Pipeline News April 2016

PIPELINE NEWS Saskatchewan’s Petroleum Monthly

April 2016

JUNIOR PRODUCERS

Canada Post Publication No. 40069240

FREE

Volume 8 Issue 11

PART II

Jarrod Oils

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Grit Sold

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Raging River A15

Del Mondor, owner of Weyburn-based junior producer Aldon Oils, sees opportunity and optimism during these challenging times. See story Page 17. Photo by Brian Zinchuk

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PIPELINE NEWS April 2016

INSIDE SECTION A 4

Helium starting to take off

11 Tecvalco takes over Grit Industries’ assets and product lines

5

Jarrod Oils: Keeping it in-house in the southwest

12 Getting into the deep thinking behind drilling and shut-in decisions

6

Editorial

7

Opinion

15 Raging River one of the most active drillers 27 ‘We will get good at this’ – Del Mondor

10 Redvers Oil Show May 12-13

PIPELINE NEWS Saskatchewan’s Petroleum Monthly

RESEARCH AND DEVELOPEMENT

May 2016 Focus

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PIPELINE NEWS April 2016

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TOP NEWS Edam East SAGD project commences steaming Husky CEO comes out for commencement of operations  By John Cairns Battlefords News-Optimist Edam – It was good news for an economic sector that has seen its fair share of bad news as of late.

March 1 marked the official commencement of steam operations at Husky Energy’s Edam East heavy oil thermal project.

It is one of three new thermal projects expected to commence operations this year.

According to company officials, Edam East will produce 10,000 barrels per day; along with Edam West and the Vawn project which are still to be completed, about 24,500 bpd are expected by the end of 2016.

The 10,000 bpd Vawn development and the 4,500 bpd Edam West project are set to begin production in the third quarter of 2016.

Among political officials on hand to welcome the project was Premier Brad Wall. For Wall, it was one of the last events he attended as premier before the start of the spring election campaign.

His remarks at the grand opening seemed less directed to those in attendance and more towards political officials far from Saskatchewan.

“Make no mistake, this sector creates economic opportunity and job creation, new jobs, sustained jobs direct and indirect, and it also supports transfer payments so that all of Canada benefits from the work that you do,” said Wall.

“It’s important that all of us right across the country in politics remember that’s what you’re contributing to.”

The premier’s remarks seemed targeted particularly at political officials in Quebec, who had made some news of their own.

Earlier in the day came word the Quebec government was seeking an injunction against the Energy East pipeline, to make sure it was meeting environmental requirements.

In his scrum with reporters, Wall made known his unhappiness with this latest turn of events.

“We seem to be forgetting what’s best about Canada,” Wall said. “As Canadians we’ve always come together to help sectors when there’s trouble.”

He pointed to the assistance provided to the auto sector and the aerospace sector, and also agriculture when it was in difficulty.

“That’s missing, it seems with respect to energy of late,” said Wall.

“On one hand we have the province of Quebec, that’s going to place an injunction on a pipeline that will replace the need for us to import as much foreign oil, on a pipeline that will take oil off the rail, which

Premier Wall cuts the ribbon in front of the Edam East thermal project to mark the start of operations. To the right of him are Husky CEO Asim Ghosh and COO Robert Peabody. Photo courtesy Husky frankly is a less desirable, less safe way to ship oil than by pipeline, and a project that will create thousands of jobs. Here’s a shovel ready project that doesn’t take any federal dollars at all, the Energy East pipeline. And we have Quebec opposing it.”

Wall also aimed his remarks at the Justin Trudeau government over the possible imposition of a national carbon tax, which he has also opposed.

“We also have the federal government talking about a national carbon tax at a most inopportune time, at a time when I would say the economy can afford it the least.”

When asked to comment on what Quebec Environment Minister David Heurtel had said, that this was not pitting East and West, Wall disagreed.

“It does. It just does. You know, maybe that’s not their intent, and I’m not arguing with their intent in all of this, but it’s going to cause some problems.”

The premier also pointed out a number of times there was a rigorous process already in place to approve pipelines, through the National Energy Board.

“Should you have official standing or seek to approve or not approve or have a de facto veto on a pipeline, when it is the national regulator’s job to either decide in favour or against these projects? No, the provinces shouldn’t have that kind of standing.”

Wall later hinted a further response

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may be coming from the province.

“I’ve asked our trade minister and our trade officials to look at what options we have and say ‘you know, enough is enough.’

Saskatchewan and Western Canada also has to protect its own interests and send some strong messages if that is what the province of Quebec is doing. I don’t have any more details on that but I have asked officials to report back on what options we have on a trade perspective.”

Still, the Husky Energy grand opening in Edam did provide an antidote to the political doom and gloom, at least for one day.

Particularly welcome was the job creation in the region. The Edam East project created 30 permanent operating jobs and another 250 construction jobs, and similar numbers are projected for the other two projects in the region, as well.

These particular heavy oil thermal plants were preferred by Husky because, as vice-president Edward Connolly told the audience, they “stand in the front line in terms of capital efficiency.” The plant is sized to fit the deposits in the area, and those plants are standardized for builds elsewhere.

Husky also touted the plants’ low operating costs and fast build times of about 30 months, which included the regulatory approval times.

Husky CEO Asim Ghosh said the projects would “position Husky to be prof-

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itable at some US$40 WTI (West Texas Intermediate).”

“Projects like this are an important part of the transformation because they actually give you a nice return at $40 WTI, and they’re a very important part of positioning Husky because 40 per cent of our volume will come from projects such as these, which, on an ongoing basis, will require very little capital to keep the production flat,” said Ghosh.

“So that’s a very important part of how we are using these projects to reposition the company overall.”

Ghosh also acknowledged the current struggles of the oil industry and the job losses.

“These are very difficult times,” said Ghosh, who said his company was “very, very sympathetic” to laid off workers.

“We as a company try our best to be respectful of them and treat their travails respectfully. I don’t trivialize the difficulty that the industry is going through, and we’re all pulling up our belts.”

Since 2010, Husky has invested $8 billion in its Saskatchewan operations, including more than $3 billion building heavy oil thermal plants in northwest Saskatchewan.

By the end of 2016, the company will operate 10 plants producing 80,000 bopd. That number exceeds the maximum production of the Bakken play in southeast Saskatchewan, which peaked around 71,000 bopd in December 2012.

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PIPELINE NEWS APRIL 2016

starting to take off BRIEFS Helium Helium development uses oilfield services Saturn completes well

On March 29 Saturn Minerals Inc. announced its completions program at its Bannock Creek project in northeast Saskatchewan has been finalized, a well head has been secured, a packer has been set at the top of the tested zones and the well has been shut in.

All zones of interest were tested and the results of the completions program are being analyzed to determine the most efficient production methodology for the 9B-5 well. The company also announced that it will adhere to a “tight-hole status” of the 9B-5 well as per provincial regulations. The company’s “blackout status” will also remain in effect.

The blackout status prohibits insiders of the company from trading in the shares of the company.

“The potential of the Northern Williston basin for conventional oil migration and pooling is more prolific than conventional wisdom says. The completions program has helped us to more fully understand just how prospective this part of the province is. With the information gained from 9B-5 we will strategically leverage this knowledge in our regional strategy for this area,” said Stan Szary, Saturn’s CEO. The company will further update results of 9B-5 on or prior to the end of the tight-hole status period.

Briefs courtesy Nickle’s Daily Oil Bulletin

This new helium plant near Mankota draws on two exploratory oil wells drilled about 50 years ago. Photo courtesy Weil Helium.

 By Brian Zinchuk Mankota – Two exploratory oil wells drilled roughly 50 years ago near Mankota have added to a rebirth of a latent industry in Saskatchewan – the production of helium.

On Feb. 25 Weil Group Resources, LLC. announced it is constructing a new $10 million helium processing facility in Saskatchewan to supply refined, industrial-grade helium to markets throughout North America. The plant was designed and supplied by Germany’s Linde Group, a global leader in industrial gasses, and is slated to come on stream in April.

The facility will purify inert gas from existing wells to a “Grade A” industrial helium product (99.999 per cent purity, also known as “five nines”) with a capacity exceeding 40 million cubic feet per year of production. Global use of helium is approximately 6 billion cubic feet a year, according to Weil. Refined helium will be loaded into tube trailers and transported to customers in Canada and U.S. destinations.

Weil Group’s helium project is situated near Mankota, approximately 150 km southeast of Swift Current. Weil acquired and re-entered the wells in 2013 and, after extensive testing, validated

sufficient helium reserves for commissioning its facility. The southwest region of Saskatchewan has several wells with higher helium concentrations, which combined with their widespread distribution indicates the potential for further exploration and development, Weil noted.

In a release the company said, “Helium uses range far beyond balloons and blimps, its unique qualities have applications in science, medicine and manufacturing. Its ultra-low boiling point makes it an ideal coolant primarily for MRI machines, as well as a critical resource in semiconductor chip and fiber optic cable manufacturing.”

Saskatchewan used to produce helium, according to Wheeler “Bo” Sears, Jr., who is also with the Weil Group.

He noted in an article that appeared in our March 2014 edition (https://issuu. com/pipeline-news/docs/2014_03), “There was a joint-venture plant just north of Swift Current from 1969 to 1977,” Sears said. It took gas to the liquid state, and also sold off nitrogen. The helium primarily saw use in Canada, he noted.

Scott Cardozo, chief financial officer for the Weil Group, spoke to Pipeline News on March 1. He pointed out

the market for helium collapsed due to the U.S. government selling off its copious strategic reserve over the last two decades. That reserve is now just about gone, and Weil Helium, among others, are seeking provide helium now. Cardozo noted there were shortages last year, as most helium suppliers are tied to natural gas production.

“Weil Group’s helium project will help redevelop an industry that has been inactive in our province for almost 50 years, serving as one of many examples of our province’s diversified economy,” Economy Minister Bill Boyd said. “We are committed to removing barriers to growth to create an environment where investment and opportunity can reach their greatest potential.”

Weil Group CEO, Jeff Vogt, sees a bright future in the redevelopment of the helium industry in Saskatchewan.

In a release he said, “We are excited to play a part in this pioneering industry in Canada. It has been a pleasure to work with the provincial government, whose responsiveness and support have helped make this project a reality. We welcome being a part of the Saskatchewan community.”

While helium, at first blush, might not seem related to the oilpatch, its production in fact uses an awful lot of oilfield services and technologies. Indeed, when trying to figure out how to remove the five-decades old bridge plugs from the wells, Weil had to go to the Schlumberger museum to find a similar model.

“Most of these other facilities are strictly related to natural gas. Helium is sort of an afterthought,” Cardozo said of helium producing facilities around the world.

Cardozo said that helium of 97 per cent or so is fine for balloons, but to be used for industrial applications, or to liquefy it, it has to be at 99.999 per cent purity.

“That’s the helium we’re producing.

That’s a standard grade.”

“For example, you can’t liquefy something that’s less than five-nines grade.

The other contaminants will freeze and clog up all the liquefaction works. It’s fine for gaseous (helium), but a lot of the demand is for liquid products.” ► Page A10

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BRIEFS First Truck Centre catches national recognition

Eldon McIntyre is owner of Jarrod Oils. Photo by Marilyn Nimegeers

Jarrod Oils: Keeping it in-house in the southwest  By Brian Zinchuk Gull Lake – The aftermath of the Saskatchewan NDP governments’ Bill 42 in the early 1970s ironically is what got Eldon McIntyre into the business of owning his own oil wells. Now, with over 100 producing wells (and interest in a few dozen more) and over 1,000 barrels per day of oil production, the Gull-Lake company is still going strong.

McIntyre, 74, started working in the oilfield in 1969. His father died when he was six, so he did not initially complete his high school, as farming was keeping him from classes. At the age of 27, with a wife and three kids, he found work operating a nearby oil well, then contract operating several more. While taking some night classes he met a foreman for Mobil Oil, the biggest operator in the

area at that time, who insisted their workers had Grade 12.

This foreman, who was working towards his Grade 12, encouraged McIntyre to continue getting his education and recruited him as an employee.

Those early days of operating taught him many principles that would serve him well in the years to come – like the necessity of doing as much of your own work as possible, what’s now known as ‘vertical integration.’ It also taught him how to squeeze a profit out of wells that produce as low as three barrels a day, even today.

Due to his lack of knowledge at the time, he missed out on a chance to buy what turned out to be a good well near his farm for only $10,000. McIntyre resolved to learn all he could so that wouldn’t happen again.

“Realizing what I missed, by not knowing anything about it, I figured there would be more chances out there. So I set my sights on learning as much as I could with Mobil for three years. It was like my university education. They had new, big equipment. I picked everybody’s brain that I could. I learned what I could and then I looked around and found a bigger contracting job,” he said.

As a contractor, he could own wells, whereas being an employee, he would be in a conflict of interest.

Bought a well for the price of the tubing and rods In the aftermath of Bill 42, a 1973 law which caused the Saskatchewan oilpatch to all but shut down, one well, not far from his Hazlet farm, saw its owner pull his treater and everything he could out

of the property. When McIntyre phoned to buy the well the owner told him there was still about $3,000 of tubing and rods left in the well so if you give me that much you can have the well and the lease. That is how McIntyre got his first well in 1975, which went on to produce 50 barrels a day. (It was initially shut in until 1979.)

“I bought a 50 barrel per day well for $3,000,” McIntyre said on March 23. That well still produces 40 barrels of oil per day now, roughly 40 years later, and he drilled another four wells on that land.

Since the Roseray zone produces an awful lot of water, he needed an injection well. That was doubly the case when another well he drilled produced 150 bpd, but again, had a lot of water. ► Page A8

A local Edmonton heavy truck dealership, with a location in Lloydminster, caught the attention of one of the big three accounting firms this year. First Industries Corporation, the parent company of First Truck Centre, is awarded one of Deloitte’s Best Managed Companies in 2015.

First Industries Corporation started in 1991with the purchase of the Edmonton Freightliner dealership and since then has grown from 28 employees to 420.

First Truck Centre is a family of dealerships that represent the Daimler Trucks North America product line consisting of Freightliner and Western Star brand trucks.

They currently operate four branches across Western Canada, which include Lloydminster, Edmonton South, Edmonton West and Vancouver, British Columbia.

The daily operations of the First Truck Centre group is run by a group of long term employees that display a real sense of pride in what they do. First Truck Centre has an employee shareholder program, which they say is something unique in this industry.

First Truck Centre is routinely solicited by their manufacturer partner, Daimler Trucks North America, to pilot internal corporate programs like the “Elite Support” program.

Briefs courtesy Nickle’s Daily Oil Bulletin

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PIPELINE NEWS April 2016

PIPELINE NEWS

EDITORIAL

Mission Statement: Pipeline News’ mission is to illuminate importance of Saskatchewan oil as an integral part of the province’s sense of community and to show the general public the strength and character of the industry’s people.

Editorial Contributions: PUBLISHER Jim Ambrose - Estevan 1.306.634.2654 EDITOR Brian Zinchuk - Estevan 1.306.461.5599 Associate Advertising Consultants: SASKATCHEWAN & MANITOBA • Estevan 1.306.634.2654

Cindy Beaulieu

Candace Wheeler

Deanna Tarnes

Teresa Hrywkiw • Carlyle 1.306.453.2525

Alison Dunning NORTHWEST SASK. & ALBERTA • 1.306.460.7416

Harland Lesyk

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Leave well enough alone Through a quirk in our printing and distribution deadlines, this edition went to press before the 2016 Saskatchewan provincial election, but was distributed after. So, as this editorial is being typed, we really don’t know who will win the election.

But when it comes to oil and gas royalties, it really shouldn’t matter.

One of the key components of the Saskatchewan Party government’s policies over the last 8.5 years has been they were not messing with anything when it comes to royalty regimes. Minster of the Economy Bill Boyd, whose previous title was Minster of Energy and Resources, spent the first mandate giving, essentially, the same speech wherever he went. They were not changing anything, full stop.

This was at a time when then-Alberta Premier Ed Stelmach mucked around with their royalty regime several times. And just recently, current Alberta Premier Rachel Notley implemented a royalty review, scaring the bejesus out of the industry. That same review then said it is best to leave well enough alone.

During that time, investment in the Alberta oilpatch, already hurting from a huge drop in oil prices, dropped like a wrench down a wellbore.

Interestingly, Saskatchewan’s current royalty regime, untouched as it has been for at least ten years now, was brought in under former premier Lorne Calvert’s government.

This point came up twice in interviews with oil producers this month.

Del Mondor, owner of Aldon Oils, said that Saskatchewan was an unfriendly place to do business

under the Allan Blakeney NDP regime. That changed with Grant Devine’s Progressive Conservative government. The NDP under Roy Romanow and Lorne Calvert carried on many of those policies, Mondor said. “Us in the oil business, what we’re looking for is consistency. Credit to Romanow and the other governments, they didn’t do much in the way of change.”

The Saskatchewan Party administration has carried on policies set under the Calvert government.

Mondor said, “It allows guys like me to sit back and go, ‘What am I going to do? Now that the government, and several governments, have committed to not changing anything, what should I be doing or not doing?”

Raging River Exploration’s CEO Neil Roszell said, “It’s been a favourable, stable political regime for a multiple years that has allowed us to build and execute our business without government interference. They’re kind of our partners. The landowners, in general, have been a lot more favourable to oil and gas development. And the speed of execution in terms of well licensing has been quicker in Saskatchewan. I maintain that’s still the case today.”

He added, “If I was starting a brand new company again, I would certainly be more biased to starting a company in Saskatchewan, because it is more favourable environment to get rolling in, for sure.”

So, no matter who gets the nice office in the marble palace, one thing is clear: good energy policy, when it comes to royalties, appears to be agnostic to political parties. Just do the right thing, leave things where they are at, and we’ll be okay.

PIPELINE NEWS April 2016

From the Top of The Pile

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OPINION

By Brian Zinchuk

Talking to junior producers has been awesome In the last few months there hasn’t been a lot to cheer about in the oilpatch. When I was doing interviews for the March edition, oil was floating around US$27 a barrel – grim tidings, indeed. But despite all that, I profoundly enjoyed putting together the stories in the March and April editions.

For the first time in our eight years being published in this form, Pipeline News did a two-part focus, with that focus being on junior producers. I told the publisher we needed to do that because there was a lot of “meat on the bone” when it came to these stories. They couldn’t be done in short little pieces. There was too much to say.

Our mission statement refers to showing the general public the strength and character of the industry’s people.

I found that strength and character, as well as strength of character, in spades.

Junior producers are the little guys. Some might only have a few wells. One man I met a few years back ran his entire business from the cab of his truck. Others have slowly percolated along for decades. A few grow rapidly, and are sold off. Fewer still graduate to what is referred to as “intermediate producers.”

Oilfield services companies often like to work with a number of junior producers, instead of being tied to one major client. That’s because if most of your business is with one client, a big oil company, and something goes

wrong, you are in big trouble. It’s like sleeping with an elephant – you better hope they don’t roll over.

Over the past two months I’ve had in-depth conversations with the heads of a number of these juniors. Two, Del Mondor of Aldon Oils (this month’s front page), and Brett Herman of Torc Oil and Gas (last month’s front page), have never done that sort of interview with anyone with regards to their respective companies. In the case of Herman, he’s built and sold numerous juniors, but this was his first interview about Torc, which has been his focus the last five years. Thus, this was a privilege indeed.

The people interviewed ranged from relatively young Warren Waldegger (well, my age, which I like to think is young), who heads up publicly-traded, Estevan-based Fire Sky Energy, to Gull Lake’s Jarrod Oils’ Eldon McIntyre, who bought his first well in 1975 for $3,000. And today, that well still produces 40 barrels of oil per day.

Brent Dunnigan, who graced our front page the last time we focused on junior producers in 2011, was awarded Southeast Oilman of the Year a few months later. In the past month, he and his family were recognized by the Estevan Chamber of Commerce as the 2016 Farm Family of the Year.

One thing stood out in all these conversations: nearly everyone I spoke to was looking at growing. While

they may have scaled back on their expenses and drilling, their eyes were open for new properties. Several had, in recent months, bid on land or already closed deals.

These are the people taking risks and looking to the future while everyone else is wondering if the light at the end of the tunnel is the sun or a train about to run them over.

Another common thing I heard was the model for many junior producers of starting up, building and then quickly selling, then doing it all over again, is all but dead for now. If you intend on running a small oil company right now, you better be planning on doing it for the long haul, as liquidity events are not in the cards for the near future.

Most of these junior producers are in it for the longterm. They’ve lived through downturns, and have done what it takes to avert disaster when things got really bad.

Eldon McIntyre sold off two drilling rigs and everything he could when the bank came calling in the mid-1980s.

In many ways, junior producers are the heart and soul of the Saskatchewan oilpatch. They are all showing optimism in these trying times. We should too.

Brian Zinchuk is editor of Pipeline News. He can be reached at brian.zinchuk@sasktel.net.

A8

PIPELINE NEWS April 2016

Closeology to find oil Lake. They have offices in Gull Lake and his home town of Hazlet.

The formations produced don’t get a lot of attention these days. Indeed, one, the Roseray, has never been mentioned by anyone in the eight years Pipeline News has been published in this form, yet it is one of the province’s most prolific plays.

“That’s the best zone in the area. They last for 50 to 60 years of production.

I’ve got five Roseray pools,” he said.

Jarrod’s focus is medium oil. They produce from the Roseray, Upper Shaunavon and Cantuar Sands formations. McIntyre said the Roseray has the best oil wells in Saskatchewan. When he was 11, the discovery Roseray well was 11 miles east of his home. It was a gusher, blowing oil all over the quarter section. It was one of the first oil wells in Saskatchewan, he noted. He’s writing a book about his oil plays.

“This well, Fosterton No. 1, has made five million barrels,” he said. Although he doesn’t own that well (which was owned by Mobil Oil), he went on to work for the company from 1969 to 1972 as an operator. However, the driller on that well rented a room from his mom at the time and took him out see the well, changing his life forever.

He’s had production in the Estevan and Kindersley areas, but has sold that off over the years to concentrate close to home.

ESTEVAN CURLING “At my age, at 74, I just want to concentrate in one area. It’s pretty much The Estevan 57th Annual Open Bonspiel took place March 17 - 19, one day shortall drilled up here. There’s not much left to find. But we’ve got production for er than usual. That was due to the reduced number of teams. Just 32 rinks took another 40 years,” he said. part this year, down from 40 last year. Duce Electric’s team, made up of skip Dusty He doesn’t think much of horizontal wells in shale plays, like the nearby Schneider, Devon Fornwald, Donald Willock and Daryl Duce were the winners. lower Shaunavon. “I want the old, conventional pools that last 40 or 50 years, Here, Cory Kittelson of the Dart Services team glides down the ice on March 18. which I have a number of. Those shale plays, they don’t last very long. I typically Photo by Katrina Zinchuk stay away from them. They cost too much money to drill,” McIntyre said. ◄ Page A5 “I just think the conventional plays will always make more money, and for a long period of time. At my age, I’m working for my great-grandchildren, I want Another company was drilling nearby and came up with a duster. He took it something that’s going to last a long time. I don’t want to drill a well that’s goover for a dollar, set it up as an injection well and set up his first battery in 1979. ing to last for seven years.”

(That initial well now produces 97 per cent water. In December, it made 40 “I pull my wells slow. I don’t pull the hell out of them like the big companies barrels of oil and 1,305 barrels of water per day.) do,” he said, adding the company is family-owned. “We’re not trying to get rich When the National Energy Program came in in the 1980s, big companies and pay a lot of tax. We just like drilling oil wells and to have something that were getting rid of their small-producing wells, but he always could make a little will last for years down the road.” money on those because he was operating the wells himself.

Closeology “Governments made me what I am, and I never voted for NDP or Liberals,” In his early days, McIntyre soaked up as much knowledge as he could. “I he said. started working for Mobil at the grass roots. I could see quickly how they could Triangle of production do things easier. I would try to talk to people, and they would say, ‘No, we’re Jarrod Oils’ production area is in a triangle from Hazlet to Swift Current to engineers, we’ll do it our way.’

Gull Lake, all north of Highway 1. While the initial core area was near Hazlet “So I thought, well, I owned a farm, so I would sell my farm and do it my (it still produces about 100 bpd), the bulk, about 1,000 bpd, is closer to Gull way. I’ve got more oil out, at a better rate, for longer years, than any engineer, geologist or geophysicist. I’ve drilled probably 300 to 400 wells in my life, some of them dry because a geologist or engineer told me to drill that location. I’ve never found one oil well that a geologist or engineer or geophysist told me to drill. I found it all myself by ‘closeology.’ I find a well that’s producing, I try to buy it, or I drill close to it. I watch the production. I know it should deplete in a year, to a certain point. If it doesn’t do that, that tells me there’s more oil around it, so I start drilling in every direction,” McIntyre said.

“I call it closeology, not geology. It’s worked well for me. And then I pull everything really slow.

If you were to drive by some of my wells, you can’t even see my pumpjacks going up and down, unless you stop or drive real slow. But they’ll last so much longer than everyone else’.

“Last month, our price was only $20.98 (per barrel) and we still made money, and lots of other companies are going bankrupt. We still made money at $20 a barrel.”

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He also found that field operators are typically busy in the morning, but afternoons are taken up by maintenance. If there’s trouble with a well, they can 3 be there until midnight. But if there’s no mainteThe Safety Association for Candada’s nance to be had, they don’t end up doing much. So Upstream Oil and Gas Industry Jarrod’s field staff uses that time to do all the things R. French Transport Ltd. most other oil companies contract out, including has developed, implemented and audited a pipelining, oilfield maintenance, you name it. They Health & Safety afety Management Ma g System ys do their own snowplowing and steaming, too. ► Page A9

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A9

Keep an eye on the eggs in one basket ◄ Page A8 “My men do all the work. We rarely hire crews.

We don’t hire where you’re paying $150 an hour for a crew truck driving two hours to get there and two hours to go home. My guys do everything. We have two shops. We have our own steamers, we put our own pipelines in. We do all our work ourselves and my men still have a job. I never let one guy go because we have lots of work to do in the field.

We’re totally different in the field. We just don’t hire anybody. That’s why we can probably make money at $15 a barrel,” McIntyre said.

He added the staff suggested they switch to an eight days on, six days off instead of nine and five, as a way of coping with the downturn.

He says his shops have the cleanest floors and the best painted equipment. They do their own mechanical work, too.

“My men want to work. My men love working out there. They know they have a job. I never laid anybody off or cut any wages.

“I’ve got the best men in the country, I know it,” he said.

“I’ve got a three-barrel-a-day well here. I can produce a three-barrel-a-day well and make money … The secret is I’ve trained men that work.”

Eldon’s late wife Marilyn, did the administration until she passed away in 1982.

His daughter Joselyn Hughes, who has a degree in business administration, runs the office with four women. They have six men in the field.

His son Darrend was also involved in oil for many years, but his job evaporated with the sale to Celtic Exploration of the properties Darrend operated. So these days he’s retired from the patch, but he flies their company jet, an Embraer Phenom 300.

Janet McIntosh, the eldest of his three McIntyre children, married straight out of high school and raised a family of three, is not involved in the oil business. But her youngest son, one of McIntyre’s 12 grandchildren, Brett McIntosh, has joined the firm, with a masters of petroleum engineering. “He’s probably more eager than I am,” McIntyre said.

Before the recent downturn, Jarrod would typically drill 20 to 22 wells per year. The main field is near Gull Lake, producing about 1,000 bpd. He expects that field to produce another 40 or 50 years.

“I’ve only drilled one horizontal. I’m not a fan of it, because of the expense. When oil was $100 a barrel, we drilled one. It has paid out. When everyone’s (horizontal wells) cost them $1.5 million to drill, I did it for $960,000, flowlined, electrified and put on production with a pumpjack.”

Only two of his wells are freehold mineral rights. The remainder are all Crown mineral rights.

Investor side While he’s run an oil company for decades,

Eldon McIntyre says he’s actually made more money investing, having been a frequent director on boards. One was Celtic Exploration, which was sold to ExxonMobil for $3.1 billion three years ago.

He’s currently a director of Kelt Exploration. In the 1980s he was involved in Strike Energy and Genesis Exploration in the 1990s.

Since banks are reluctant to invest in oil, he would roll in lesser properties that he wasn’t so much in love with as seed properties, and that new public company would invariably grow. McIntyre would always take part in the public company as a director as he believes it is ok to keep all your eggs in one basket, so long as you keep a close eye on the basket.

He nearly lost his shirt in the mid-1980s downturn. He shut everything down, sold off his two drilling rigs and everything else he could sell to satisfy the bank. After that, he’s drilled his wells with his own money.

And he’s now bidding on property because he’s got money in the bank. “When you’ve got money in the bank, life is a lot easier,” he said.

After having drilled his most recent well in December, he’s run out of land to drill. “I have no more land left. I am totally drilled up,” he said. He’s currently bidding on adjacent production.

Eldon McIntyre usually drills around 20 to 22 wells per year when times are good. He believes in “closeology,” his term for drilling close to wells that are already good producers. Photo by Marilyn Nimegeers

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PIPELINE NEWS April 2016

Interest in helium on the rise Redvers Oil ◄ Page A4 Because it is much more dense than the gaseous phase, liquid product is also easier to move by a vacuum-bottle truck trailer. Liquefying helium allows five to six times more product to be hauled in one trailer.

Helium will stay in liquid form as low as 4 Kelvin, a key point it its usage for cooling superconductors.

“In an MRI machine, when it is initially filled and the magnet is cooled to a superconducting state, that’s where the value of helium and its characteristics come in.

When you get something to a superconducting state, the wires lose all resistance to electricity.

That’s why the MRI machine works, because the magnet gets to be so powerful because there is no resistance in the electrical coil.”

The Mankota plant has been delivered and assembled, and a building has been put over the equipment. Cardozo said they expect to be producing helium by the end of April to early May, drawing helium from those two wells.

“These wells had very good test results.

We can produce from these two because there’s tremendous flow rates and good pressure for a number of years. We’ll see where we go from that point,” he said.

Operationally, there will be a few workers running the plant, plus ongoing third party trucking operations will pick up the product.

The Crown will also be paid royalties on the gas. “The percentage is not as high as natural gas,” he said.

Helium interest rising The Weil Saskatchewan plant is one of several helium exploration, development and processing projects Weil Group has, including those in Alberta and the U.S. that are at various stages of development. The facility will create several permanent jobs in operations.

In a development separate from the Weil Group, North American Helium Inc. drilled a well at the very southwest corner of Saskatchewan. That well was spudded on Jan. 19, according to Rig Locator (riglocator.ca).

Another company, Canadian Helium, drilled a well in 2008 near that old Swift Current facility and put it on production in 2014, according to the Saskatchewan Ministry of Economy.

Indeed, assistant chief geologist Melinda Yurkowski noted there are now 34 permits and leases for helium in southwest Saskatchewan, and she expected to release a technical paper on it by the end of March. Over the

past couple of months she has fielded about a half-dozen calls inquiring about helium, which falls in her area of specialty. Four leases were issued as recently as Jan. 15, 2016, under the name of Saskatoon-based geology firm Axiom Exploration Ltd., who is holding those leases for a client.

North American Helium’s 11 permits were issued in November and December 2015.

Saskatchewan’s Ministry of the Economy worked closely with Weil to advance their project, including navigating provincial regulatory and permitting processes and addressing any barriers, something Cardozo spoke very highly of.

“The stance the Saskatchewan government took, particularly the Ministry of Economy, was kind of refreshing, as opposed to some of the stuff you deal with in the States when you try to get something done,” he said.

While most people thing of methane, propane and butane, the stuff you burn, when they hear the term “natural gas,” helium is one, too.

“It’s a natural gas, an inert natural gas,” Yurkowski said.

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 By Brian Zinchuk Redvers –Fuel up your truck and get ready to head out to the first oil show of the year. The Redvers & District Oil Show will take place May 12-13.

The event takes place every second year, opposite of the Saskatchewan Oil and Gas Show in Weyburn.

Marc Wolensky, one of the organizers, said in early March that as of their March 8, they were not quite full for exhibitors. While the outdoor exhibit space was full, and had a waiting list, the indoor booths were at 75 per cent full.

That’s a change from the last two events, which were sellouts. But given the state of the oil industry right now,

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In a break from the usual executive or political speakers, this year the banquet on May 12 will feature the husband and wife team of Bernie and Sheila Inman, motivational speakers.

With the spring election taking place this year, politicians were out of the picture.

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A11

Tecvalco takes over Grit Industries’ assets and product lines  By Brian Zinchuk North Battleford, Lloydminster – Victor Kiam, president of Remington products, for years had an advertising campaign where he would say, “I liked the shaver so much, I bought the company.”

A similar situation has taken place in North Battleford and Lloydminster, where Mike Menger, owner of Niagara Falls-based Tecvalco Ltd., bought the assets of Grit Industries. The difference is, instead of shavers, the primary product is Cold Weather Technologies indirect line heaters.

Wayne King, one of the most unique characters in the Lloydminster oilfield, has sold off most of his business, Grit Industries, to Tecvalco effective Mar. 1.

King has a long history of inventing and bringing new technologies to market. Those products have ranged from sand-handling in heavy oil to natural gas heating systems to tank heaters to secondary containment, just to name a few.

Asked by email how the sale came about, King responded in kind on March 9. He wrote, “I know that the word is out.

“This has been going on for quite some time. The company that I sold the manufacturing division to, as well as the Cold Weather Technology natural gas and flammable liquid heating systems that I developed over the last fifteen years, is a company out of Niagara Falls with offices in Edmonton. They were my Canadian manufacturing reps for all of Canada in the natural gas market, except for SaskEnergy in Saskatchewan. They wanted to grow their company into the U.S. market and with Grit’s recent success in the Bakken, in North Dakota heating light oil they saw this as an opportunity.

They are younger and full of enthusiasm. Me, I am turning 65 this December, took one week off in the last 8 years, work too much, and decided that I needed to clean up my mess before I die.

“It was a good life in the product development arena.

It is very risky, very costly, never know where you are going to end up, and different issues come at you on a regular basis, sometimes positive, sometimes negative. I could write a book over the last thirty years of starting with nothing other than enthusiasm and a dream and working on technology to make a difference in this world. I have been supported by people such as you and your group, oil companies, regulatory bodies, engineers, and many others, and I must thank them all. The CWT technology took me over 10 years to have introduced into light oil but now it is there, with companies really seeing the value.

“I started the company with ▼ Mike Menger a $50,000 grant from the Alberta is the owner of government as seed money in 1984 Tecvalco Ltd. Photo now, in 2016, I have sold. I will submitted continue to do product development in some form till I die and have one or two new products that I am going to introduce this summer as product prototypes. Stop around or call sometime if you have an idea you want me to help you develop, I am looking for stuff to do.

“Thanks again for your support over the years,” King concluded.

New owner Mike Menger is the owner of Tecvalco. He explained by phone on March 9, “We’ve been the Wayne King has sold off most of Grit Industries. File photo distributor for the Cold Weather Technologies side of Grit Industries for all of Canada except Saskatchewan. So we’re his ability and expertise and we hope to work with him for very familiar with the product line. I found out through the many years to come,” Menger said. grapevine there was a possibility Wayne was interested in King retained one product line and Grit still exists as selling. I was able to approach him, and we started negoa corporate entity, but nearly all of its lines are now with tiating a while back, and we did purchase the assets of the Tecvalco. This includes their Cold Weather Technologies company March 1.” heaters and G55 secondary containment lines.

The value of the transaction was not disclosed. ► Page A12 Tecvalco has been around since 1980. Menger purchased it in 2002.

They’ve had a presence in Edmonton since 2004.

The company started doing HOLDINGS INC. sales into the United States Locally Owned & Operated in September 2015.

“We sell to the Canadian natural gas industry, mostly, we also sell to utility contractors, wholesalers for plumbing and gas, and products to Canadian municipalities. We’ve very much (from) burner tip, back to the well, involved in the Canadian gas industry.”

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PIPELINE NEWS April 2016

Planning for growth and going global with NB-built products ◄ Page A11 It also includes a 10-year lease on the North Battleford factory King set up several years ago. That facility had long been the manufacturing facility for Peak Manufacturing Inc., a recreational vehicle maker, until it shut down. The Canadian RV manufacturing sector all but disappeared in that time frame due to the strength of the Canadian dollar making American-made units more affordable to Canadians. WinAlta took over the plant for a few years, continuing with RVs before trying its hand at ruggedized campers for the oilfield as well as wellsite shacks. That, too, eventually shut down King had found the Lloydminster labour market was too pricey to maintain manufacturing there, so he moved manufacturing to North Battleford, into the former Peak plant in 2011.

Menger said, “I’m leasing it. I made a 10-year commitment to the community of North Battleford. I’ve rented a house here. I plan on living here at least half the year.

I’m impressed with the community. It’s a nice place. I like North Battleford.”

He even contributed to the vet bill of a local dog that made headlines after it was shot.

“I did everything I could to maintain as many employees as possible. We’re basically putting two companies together and making it Tecvalco. I do care about people. I’m not looking at this as a short-term gain. It’s a large factory that has capacity for more goods to be manufactured out of it. I’m hoping the net turnaround in the next couple years is we’re hiring and hiring and hiring and hiring! And we’re not going anywhere. We’re staying in North Battleford,” Menger said.

Prior to the acquisition, Tecvalco had 24 employees.

They were able to retain 54 of the 62 people Grit had.

“We kept as many as we could,” he said.

They will maintain a research and development facility in Lloydminster.

Cold Weather Technologies had become a major part of Tecvalco’s business. “I was motived by the fact I didn’t want it to fall into the hands of someone who would take it to China or to India. I wanted to keep the company and the jobs in Canada. I approached Wayne from that perspective.

I’m a family guy, a hard-working person who owns his own business, just like Wayne, (but) a big younger. We connected from the standpoint that Mike has his morals and beliefs and hard work ethic in the right place, and that’s the kind of guy that I would be willing to move my business with.”

Menger is 47.

“I really do care about keeping jobs in Canada. It’s important to me that we employ people in Canada. How else do we have a society if everything is made somewhere else?” Menger said.

“The product is being made here, the innovation is here. The talent is here. The smart people are here. All I want to do is come in and make it better.”

Tecvalco has largely been a distributor. They are the manufacturer of record of a product called Diamondback, but don’t do the actual making of it. The absorption of much of Grit into Tecvalco changes the dynamic.

As a distributor, he’s spent a lot of time working with manufacturers on developing their products and bringing them to market. Menger said, “I’ve been a casual observer (of manufacturing), but I’m a fast learner. I’ve had it in my heart that I’ve been saying for 10 years: I want to be a manufacturer. I want to bring Tecvalco to the next level, to

fully integrate ourselves through distribution, manufacturing, and research and development of new products.

“I’ve pushed forward as far as I possibly could so that we could get to this point. It’s been a long road to get here, but I know I have a great team behind me. There’s a great team here. We put these two together (and) the future looks very bright for Tecvalco.”

Growing up, his father had a small factory making doors for fireplaces, inspiring Menger’s desire to, one day, be a manufacturer himself.

“We made the CWT line our number one product we’re selling. It’s passed everything else. We love it. We love the technology. There’s great market potential to take it across North America and possibly take it across the world at some point.

“The goal is to make this as global as we can,” Menger said.

The oilfield portion of Grit’s work has been down, in line with the downturn of the industry, but on their G55 secondary containment line, Menger wants to continue promoting it and to bring on new dealers.

King’s recent development of concrete panel products has been excluded from the deal.

Getting into the deep thinking behind drilling and shut-in decisions Caprice Resources’ Michael Mainil explains thought processes  By Brian Zinchuk Weyburn – When oil prices drop over 70 per cent from what the industry has become used to over the last five years, there are a lot of considerations for oil companies as to what they should do now. This is especially important for junior oil producers, small operations were individual wells

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On Feb. 17 Pipeline News spoke to Michael Mainil of Weyburn-based Caprice Resources Ltd., a longtime family-owned and operated junior producer. The company has 50-60 wells.

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drilled it,” he said. That was done by company president (and Michael’s father), Jerry Mainil, and some partners back in the early 1980s. The company was fairly inactive for a number of years until Jerry decided to drill some more and bought out his partners. ►

Page A13

PIPELINE NEWS April 2016

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◄ Page A12

The company has four battery facilities. They have five office staff plus additional contract operators.

“Our main area is southeast Saskatchewan. Our main production is south of Weyburn. We’ve expanded to Macoun and north of Estevan in the View Hill area.

“We would target three to five wells a year to drill, depending on opportunities,” Mainil said of their activity levels before the crash in prices.

In November and December 2014, when oil prices took a nosedive, he said, “You could tell the industry put the brakes on.

“We didn’t really alter anything, really. We weren’t overly aggressive. At that time it was still US$60 oil, which was still decent return. We finished our drilling plans for the near term then reviewed 2015. Breakup hits and you don’t do anything during it. We were at a point where I think we planned to drill at least two wells. We had some expiries. We cut that down to one.

“We were usually three to five, we cut it to two, and only drilled one.”

It was drilled in November 2015. Everything since then has been on hold, as Mainil said, “Until we know what’s going on.”

What price level do they need to see to resume drilling?

“I wouldn’t put a dollar figure on it. You need to see where it’s going, and where the bottom is. No one wants to drill now, and have $20 oil in three months.

Once you start seeing it stabilize, and a slight increase … You want to see some stability in the price so you can do the math and calculate the return,” he said.

(The day of this interview, the price of WTI oil had just climbed above the US$30 point, before dropping below it again, two days later.)

Hypothetical examples

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Caprice Resources drilled this well north of Estevan in 2012, They have a battery just to the east. Photo by Brian Zinchuk

As a thought exercise, he went over some scenarios that go into the thinking behind whether or not you should drill a new well.

When we discussed this it was an exercise in risk management. The point was would you except a higher risk if the well had the ability to produce at a higher rate(all or nothing scenario) or is it better to drill a safer well and knowing the odds you would likely produce the well is at a lower rate?

(These numbers are not based on actual Saskatchewan probabilities. They are simply for discussion purposes, to analyze the thought processes.)

In this exercise, a really good parcel, Parcel A, would have an expected 30-day initial production (IP30) of 250 barrels per day. “You’ve got a one in ten chance of hitting a well (like that), Would you drill it?” he asks.

Parcel B, still a good parcel, with an expected IP30 of 120 bpd, is more of a 50-50 chance.

Parcel C, at with an expected IP30 of 60 bpd, is more of a 90 per cent probability.

Which one of these scenarios would you pick depends on your risk tolerance, according to Mainil.

Most of the production, and money, is made early with a new well.

“They decline fairly rapidly. That’s part of the economics. We don’t have any product in the Bakken, but say a production well in the Bakken will IP at 250 barrels per day, but in six months, it could be 40, or even less than that. So in your six month window, the price of oil can’t be $20.”

The final result could be any combination of these scenarios. “These are scenarios, as you’re working up plays, you would rank them.”

Dusters Then there is also the very real possibility of a “duster.”

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Best production comes in first six months of the well ◄ Page A13

“Any of these could be a duster,” he said.

A lot of companies put out statements of 100 per cent drilling success, or number close to that. But is that realistic?

“The first question you ask: are they talking to investors, or the industry? If you’re talking to investors, you hear a lot of ‘We didn’t drill one duster in the Bakken field.’ A drill-and-abandon well, where you drill it and abandon it right away, that’s a duster. But if you drill it, and you produce it, that’s a success, right?

Well, define a success. It’s being produced after you drilled, so it’s not a drill-and-abandon, it’s a producing well. However, if that well ever pays out or not, that’s the question.

“So when you say they’re all successful, they’re all drilled and successfully put on production, but the question is, at what payout? And it’s the price of oil, too. If it’s a marginal well and oil is $100, you can still make money at it. If the price of oil is $30, now your payout is that much more, if at all,” he said.

“If it was easy, everybody would be doing it.”

- Michael Mainil, vice-president, Caprice Resources Ltd. Will it be a good one?

Does the oil producer have a good idea of a new well will be a good one, before committing?

Mainil responded it comes down to odds.

“You can minimize your risk by gathering as much information as you can. I would say there’s never a guarantee. Never. Back in the day, I can remember an infill well, drilled in the Weyburn Unit; they’ve abandoned it after logging. Surrounded by other producing wells, it just so happened to be that one spot. So there’s always that risk. The more work you put into it, the more geology, your seismic, experience of the geologist; you can minimize your risk, but there’s never a guarantee.

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“If you’re in a producing area, you can have problems with your well and lose your wellbore. You could abandon and re-drill, but you lost the costs of that wellbore.

It’s possible to lose wells mechanically. Liners, for instance, add more complication to a well than open hole.

“I’ll estimate a new drill, off of offsetting production, of what my expectations are. I’ll do best case and worst case, and do the risk analysis. Each situation is different. You could have a 60 barrel per day well at one-to-ten odds then ask yourself, ‘Is it worth the risk?’”

Different formations give different volumes, and certain ones are less risky.

“If it was easy, everybody would be doing it,” Mainil said.

“The highest production is at the beginning of the well. Depending on how good the well is, long-term, will determine the length of the payout, and the price of oil.”

Do you drill an area with high expectations when oil prices are low to keep revenue coming in, or do you sit on that with the expectation you’ll go after the really good stuff when oil is higher?

Mainil replied, “I wish I could give you a straight answer, and I don’t mean to be evasive. Everybody’s different. It all depends. Did you just acquire the land today, and have five years to develop it? Or is it expiring at the end of March? If I’ve got a couple years, then, yes, I will probably wait. If it’s expiring now, then I’ll likely drill to hold the minerals.”

Some companies are getting work done now, while the oilfield services prices are low. Others aren’t doing any development work, accepting the lower payout and rate of return. As an independent, privately owned company, he said, “As long as banks aren’t knocking on our door, we can go through this time.

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There are other things you can spend money on.

Everybody talks about drilling. Well, there’s optimization. There’s abandonment as well that you have to spend money on as part of your obligations.”

With service work now typically less expensive, it means obligatory work can be done for less money.

“There’s a level where optimization works. Do you do it now, or when the price is looking better?” he noted.

“We might be at a level now were even on optimization, it pays to wait.”

He pointed out a wariness of double, triple or even quadruple dips in the price of oil.

“I would say you, don’t want to risk revenue at a time like this.”

“It’s easier to accept higher risk when your rewards are higher.

“We manage ourselves to get through slow times like this. My father’s been through many of these,” Mainil said.

“I’m sure there are people in a survival mode, if they’re leveraged. If you’re not leveraged, you can just maintain production and, by all accounts, should increase your capital, because if you don’t, you’re in a worse situation then you need to be in,” he said.

There’s a fundamental principle – production always declines.

“A company will eventually deteriorate to nothing if it doesn’t drill or acquire land. It will eventually deplete itself.

It will transfer resources into cash, whether it keeps

Raging River one of the most active drillers  By Brian Zinchuk Calgary – Raging River Exploration Inc. has been one of the most active companies in Saskatchewan when it came to drilling over 2015-2016 winter season, typically with two rigs working hard in the Kindersley area.

Raging River is headed by president and CEO Neil Roszell, who was honoured last year with the 2015 Saskatchewan Oilman of the Year award at the Saskatchewan Oil and Gas Show in Weyburn. The company was Saskatchewan’s seventh highest oil producer in 2015, producing an average daily production of 12,188 barrels of oil per day within the province. The company’s production, totalling approximately 16,500 boepd now (90 per cent oil), was almost exclusively in Saskatchewan until a December 2015 acquisition of 2,500 bpd in the Alberta portion of the Viking.

Pipeline News spoke to Roszell on March 14 about Raging River’s operations and activity.

Roszell has a long history building junior oil producers in Saskatchewan.

Raging River is the third company he has

been CEO of, and it is the fifth startup company for the management team. Previous ventures include Wild River Resources Ltd. and Wild Stream Exploration, both focused in the Shaunavon area, but the latter had begun to work in the Viking play.

Continuing with the river-theme based names, Raging River shifted focus to the Viking play in west central Saskatchewan, near Kindersley.

The Viking is a light oil play, and was developed extensively with vertical drilling after its discovery in the 1940s.

A typical Viking well for Raging River has a true vertical depth around 650 to 700 metres, and a measured depth of around 1,300 metres. That makes up for a roughly 600 metre horizontal lateral.

“Typical drill times are two-to-three days. Average initial production for the play is about 55 barrels of oil per day per well.

Average spud to on-stream time, depending on the operator, varies from 20 to 30 days,” Roszell said, adding any associated gas would be in addition to that 55 barrels of oil per day average. ► Page A16

the cash or distributes it,” Mainil said. Technology changes such as waterflood or carbon dioxide floods can reduce those declines.

What do you shut in?

There comes a point when producers may choose to shut in wells. That can be to reduce costs, or to defer production for times when the price is expected to be higher.

Early candidates for shutting in include wells that have the highest costs, such as those that have their production trucked instead of being tied in by flowlines.

There are many variables to consider. Wells that are marginal at low prices will still have fixed costs, even if shut in.

“You’ve got to be comfortable with risk. If you’re putting out a million dollars to drill a well, you could have an asset that pays off or a liability that costs you $100,000 to abandon,” he said.

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PIPELINE NEWS April 2016

Raging River is EPAC’s Top Junior Producer again “In that evolution we were also able to improve technology; better frac design, more sand, more fracs. That’s when the real halo development started happening.

About 75 per cent of the play sees very little associated “The first halo development we did, and we were one gas with it, but some areas, like Hoosier in the western side of the first halo drillers, was Q3 2012. It was really exciting and Lucky Hills in the middle, have a higher component of for us.

We stepped out about six or seven miles from existgas. ing vertical production and were able to successfully prove Roughly six years ago geologists from the Ministry of the productivity. the Economy started discussing developments in the “halo” “What we found was the net pay, which is a direct around the vertically-developed Viking play. This was the correlation to the original oil in place, was quite similar, a area surrounding the decades-old development that had not bit smaller, than the heart of the pool. The permeability, the been pursued, as it was uneconomic at the time. ability of oil to flow, was materially different in the halo. The One of the first stories Pipeline News did back in the horizontal fracking is what unlocked that. If you go back summer of 2008 was on Reece Energy, which at the time to 1944 or 43, the companies never stopped drilling due to was pioneering horizontal drilling in the Viking play. Reece not finding oil, they stopped drilling because of not finding is a company Roszell said he was very familiar with. economic oil with the technology at the time. That’s really Roszell said, “The first drilling they did was non-halo the change, and doubled up the hydrocarbons in the area drilling. They went in horizontally, drilling where it had from say what the Saskatchewan Crown carried a number already been developed. That was really the key to unlockof years ago to today,” Roszell said. ing the play and letting the industry understand there was Raging River has locked up a large portion of that halo. incremental oil not being recovered with conventional “I think we’re the largest landholder on prospective Viking technologies. That was step one. oil acreage.

That’s really how we built this company. We “Step two in the play was moving the cost structure certainly have had a portion of our lands in the heart of the down. Reece’ initial foray was around $1.5 million, on play,” he said, but it was a little hard to get land from some stream, per well. The first steps working towards the halo of the other oil companies. of the play was getting the costs down. Step two got costs “We’ve been concentrating on the halo development down to about a million dollars per well. We were able to and expanding the play boundaries,” he said. toggle it down another 10 per cent to $900,000 per well.

Province-wide, Crescent Point has been, by far, the That was right up to Q1 in 2015. leader in drilling. But Raging River, with a consistent two rigs working most of the winter season, has actually (306) 462-2130 been one of the more active nankivelltruckingltd@signaldirect.ca drillers. nankivelltrucking.ca “It’s the relative onstream costs per well. We’re just slightly below $700,000 per well, so we can still make the economics come around, to a degree, at $35 BOX 123 or $40 WTI. So we’re still not to the same KISBEY, SK S0C 1L0 drilling, level as we did last year. We ◄ Page A15

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A year ago, Raging River Exploration Inc.’s president and CEO, Neil Roszell (holding the trophy) was honoured as the 2015 Saskatchewan Oilman of the Year. The previous year his company picked up the EPAC Top Junior Producer award. On March 11, Raging River was again named EPAC’s Top Junior Producer. File photo still have plans for 185 wells this year, of which we’ve done about 60 in the first quarter. We would plan to be pretty steady, running two drilling rigs through the balance of the year once we get back to work in about the June timeframe,” said Roszell.

Raging River is often producing to single well batteries. Approximately 65 to 70 per cent of their production is trucked. That means substantially reducing loads, but increasing the number of trucks, to maintain transportation during spring breakup. Roszell said they have a strong relationship with local rural municipalities in that regard.

They also add incremental storage to act as a buffer when roads are wet, allowing the company to truck it out quickly when the roads firm up.

“There will be a whole evolution in this play. It’s going to come from proving we can infill drill in the verticals to halo drilling. The next phase of activity is not only continuing development, but waterflood implementation on a large part of the resource.

With waterflood, you’ll have the build out of infrastructure and the tying in of wells and all that comes with that,” he said. “In a 10-year vision, you would see most of the production tied in.”

Indeed, Raging River has one long-term waterflood they bought from Enerplus, and six other waterfloods of various sizes, from half a section to a full section. ► Page A17

PIPELINE NEWS April 2016 ◄ Page A16 Raging River’s March 2016 corporate presentation shows their previous pattern of drilling, with 16 wells per section (eight vertical wellbores and two-leg horizontals).Approximately eight sections have been done by that. The new model shows 22 wells per section, all single legs. These would be drilled on four well pads (two going one direction, two going the other).

Two wells would run perpendicular down the centre of the section, running just beyond the toes of the horizontals. This pattern is in pilot stage right now. Roszell things that is the correct well spacing to make the most of the play. “That’s a work in progress,” he said.

The company is also looking at running longer laterals. Previous 1,300 metre wells hadn’t proved to be feasible, but with the improvements in drilling and fracturing, for a few extra hundred thousand dollars per well, they may work now. If that comes to pass, it would affect the 22-well per section model.

“This may open up further parts of the halo,” he added.

Unlike most oil company presentations you might come across, Raging River lays out a ten-year plan and projections.

That’s a switch even for Roszell, whose management team had subscribed to the build-and-sell model of development for junior oil companies.

For instance, he noted, “We certainly have the intention of waterflooding a large portion of our acreage over the next 10, 15 years.”

Regarding 10 year projections being rare, he said, “You wouldn’t have seen anybody making that project. That’s why there’s a lot of investor confidence in our story. We’ve made longer term projections.

They understand where our story is going.

It provides a lot of comfort in what they’re investing in.”

So is the build-and sell model of junior companies by and large dead?

“I would say it’s stalled for now. I wouldn’t say dead. I never say anything’s dead in this industry, because things have a tendency to re-invent themselves.

“I would say the capital structure had moved such that companies with larger capital structures are easier to invest in for

larger institutional investors. We obviously need capital to invent these smaller companies. But I think there will be a realm where we get strengthening commodity prices, where the junior cycle comes back.

From a Raging River perspective, sure, we’ve got a longer term vision. It’s a great company, and we need to have a plan in place to execute and create shareholder value for the long-term.

“It’s been a change in philosophy and I think it’s been pretty well-understood by the investment community that we have a long-term vision on this as opposed to the exploit-and-sell model that we used before,” he said.

While the Kindersley region also has the heavy oil Birdbear formation, Raging River is not really interested in it in the near term, after having done some testing.

As for the oilman of the year award, he said it’s as much a reflection on the company as the individual. “I don’t deem that as much as a personal award as a corporate award.”

The company was the 2014 the Explorers and Producers Association of Canada Top Junior Producer. On March

A17

11, it was received that honour again, as the 2016 Top Junior Producer.

Having grown up in Saskatchewan and graduated the University of Regina’s industrial systems engineering program, Roszell’s focus has primarily in this province in recent years. Asked why, he said, “It’s been a favourable, stable political regime for a multiple years that has allowed us to build and execute our business without government interference. They’re kind of our partners. The landowners, in general, have been a lot more favourable to oil and gas development. And the speed of execution in terms of well licensing has been quicker in Saskatchewan. I maintain that’s still the case today.

“As we evolve, whether we add piece in Alberta or additional pieces in Saskatchewan, it’s got to be in the context of where that next value creation can be for our stakeholders within this.

“If I was starting a brand new company again, I would certainly be more biased to starting a company in Saskatchewan, because it is more favourable environment to get rolling in, for sure,” Roszell concluded.

‘We will get good at this’ – Del Mondor An in-depth look at Weyburn’s Aldon Oils  By Brian Zinchuk Weyburn – One thing is clear to Del Mondor. We are going to get good at this, no matter what the price of oil is.

A little under a year ago, Mondor had the privilege of chairing the 2015 Saskatchewan Oil and Gas Show in Weyburn. For the president, CEO and owner of Weyburn-based Aldon Oils, it was a little more public exposure than he’s used to, but it came with the role.

Pipeline News had the opportunity to speak with Mondor in his Weyburn office on Feb. 17 in a rare interview about Aldon Oils, a junior producer with a long history in Weyburn. From humble beginnings, it has grown considerably. Under his stewardship, the intention is to keep growing.

Optimism “You’re going to get from me a very positive conversation, one of growth and optimism. We’re going to see a whole bunch of volatility over the next five years-plus, but there’s going to be some good volatility in there as well.

It’s not all going to be negative,” he started out.

Asked about how the downturn has been going, he replied. “It has been brutal. One of the things I keep saying around here, around our employees and contractors, is the phrase, ‘It’s not when are we going to get through this?’ it, ‘When are we going to get good at this?’

“So, what we’ve done is spend a whole bunch of time, effort, and an exhausting amount of brainpower to try

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to look at all of our processes, the things that we do, the things that we should be doing, in an effort to streamline and get good at this. So if we do see US$50 a barrel, we are going to absolutely kick butt.”

Mondor and Aldon have been working their brains around how to deal with the reality of lower price. In the summer of 2015 he told Pipeline News they were working on how they would “Thrive at $65.” The numbers have since changed, but the concept has not. Aldon is still seeking to thrive, no matter what the WTI price is.

“There’s all sorts of rhymes with ‘five.’ Thrive at $45. Thrive at $55.

Thrive at $35. Many numbers rhyme with five. I’m basically taking what I get, because I can’t control the price, and I’m working with it,” he said.

Beginnings The privately held company started out very small.

“Aldon Oils was a family company that was first started as a onewell company many, many years ago.

My dad bought the one-well company in 1974. He operated Aldon basically by himself, moonlighting. My brother and I moved back in 1996. We came back to a very small producing 60well company. Together the three of us built the company up.”

Normand “Pierre” Mondor is the father and Kerwin Mondor is the brother he refers to.

“It was all stripper wells. He didn’t drill. So I’m sitting at my job at Amoco looking at Dad’s assets going, ‘Wow, what a gold mine,’” Del said.

“So we made a deal for me and my brother to come back and get on the horse.” ► Page A18

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Del described Kerwin as a with a business brain who could make anything. Kerwin ran the field, while Del ran the drilling and business side.

Del took engineering and business in university, got a business degree, followed by business and engineering classes in Calgary. In all it was 10 years of school, either night school or full-time.

He had intended on going back to finish the engineering degree, but Del said, “I got the job out of university and I ended up moving to Calgary.”

That job was with Amoco. There weren’t a lot of jobs to be had in those days, and many were in Calgary. “When I went into Amoco, there lots of people with boxes leaving,” he said. “I got hired during layoffs.”

He worked up into a supervisor position looking after Fox Creek, Alta.

“I always wanted to stay on the oil side with whatever I was doing, because I knew this was back here,” Del said.

That was at time gas was king, when the movement was to get rid of oil assets and develop gas assets. He said, “It proved to be a misguided endeavour.”

Southeast Saskatchewan used to have a number of large oil companies like Shell and Gulf, but they left. Shell was one of the last, selling the Midale field around 1999.

“I don’t think they liked the Blakeney years. This company benefited from that exodus, because they left behind the properties. They left behind the stripper wells, and more or less left the province, looking for that bigger oil play, and big gas, deep gas.”

“It was a very unfriendly place to do business.”

Consistency That changed with Grant Devine’s Progressive Con-

servative government. The NDP under Roy Romanow and Lorne Calvert carried on many of those policies, Del said.

“Us in the oil business, what we’re looking for is consistency. Credit to Romanow and the other governments, they didn’t do much in the way of change.”

The Saskatchewan Party administration has carried on policies set under the Calvert government. “It allows guys like me to sit back and go, ‘What am I going to do?

Now that the government, and several governments, have committed to not changing anything, what should I be doing or not doing?’

“This company is 250 drilled wells into this thing.

We’ve committed a lot of capital, a lot of effort, and we need that consistency to pull the trigger on it.”

Those wells were drilled since 1997, when Aldon began drilling its own wells.

Pierre started in the service industry, with service rigs and production, which was where the capital came to develop the oil business. Kerwin and Del have since expanded into a lot of different service companies. Indeed, Kerwin is running their Alberta service company with operations in Medicine Hat and Wainright. Del said, “In Medicine Hat we have drilling rigs. We have heavy-haul trucking, along with other service companies. That was more of my brother’s forte – the service side, things that move.

Four-rig Komat Drilling is the drilling company, and is the “mother company.” Ryker Hauling is in Wainright, and is a rig-moving company. Those are primarily Kerwin’s operations.

“We still talk mostly every day, and are best of friends, which is completely amazing, that we were able to pull off this deal in 2011 to sell Aldon to me, from my siblings and mostly from my dad. Our goal was to get through it,

With 12 core operating areas, including View Hill, north of Estevan, where this battery can be found, Aldon Oils is involved in many of the oil plays in southeast Saskatchewan. Photo by Brian Zinchuk

and most importantly, remain a happy family. We’ve done that,” Del said.

The other family members involved in ownership of Aldon oils prior to 2011 included father Normand, mother Shirley, the aforementioned brother Kerwin, and sisters Rachelle Mondor-Smith, Carla Skinner and Twyla Mondor.

Brownstone Resources Ltd. is the parent company for Aldon. Del described it as the mouse that bought the elephant. It is mixed up in all operations and some of the core areas are actually under the Brownstone operation.

Brownstone is a huge part of the story as it was his personal company started in 1996. About 75 of the 400 wells are Brownstone’s.

Transition from family to single ownership “This is my passion, that I wanted to carry on. At that point it was decided the best alternative was to sell. It was a pretty big company when it was sold. It was tough to do.”

Since 2011, Aldon Oils has grown substantially, through both the drill bit and acquisitions. However, the drilling side has slowed down, as it has through much of the oilpatch.

“We drilled two wells in 2015. We normally would drill over 20 and participate in another five or six with various partners,” Del said. ► Page A19

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PIPELINE NEWS April 2016 ◄ Page A18 Asked about vertical integration of the oil company with interests in other ventures, he said, “We do believe in baking our own bread here. We do try to do things as efficiently as possible, working with contractors and trying to manage our wells as effectively as possible.

“It’s a different mentality. We’re a sizeable company that still has the smaller company mentality.”

Operations There are approximately 25 people working directly for Aldon Oils. At peak, that number was as high as 35.

“We run from Ceylon, Sask., to basically Lampman.

That’s kind of our area. Within that we have approximately 12 core areas,” Del said. “We’re over 400 operated wells.”

There are additional non-operated wells and mineral rights from the Alberta foothills to the Manitoba border.

They’re in a lot of oil pools, but not all.

Del thinks it gives their technical team a lot to look at, because they have a diverse breadth of assets: Ratcliffe, all levels of Frobisher, Midale, Bakken, Birdbear, Red River, going from shallowest to deepest. .

As for production numbers, like nearly every private operator Pipeline News has spoken to over the years, he’s reluctant to say. Aldon Oils does not show up on the top 30 producers in Saskatchewan, with the No. 30 producer, Crew Energy Inc., coming in at an average daily production of 2,295 barrels. However, Mondor’s holdings are spread beyond just Aldon Oils.

Aldon has been very active in drilling, acquisitions, land acquisitions and growth in every aspect possible.

“And we will be again,” Del said. “In fact, I’m looking right now for acquisitions. We are actively looking at several deals, and we’ve concluded a few in the last few months.

“There are deals to be had. There are some ‘Grade A’ assets we would have never seen at $100 oil. A Grade A asset is a premium, lots of upside, real desirable property, that we would have never seen at $100 oil. Those are still trading at a decent number. But there’s distress out there.”

He noted lease expiries for Crown land come up

March 31, but few companies have been drilling except for Crescent Point. “And thank goodness for that, for this province,” he said.

“They’ve floated the entire industry, I’ll give them a whole bunch of credit for that.

“Crescent Point has done what they said they were going to do. ‘Help us out with a reduction in cost and we will operate. We will drill, we will do these things.’

They’ve done what they said they were going to do, and I respect them for that.”

Opportunities Asked if there will be a lot of oil producers and service companies selling off this spring, he replied, “Yes, I believe there’s going to be producers and service companies going down. I think the banks are going to be the main determining factor on that. Do they want those assets? There’s competition between banks right now as to whose going to come out first, as well. Those assets are going to come out sometime in 2016 if things don’t recover. The people that are well-situated may be the benefactor of that. Whether that will be my company or not, I don’t know that.”

“To me, there’s opportunity in that, as well. To my other comment of this industry is full of innovators and entrepreneurs and people that stand up to challenges, whether it’s B.C., Alberta, Saskatchewan or Manitoba, we will get good at this. Whether that’s getting good at $35 or $75 or whatever, we will get good at this.

“Two years ago, I used to ask our technical team or operations team, ‘Did it get done?’ Now I’m asking, ‘How is it getting done?’” he said.

Noting a change in mentality, questions like, “Should we do this?” are now part of the thinking.

“It’s a challenging time,” Del said. “Money is extremely tight, so we have to make decisions on which dollar we are going to spend where. So, that’s the conversation. Do we spend to fix a well, or to drill a well?”

“We’re looking at each well on an individual basis.”

Potential for growth A lot of land is locked up, but there’s a lot of opportunities, still, he said.

Del expects in the coming years, land whose leases have expired will come up for purchase. Regarding the low numbers in recent Crown land sales, he said, “People

A.) don’t have money, and B.), don’t have real drilling plans. We’re all just trying to survive.”

Aldon Oils has an active technical team looking, with the eye of building, at all times. “Whether we do anything, because of finances, is another story. We’re looking daily, and all day long.”

Oil show Del Mondor will be chairing the 2017 Saskatchewan Oil and Gas Show as well.

Noting there was a lot of bad news that had come about by the time the 2015 show took place, he said, “It was a very successful show. We were full. We had a waiting list. It was a resounding success.

“Somebody said to me one time, ‘During down times, that’s when the marketers really earn their money.’

“So the whole getting out there, maintaining your name, battling for a reduced amount of work, is absolutely critical. We’ve seen that in the oilshow.”

Strategies might change, but they still take part.

“We’re expecting a successful 2017,” he said. “It’s too early to tell, but there are indications a lot of our regulars will be back, and we expect new people.”

There’s activity going on right now, but things really pick up this fall.

What’s next Very cognizant of the history of Aldon, and the work done by his family, Del said, “For me, I’m of course grateful to my mom and dad. I enjoyed working with my brother. But this is the new Aldon. There will come a day when Aldon is no longer a family company.

“My efforts, my thoughts, my steering of this company – when I think of Aldon, I think of Aldon, 2011-version, on.

“Our story is about this team, and our field operators, in 2016.

“I’m looking to steer this ship into the future. I’m going to react accordingly, at various times and with various restrictions, but upward and onward is my thoughts.

Upward and onward in a logical way.

“I’m 47 years old. I have no intention in changing anything. I’m having a good time, albeit less of a good time right now, but I enjoy the people. I enjoy the business. I don’t need to have a liquidity event, not for 20 years, or 30 years, or 40 years,” he concluded.

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PIPELINE NEWS April 2016

Del Mondor on pipelines Keystone XL: “Keystone XL was a complete political evaluation and denial. There’s 84 pipelines that go between Canada and the U.S. now. I don’t get what was wrong with the 85th.

“During the time they evaluated the Keystone pipeline, the U.S. government approved pipelines 14 times in length of the Keystone pipeline. So it’s obviously a political thing. It’s not an environmental thing, when you start approving that many pipelines.

“Keystone has been there for many, many years, but Keystone XL was a problem.

“It’s funny how everyone was lined up against Canadian oil. I don’t want to get into conspiracy theories, but why not keep Canadian oil cheap? If you’ve got into a situation where you’ve cornered Canadian oil, and there’s a glut of it in Cushing, why not maintain that, so they can continue to pay a reduced amount for Canadian oil.

“The oilsands argument? Every day, or on a very regular basis, Venezuelan oil comes into the Gulf of Mexico. Where does Venezuela get their oil? From oilsands.

“I don’t blame them. I don’t blame the United States at all. But for us, we’re fools to peg our future or economic benefit on another country.”

Northern Gateway: “Northern Gateway is access to Asian markets. What government wouldn’t be interesting in assisting the enterprise of the country for the betterment of the country? Assisting in an environmentally and mechanically process in getting that done? I just don’t get it.

“There’s a real movement against pipelines in this country. There’s a real danger in that. For one thing, it doesn’t make environmental sense to have all this crude getting trucked; getting railed. The best thing you can do is put in a pipeline.

“You’re going to your best market. If your best

market is in Mandan, North Dakota, you’re going to go to it (by truck). The businessmen in the world are going to put it in the best spot possible.

“There’s a second problem with this antipipeline movement. The pipelines are getting older and older and older. (With) this refusal of getting pipelines built in this country, the risk of spills goes up. Environmentalists are actually creating an environmental danger. No one’s going to take a pipeline out of commission now. They can’t get the replacement built.

“The replacement of lines aren’t getting built. So now we’re getting into 50, 60, 70-year-old pipelines that should be replaced and are not being allowed to replace them. So what happens? There’s so much better technology now. Those pipelines should be renewed, replaced, to mitigate any potential issues.

“The stuff that’s being reported these days is just a function of better reporting. You want the pipelines to report better? Well here’s the information.

Now you can’t handle the information. And now you’re saying these are a disaster. No, we’re just really good at reporting everything that goes on.

TransMountain Expansion: “TransMountain Expansion you don’t hear a whole lot about. But as far as I know, they’re following the exact same pipeline right-of-way.

“I feel for Kinder Morgan. There’s a real movement. Rather than these people facing the reality of needing to be on airplanes and in cars and all of that, and, basically, saying its reality of crude oil is what it it, the environmentalists should be working with the pipelines to go, ‘No, not there, but here.’

“But what they’re doing is saying ‘No!’ “To me, that’s a short-term line of thinking.

Five, ten years, whatever. Eventually we’ll get to the point where the government says, ‘It’s going there.

We don’t need your input.’

“Whereas if the environmentalists said, ‘That’s not a good spot. Part of it is. Let’s do that instead.’

Oh, okay, the pipeline companies are listening.

You don’t have to listen very long to hear, ‘No.’” Energy East: (Which Aldon Oils could potentially ship oil on): “It’s a real option. It’s a great option, and it’s a made-in-Canada solution. Why this is a much more of a made-in-Canada solution is it (will) provide oil where we’re actually importing oil into Canada. Saudi Arabia and other foreign countries are actually filling the refiners on the East Coast and down the St. Lawrence.

“It gives me another option for pricing. It will reduce the glut in Oklahoma. If we have more places to sell our crude, it will reduce the glut, thus making that discount on Canadian crude go away.

Our oil could end up in anything from Sarnia to St. Johns.

“It think it’s going to get built. I like Energy East the best. Don’t forget, most of Energy East is just converting an existing pipeline. If you look at the map, it’s not minimal, but it’s a lot less than what you might think.

“To me, that’s the one. They could argue most of the crude is not even going to leave our coast.

We’re just satisfying the needs of Canada, at a nondiscounted price.”

“This could someday be an issue of national security. If all of a sudden we get into a situation where Saudi Arabia or another producing nation does not want to deliver to St. John, the only way to get crude there is by rail. Think of the environmental risks of that.

“Come on. Start thinking, and stop listening to people that have an agenda which has nothing to do with pipelines.”

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