the fallout from the last economic downturn when industry lost thousands of employees to other career paths.

The crew’s derrickhand is not an entry-level position.

mid-December. CAODC is also launching a second site on Nov. 8, one that is specific to service-rig career paths, called www.ServiceRigDrive.ca.

The aim of both sites is to help industry rebuild the workforce smarter by better capturing the imagination of a new pool of applicants. Since the launch of www.RigTech.ca, CAODC has

Derrickhands bring to the job site knowledge that comes with

noticed that a good portion of interested job seekers struggle to

several years of experience. They’re the industry employees who

present themselves as a good fit for a rig job. Some job seekers Oilweek.com

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59

Association Corner

This winter, like last winter, rig contractors will struggle, and their struggles will be felt across the industry. Without enough senior crewmembers in the sector, rigs will shut down when crews need time off.

misunderstand that they need a vehicle to get to the remote

workforce was large enough to drill a record-breaking 22,000

­locations of a drilling site. Others don’t realise that for service

wells in 2006. Today, industry is not staffed to break any activ-

rig work, a full class-five licence with a clean driver abstract is a

ity records, regardless of the number of rigs in the fleet or the

­critical entry-level requirement.

strength of market demand.

The two new sites will offer detailed information that gives

The rig employee who is gaining experience and seniority

individuals clear next steps for preparing an application and

in the rig crew hierarchy is a critical industry resource. Without

­contacting industry.

these employees, contractors will be unable, this year, to put

The retention part of the task is not as straightforward. Oil

idle rig equipment to work. And the challenge of this lost seg-

and gas is a volatile industry, and in western Canada, spring

ment of the workforce is not a challenge that will be overcome

breakup adds to the uneven activity. For rig crews, this means

in short order. Rigs are the recruiting ground for sectors that

opportunity in the winter and uncertainty through the rest of

rely on the hands-on experience of a driller. Undoubtedly, the

the year. It’s a scenario that works against efforts to improve

wider industry will notice today’s missing derrickhand for years

employee retention.

to come.

There is something to be said for the robust activity industry saw between 2003 and 2006: with short spring breakups and steady demand for rig employees, the industry’s skilled

Cindy Soderstrom, Canadian Association of Oilwell Drilling Contractors

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60

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Oilweek December 2011

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Visit our website to book your exhibition space now! globalpetroleumshow.com

Eye on the Environment Leah Lawrence keeps tabs on environmental concerns as they impact Canadian energy producers and consumers.

Big brother is watching With advancing technology, the oil and gas industry’s environmental performance is under a more powerful microscope—and anyone can watch

I have a new favourite homepage for my

after traditional news networks had moved on to Washington,

web browser: www.SkyTruth.org.

D.C. In the process, it discovered and reported on a 10-mile-long

The West Virginia–based nonprofit

Leah Lawrence

slick emanating from a different location in the Gulf—seemingly

organization uses remote sensing and

from a semi-submersible drill rig at site 23051. Further investi-

­digital mapping technology to map oil

gation revealed that the rig was working to cap 26 wells that had

spills and other environmental incidents.

been damaged by Hurricane Ivan and had been leaking since

They say a picture is worth a thousand

2004. According to National Response Center monthly reports,

words, but for environmental images like

as of October 2011, the site was still leaking. SkyTruth and the

those produced and posted by SkyTruth,

Waterkeeper Alliance recently filed notice of their intention to

they can be worth billions. Billions of ­dollars in costs to oil and gas companies caught on film.

SkyTruth provides current and immediate information about

sue Taylor Energy Co. LLC, Samsung C&T America Inc. and Korea National Oil Corp., the owners and operators of the site, under U.S. federal environmental laws for ongoing discharge violations

oil spills and other toxic releases to anyone who wants it, infor-

that pose an imminent and substantial endangerment to health

mation that is technically publicly available, but difficult to find

and the environment.

behind the walls of government and industrial bureaucracies.

The organization first came to my attention when its president and founder, John F. Amos, started appearing on cable news networks at the time of the Deepwater Horizon accident and over the subsequent five months it took to drill a relief well and have the well declared “effectively dead.”

Amos was one of the first to claim that initial estimates from BP and the U.S. government grossly underestimated the amount of oil leaking from the Macondo Prospect well into the Gulf of Mexico.

As we all know, Amos was proven to be disastrously right.

In a time when the public no longer trusts the environmental claims of oil and gas companies and governments, SkyTruth and its founder offer something different: an independent view.

John Amos is a geologist by training. Before starting SkyTruth, he used his tools of the trade to look for offshore oil for BP, Shell, Exxon and the U.S. Department of Energy. In 2000, he was hired by NASA to use satellite and radar imagery to help detect and map oil slicks off the coast of Louisiana and Texas.

After his stint with NASA, Amos started meeting with environmental groups, talking to them about their informa-

But it wasn’t just the math that caught my attention.

tion needs, resource limitations and the state of environmental

Amos quickly marshalled the efforts of South Wings and

remote sensing. Armed with a grant from the Curtis and Edith

Waterkeeper Alliance to launch the Gulf Monitoring Consortium.

Munson Foundation, he recruited a board of directors that

With satellite images and mapping, aerial reconnaissance and

includes representatives from the Environmental Defense Fund,

photography, and on-the-water observations and sampling,

the Marine Conservation Institute and the Ocean Conservancy.

the Gulf Monitoring Consortium provided up-to-the-minute

SkyTruth’s goal is to provide “visual proof of our impact on

images, analysis and on-the-ground accounts of the events as

the landscapes, habitats and environment of the planet to any-

they unfolded. It was compelling, timely and, as it turned out,

one who cares to see it…to help people understand our changing

more true to what was happening than the tedious and scripted

world and motivate them to take action to protect and preserve

updates being provided by BP and the U.S. National Oceanic and

the environment.”

Atmospheric Administration.

SkyTruth continued to follow the progress of the spill—with updates broadcasted via its blog, Facebook and Twitter—long

While a lot of time and effort is spent tracking oil spills in the Gulf of Mexico, SkyTruth also has projects underway that are looking at natural gas drilling and fracking and mountaintop mining.

Oilweek.com

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61

Eye on the Environment Earlier this fall, SkyTruth launched a real-time pollution alert

showed landscape fragmentation due to seismic survey lines

system that provides updates of environmentally significant

that are, of course, part of the process of delineating an oil-

­incidents across the United States. Want to know if there has

sands deposit prior to its development and, not, as John had

been an incident near your home, your kid’s school or near the

hypothesized, in situ extraction prior to mining.

beach at your favourite vacation destination? Just enter a zip

John then posted a photo of an in situ project about 15 miles

code on their website and up-to-the-minute updates will be

northwest of Cold Lake, Alta. In the updated post, he said the

delivered to your email inbox. It’s free. Maps are viewed using

footprint on the landscape was similar to that of natural gas facil-

Google Maps or Google Earth.

ities in western Wyoming’s Jonah and Pinedale Anticline fields.

Until recently, SkyTruth has paid little attention to Canada

The whole event passed in the space of a few hours—and

and Canadian companies. In June 2009, there was a post about

it made me think of an industry meeting I had been at a few

Encana’s natural gas drilling activities in the U.S. Rockies and,

weeks prior.

in August 2010, a passing mention of an Enbridge pipeline leaking oil into the Kalamazoo River in Michigan.

Then in October 2011, in the midst of the media circus ­surrounding the Keystone XL pipeline, came this: Alberta’s Tar Sands: In Situ Extraction Converted to Mining?

The post included historical images of “a 7,000-acre ­f orested area of what appeared to be in situ extraction since 2003 which is now cleared and actively being mined.” Wrote

A representative from the Alberta government was presenting an online tool that could provide the public with aggregated environmental information about the oilsands. All the information presented was publicly available—but anyone in the public wanting it would have to suffer through the cost and aggravation of a Freedom of Information and Protection of Privacy (FOIP) request, a process that can take months.

Some industry representatives in the room were distinctly

Amos: “Industry has been touting in situ extraction as a more

uncomfortable. Wasn’t making the information easily available

‘environmentally friendly’ way to produce the tar sands, but

like placing a target on their backs?

that’s just PR bull if they’re going to eventually mine ­ it anyway.”

I wanted to have a look for myself, so I tweeted John and asked for the latitude and longitude. Within the hour he replied, with a link to an updated post. Apparently the folks at

Yes. But the information is already out there. And the issues are being discussed, whether industry and government are ­participating or not.

Welcome to the democratization of corporate environmental management, ladies and gentlemen. Get used to it.

the Alberta-based Pembina Institute also follow the SkyTruth blog. They explained to John that the images he had posted

62

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Oilweek December 2011

Leah Lawrence

Rock Ramblings Newfoundland-based Wes Reid comments on the East Coast offshore industry.

The detrimental act of coasting Federal legislation barring foreign seismic vessels from Canadian waters acts as an anchor on future exploration

The potential of Canada’s East Coast

offshore oil and gas exploration, because foreign seismic vessels

offshore basins to be world-class explor-

are not allowed to work in Canadian waters.

ation targets, and the interest to invest in

temporarily engage in the coasting trade, as long as no suitable

vessels aren’t—not that they couldn’t be if

Canadian ship can be found for the project.

Canada’s Coasting Trade Act was changed appropriately.

This is why Atlantic Canada’s offshore Wes Reid

There is one exception. A foreign vessel may be licensed to

that potential are there, but the seismic

oil and gas exploration activities continue to stagnate.

As the world becomes desperate for fuel at affordable prices, the desire and will to explore for hydrocarbons, even while accepting a 90 per cent risk factor, must surely be gaining momentum because that 10 per cent chance of discovering

Introduced in 1992, the act states, “In the offshore, that is beyond the territorial sea, all commercial marine activities related to the exploration and exploitation of non-living natural resources are reserved to Canadian ships.”

But when only two vessels in the 100-ship global seismic fleet are Canadian-registered, exploration in Canadian waters suffers.

Yes folks, only two, and Calgary-based Geophysical Service Incorporated owns both of them.

In a country bordered by three oceans and blessed by the

another sweet, light Hibernia erases, in many instances, 100 per

world’s longest coastline, this is unnecessary and injurious to

cent of the fear associated with failure.

Canada’s offshore hydrocarbon development potential.

So why hasn’t petroleum exploration been increasing off

Throughout eastern Canada, offshore producers and the 500

Atlantic Canada where discovery potential is as good as, or bet-

or so companies servicing them became antsy about this prob-

ter than, in most places around the globe?

lem several years ago.

The answer can be summed up in a sarcastic quip I

Now they’re at a stage where manicures aren’t needed. It may

received from a person concerning another matter controlled

get worse if the feds don’t change the legislation to allow for

by ­lawmakers. Appearing frustrated about the mountainous

greater exploration.

­number of unregistered voters in one district of Ontario ­during

Realizing that exploration and its highly lucrative oppor-

that province’s recent provincial election, he said, “It’s your

tunities may succumb to death by a thousand bureaucratic

­government at work.”

yawns, the nail biters could start biting heads off—metaphori-

In Atlantic Canada, oil companies and provincial ­politicians wonder when the federal government will get to work on ­rearranging the act.

Shawn Skinner was one of those politicians until meeting defeat in Newfoundland and Labrador’s recent election. He had been natural resources minister.

“It’s my belief, as the minister, that the Coasting Trade Act suppresses seismic and exploration activity because of the requirements to have a Canadian-registered vessel do the work,” he said prior to the election.

Designed to protect and support Canada’s domestic ship-

cally speaking.

Nalcor Energy–Oil and Gas is a Newfoundland and Labrador Crown Corporation and one of many offshore petroleum-related businesses in eastern Canada concerned that the Coasting Trade Act has put them behind the eight ball.

Nalcor’s vice-president, James Keating, fired off a blunt letter, dated Feb. 26, 2010, to the organization overseeing the act, the Canadian Transportation Agency.

In it, he wrote, “Canada is at a distinct disadvantage in attracting offshore exploration investment due to the ­limited availability of high-quality seismic data. The intent of the

ping industry by reserving the country’s “coasting trade” to

Coasting Trade process is to protect Canadian ­interests. We

Canadian-flagged vessels, it does the opposite for East Coast

believe that in the case of the importation of foreign seismic Oilweek.com

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63

Rock Ramblings

“ It is the industry’s view that the recent year-over-year decline of offshore seismic programs is directly attributable to the Coasting Trade Act regulatory barriers.”

— Canadian Association of Petroleum Producers

vessels, the process is inadvertently working against Canadian

The Canadian Association of Petroleum Producers (CAPP)

interests by reducing our global competitiveness in exploration.

is also concerned. Speaking on behalf of its members, the

If there was a readily available sizable fleet of Canadian-flagged

organization states that the “Coasting Trade Act is having a

seismic vessels, the impact of the coasting Trade process would

­detrimental impact on the development of Canada’s offshore oil

be somewhat mitigated as operating companies and non-

and gas resources.”

exclusive seismic vendors would have a significant choice in

CAPP believes that, under current rules, Canadian operators

selecting suitable Canadian-flagged vessels. This is clearly not

provide only specifications of the vessels they have available—

the case—there is presently one Canadian-flagged vessel in the

their offers seldom contain any information on how the operator

world compared to a global fleet of approximately 100 seismic

intends to conduct and complete proposed activity.

vessels.”

CAPP recommends that the content of the offers be expanded

Nalcor’s manager of exploration, Richard Wright, summed it

to encompass requirements for a clear and substantive plan of

up by saying, “We prefer, in terms of Nalcor, both exclusive and

action addressing how the Canadian vessel operator intends to

non-exclusive surveys and that the best technology gets used…

carry out the proposed activity.

at fair, competitive rates.”

There are two types of seismic data that industry or government

“Oil and gas companies wishing to pursue offshore seismic programs have no certainty with respect to the outcome of the

can purchase: exclusive and non-exclusive. The former entails one

Coasting Trade Act process,” CAPP states. “The combination of

company acquiring seismic information strictly for itself.

the potential for regulatory delay, restrictions on competition,

Non-exclusive data—from multi-client seismic programs—is collected and can be sold to any number of parties, usually industry players.

The Canadian Transportation Agency received Keating’s ­letter more than a year ago, apparently less than worried that the world’s floundering economy might flop back toward another deep recession.

I read somewhere that Stephen Harper sees the present

increased program costs, the likelihood of sub-optimal technical results and possibility of program cancellation is directly impeding offshore exploration in Canada. It is the industry’s view that the recent year-over-year decline of offshore seismic programs is directly attributable to the Coasting Trade Act regulatory barriers.”

Non-exclusive seismic activity is experiencing the greatest adverse impact, according to CAPP. “It’s a fundamental and integral aspect of the oil and gas

as perfect for developing megaprojects that might smooth

exploration process particularly in frontier regions as it is an

Canada’s ride through such tumultuous times.

accepted industry mechanism for oil and gas companies to share

By God, I believe he’s onto something! Do I see vision here? If so bring it on, and with it a revamping of the Coasting Trade Act. Its revision last year or decades ago would have triggered

exploration risks,” the association states.

“International offshore seismic companies view the Coasting Trade Act as a significant barrier to enter Canada. They have

much more exploration in Atlantic Canada, but let’s not dwell on

been effectively shut out of the Canadian market and are no lon-

the past when times remain opportune for attracting exploration

ger able to further build and expand their Canadian libraries

investment in the region.

of non-exclusive seismic data for resale to multiple oil and gas

There’s oil in them thar basins, probably by the billions of recoverable barrels, all waiting to be extracted, waiting to ­s timulate economies.

International marine services provided by mobile offshore drilling units and vessels specifically designed to conduct

company clients.

The fact that new non-exclusive seismic data is no longer coming to market for purchase by oil and gas companies has long-lasting consequences for progress for future development of Canada’s offshore resources.”

seismic surveys are integral to the success of any offshore

Instead of consequences, long-lasting petroleum sector

­petroleum sector, and Canada’s East Coast is no exception.

­development and production are what the East Coast and the

Besides hamstringing the chances of oil companies and their shareholders to benefit from the rewards of hydrocarbon ­exploration in Atlantic Canada, the Coasting Trade Act is possibly leaving the area and, ironically, Ottawa, with less royalty and tax revenues, fewer jobs and all the spinoffs they generate.

64

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Oilweek December 2011

rest of Canada need to help insulate it from global economic uncertainties.

Make the CTA exploration-friendly to hopefully make that a certainty.

Wes Reid

Our Industry

David Yager, who stepped down recently as chairman and chief executive officer of HSE Integrated Ltd. to contest the riding of CalgaryHawkwood for the Wildrose Alliance, is a past chairman of PSAC and a long-time observer of the western Canadian oil and gas industry.

What’s next Alison Redford represents change at the top of the Tory ladder, but is it the right kind of change for Alberta’s energy industry?

In her own words, she won thanks to “teachers, nurses and soccer moms.” On October 7, Alison Redford was sworn in as the 14th premier of Alberta. The unpopular five-year reign of Ed Stelmach and his dreaded New Royalty Framework (NRF) of 2007 is finally over.

What’s ahead for our industry now that our 40-year governing party has a new leader David Yager and the province a new premier? Alberta is the fifth-largest hydrocarbon-producing jurisdiction in the world on a barrel-of-oil-equivalent basis, behind only Russia, the United States, Saudi Arabia and Iran. Big business. As we’ve all learned, Alberta’s premier can make or break us. Can we succeed with “teachers, nurses and soccer moms” driving the bus?

Because Alberta’s resources are almost exclusively governmentcontrolled, Alberta’s premier in many ways has the same ability to determine our fate as the leaders of Venezuela, Russia, Saudi Arabia, Libya or Iran. They all have the power, and they all have used it to our benefit and to our detriment.

Lest we forget, Peter Lougheed quadrupled royalties. Don Getty eventually reduced them after a decade of misery. Ralph Klein left things alone. Ed Stelmach increased and lowered royalties in a single term. With the same governing party since 1971, you’d hope Alberta’s fiscal regime could be somewhat more predictable.

Redford is proudly from the “Progressive” side of the Progressive Conservative party. Progressive is new political jargon for the conviction that governments can direct society better than conservatives or free markets, and therefore must. Progressives used to be called liberals, socialists and interventionists.

Current practitioners include Barack Obama, Naheed Nenshi, Dalton McGuinty and the recently deceased Jack Layton.

Progressives aggressively govern, spend money, raise taxes and run deficits, or some combination thereof. Progressives don’t court corporations for votes.

By design, the opposite of progressive is regressive, as Redford’s new chief of staff, Stephen Carter, has stated. “Regressives” include Stephen Harper, David Cameron, Brad Wall, most Republicans and me. Less government, lower taxes, no deficits.

Nevertheless, Redford has cultivated a following among Calgary’s corporate opinion makers. Redford is the MLA for Calgary-Elbow, an inner-city riding containing some of the city’s wealthiest neighbourhoods like Mount Royal and Elbow Park, home of many senior oil executives.

During the darkest hours of the NRF when communications between our industry and the premier’s office were the worst in

history, Redford made the rounds inquiring why the NRF was so awful. She asked questions and listened. This form of psychotherapy—where thankfully one cabinet minister admitted privately (if not publicly) that Stelmach’s policies were terrible—earned Redford respect. When she ran for Tory leader she received corporate support.

After Redford remained in the race after the first ballot, some Calgary oil execs urged others to vote for her. At one point, urban legend had it that Redford alone persuaded Stelmach to launch the Competitiveness Review in 2009 that resulted in the final destruction of the NRF. Those who know tell me this is false. But they all concur that Redford is smart, listens and readily admits the Stelmach administration made many mistakes.

However, Redford didn’t win with broad support in her party or from Albertans. Before the final vote her team ran a targeted campaign soliciting unionized government employees and other non-traditional Tories—“teachers, nurses and soccer moms”—to buy memberships and vote. A backroom deal with Doug Horner to support her on the final ballot pushed her over 50 per cent.

Hardly a monument to representative democracy, but permitted within the rules of the race.

How much support will Redford garner in next year’s promised election?

True conservatives and those who believe politics should be principled are appalled. Redford remained silent as a cabinet minister while some of the worst legislation in history became law and two record deficit budgets were delivered. Promising public money, Redford won through sweetheart deals with huge and powerful public service unions. Her party is now Conservative in name only. Hopefully, continued petrodollars will adequately fund her activist, nanny-state initiatives.

But for those who don’t follow politics closely and consider good government as the one that does the least damage, Redford has gained acceptance. There’s a perceived lower risk in re-electing the Tories, even for the 12th consecutive time.

She’s a big change from Ed Stelmach, which everyone wanted.

There will be lots of comforting words about public health care and education, always popular. And she’s said nice things about our industry as something other than a source of taxes, a big improvement from her predecessor. That’s okay, for now.

The Tory leadership race was about change. The next election will be about greater change. Albertans will be asked to replace or keep a party that has been in power longer than most Albertans have been alive. They’ve been good, bad and, most recently, ugly.

So is Alberta about big government, or Albertans fulfilling their own big dreams? Your choice.

dlyager@telus.net Oilweek.com

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65

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patch in pictures Featuring the top picks from our 2011 essential photography contest

December

2011 This month’s winning photo in Oilweek ’s 2011 Patch in Pictures photo contest was submitted by Jamie Angus.

Don’t forget to get your entries in now for Oilweek ’s 2012 Patch in Pictures contest. The deadline for the January edition of Oilweek is Nov. 21, 2011.

Entries can be uploaded at www.oilweek.com/photo.aspx.

Jamie Angus of Regina took this photo of two key western Canadian energy forms near Gull Lake, in southwestern Saskatchewan.

Oilweek.com

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calendar

sat

Thu FRi Sat sun mon tue wed thu fri sat sun mon tue wed thu

Photo: Photos.com

fri

fri

Photo: Joey Podlubny

thu

www.insightinfo.com/tightoil

wed

Tight Oil Forum, Calgary, AB

New Year’s Eve

tue

Dec. 7-8

Christmas Day

mon

www.shutdownssuperconference.com

Christmas Eve

sun

10th Annual Shutdowns Superconference, Calgary, AB

sat

Dec. 6-7

fri

www.insightinfo.com

thu

5th Annual Aboriginal Energy Forum, Toronto, ON

wed

Dec. 5-6

tue

www.20wpc.com

mon

20th World Petroleum Congress, Doha, Qatar

17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

sun

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

sat

December 2011

Have something you’d like to include on an upcoming Oilweek calendar?

Send an email to our editor Dale Lunan at dlunan@junewarren-nickles.com

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69

rewind A Look Back to this month in Oilweek’s History

50 YEARS AGO

25 YEARS AGO

California dreams a reality for Alberta natural gas producers

Husky swallowed up by China

December 1961

December 1986

Alberta was preparing to tap into a new natural gas market in the early days of December 1961. The Pacific Gas Transmission line had just been completed, tying together a 1,017-mile system of pipelines that stretched all the way from the Alberta-B.C. border to San Francisco.

The first test export was successfully sent through the pipeline in December, with the initial supply provided by a new gas plant at Rimbey, Alta. Since then, the volume of gas sent through the line over the years has expanded considerably. In 2008, Alberta exported 268.2 billion cubic feet of gas to California.

During the last weeks of 1986, Husky Oil was preparing to enter a new era in its corporate history. Following what was described as eight days of non-stop negotiations in Hong Kong, Bob Blair, chairman of Nova Corp.

International, had hammered out a deal that would open the door to major Chinese investment in Canada’s oil and gas industry.

Li Ka-shing, a wealthy Hong Kong financier, purchased a 43 per cent stake in Husky for $484 million.

Nova, which had previously held the majority share, saw its interest in the company reduced to 43 per cent, while Li’s son and CIBC held the remainder.

That arrangement continued until 1991 when Nova—burdened by debt and looking to unload the struggling Husky—sold its interest in the company to the East Asian billionaire for $375 million. Li’s Hutchison Whampoa Ltd. has been the company’s majority owner ever since.

10 Years Ago December 2001

5 Years Ago

December 2006

Oilpatch titan resurfaces with new venture You can take the man out of the patch, but you can’t take the patch out of the man.

After retiring from his position at the head of Nova Corp.

International in 1991, Bob Blair was at last back in business with the oil and gas industry, bringing with him new products and ideas.

No longer dealing in pipelines and petrochemicals, Blair was now working with optic technology that could be applied to flow meters and pressure sensors. The venerable oilpatch icon had joined electronics firm Coldswitch Technologies Inc. as executive chairman and had returned to the familiar sport of drumming up business in the corporate corridors of Calgary.

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Oilweek December 2011

The Oprah school of natural gas negotiations

The company continues today under the name Photon Control Inc., but it would prove to be one of Blair’s final ventures into the business world. He died in 2009 at the age of 79.

Natural gas producers suffering through the current price slump may want to cast their memories back to the winter of 2006, when low prices also had companies scrambling to find ways to make ends meet.

While some businesses were turning to the more lucrative world of oil drilling, others, like Anderson Energy Ltd., were sticking with natural gas. How were they managing? By just saying no to price increases, according to Brian Dau, Anderson’s president and chief executive officer.

“The suppliers that came to us trying to increase prices this winter were advised we wouldn’t be accepting that,” he explained. “The ones that still wanted the price increase are no longer working with us…they’ll be watching reruns of Oprah on TV this winter.”

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