Pipeline news April 2017

PIPELINE NEWS Saskatchewan’s Petroleum Monthly

April 2017

Canada Post Publication No. 40069240

FREE

Volume 9 Issue 11

Focus on MAIDSTONE

Province launches refinery incentive

A2

Husky holds refinery open house

Keystone XL approved A3

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Baytex Energy Corp. has been actively drilling south of Maidstone this winter, as seen here on Feb. 21. Additionally, Husky Energy is working on the Rush Lake 2 thermal plant east of Maidstone, and will soon be working on its new Dee Valley thermal plant just north of the community. See related story on page A10. Photo by Brian Zinchuk

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PIPELINE NEWS April 2017

Saskatchewan to offer $75 million incentive credits for oil processing Two refinery projects in the works could benefit  By Brian Zinchuk Regina – In all the furor over the austerity budget brought down by the provincial government on March 22, one item could have a substantial impact on the two refinery proposals currently in the works for Saskatchewan’s oilpatch.

Husky Energy Inc. is proposing a 30,000 bpd asphalt refinery at Lloydminster, adjacent to its upgrader and ethanol plant. Startup Dominion Energy Processing Group, a Canadian subsidiary of Tempe, Az.-based Quantum Energy, Inc., is proposing a 40,000 bpd light oil refinery near Stoughton. Both have held open houses in recent weeks in their respective areas. The Stoughton refinery is now pegged at approximately $750 million, whereas Husky has not yet given a dollar figure for theirs.

Combined, the two refineries would be able to process a little under one-sixth of Saskatchewan oil production.

On page 10 of the budget document, under the heading of “Modernizing and Expand-

ing the Tax System,” it states, “… the Oil Processing Investment Incentive encourages processing of our oil resources in the province, with royalty credits on new production.”

Pipeline News spoke to Energy and Resources Minister Dustin Duncan by phone on March 23, asking him to elaborate on what this means.

Duncan said, “It is a new growth incentive that will target valueadded oil processing.

It’s basically designed to attract new investment into the province, to add value to oil through processing.

“It’s basically for approved investment projects. They’ll have the ability to receive a royalty credit on new production, up to 10 per cent. So all new oil production, up to 10 per cent. There’s a maximum in terms of how much.

There’ll be a cap on it.

“Earned royalty credits in the construction phase can also be transferred to an oil producer, so the valueadded investor need not produce their own oil feedstock, but they could transfer that credit to

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whatever oil company that does provide the feedstock for processing.”

When he says processing, refining and asphalt plants operations are included.

Saskatchewan currently has the Regina Consumers Co-op Refinery, Lloydminster Upgrader and Moose Jaw asphalt refinery within its borders. (Lloydminster’s existing 30,000 bpd asphalt refinery falls just across the line, in Alberta.) This new incentive would not apply to existing projects, but would apply on expansions to existing facilities.

Duncan added it would also include “anyone else that is looking at doing a capital project that would see value-

added processing to oil.

It’s not limited to two companies, but we know of at least two that are in discussions that would potentially benefit from this.”

“As a ministry, we’re looking to see if we can attract those types of investments to the province. Those are two that are known, but the program isn’t limited to the two that are publicly known. There may be opportunities for other to take advantage of the processing program.”

The royalty credit would be capped at up to 10 per cent, to a maximum of $75 million per approved project.

Duncan explained, “If a company was going to transfer it to an oil producer because they don’t have their own feed

stock, they may have one producer, or they may have multiple producers that they would be transferring it to on the feedstock side, but it would be maxed on the feedstock side.”

In the case of a merchant refinery which processes feedstocks it doesn’t produce, that credit could be spread among the producers, but it is $75 million in total for the project, not $75 million per producer.

Those numbers are also in total for the project. There is also a sunset clause. Projects have five years to cash in, after implementation.

The government of the day can then decide to continue or allow it to sunset, he explained.

This incentive has

been in the works for quite a while. Duncan noted it predated his appointment as Minister of Energy and Resources in August 2016. “I wasn’t involved in the initial concept.

My understanding was, certainly on the Husky side, we knew they were interested in doing something on the asphalt side. It was a natural discussion between government and the proponent on what we need to do to be competitive. We know Alberta had announced similar transferable royalty credits for petrochemical processing facilities. I think they announced that last year.

We wanted to be in the game, and be competitive to get these types of investments.”

 By Brian Zinchuk Estevan – Dominion Energy Processing Group Inc.’s proposal for a 40,000 bpd refinery at Stoughton has been picking up steam on multiple fronts, and could get a big boost from the recent provincial budget.

The March 22 provincial budget an-

nounced, “The Oil Processing Investment Incentive encourages processing of our oil resources in the province, with royalty credits on new production.”

That incentive could provide up to $75 million in royalty credits that a new refinery could pass on to oil producers pro-

viding its feedstock. (See related story above.)

Dominion’s CEO, Keith Stemler, when told on March 26 of the budget announcement, said, “This is great news for sure.

“We had a discussion quite a while ago,” he said of their discussions with the Ministry of Economy. However, not much had been said since. He will need time

to process this development before commenting further.

On March 8 Dominion’s parent company, Tempe, Az.-based Quantum Energy Inc., filed an S-1 prospectus with the United States Securities and Exchange commission.

That prospectus is being reviewed by the SEC and is not yet active. u Page A6

Stoughton refinery advancing on multiple fronts

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TOP NEWS

Husky holds open house for new asphalt refinery  By Brian Zinchuk Lloydminster – On March 1 Husky Energy hosted an open house for its proposed asphalt refinery adjacent to the Lloydminster upgrader and ethanol plant.

The proposal, if it goes ahead, would add a second 30,000 bpd asphalt refinery to the Border City. The original was built in 1947 on the city’s northwest corner, on the Alberta side of the border.

The proposed asphalt refinery is expected to process 30,000 bpd of heavy crude, producing 15,000 bpd of various grades of asphalt, as well as intermediate products and condensate.

The company said it will use best-in-class expertise in addition to their 70 years of asphalt refining experience in the Lloydminster area.

The location, adjacent to the Husky Lloydminster Upgrader Complex, will allow the new facility to be integrated with current operations. The site is on the south side of the existing upgrader.

A pipeline will transport crude from Husky’s existing gathering system to tanks located at the north end of the upgrader complex.

Crude will be processed using atmospheric and vacuum distillation to produce asphalt and intermediate products, such as gas oils and condensate.

The refined product will be stored on site in tanks and will be loaded onto rail cars for shipping. Condensate will be reused as diluent in transporting Husky’s heavy oil production.

Raw water, steam, natural gas and power will be sourced through the existing upgrader complex supply. Collection of on-site storm water will reduce raw water usage.

Wastewater will be treated prior to on-site disposal through injection into the Dina formation, the typical formation used for produced water disposal.

Almost all sulphur will be captured in the final asphalt and intermediate products, minimizing sulphur dioxide emissions. Heaters will use low NOx burners. Less natural gas will be combusted, generating less nitrogen oxides, greenhouse gases and fine particulate matter. This will be accomplished through use of internally produced gases being reused as fuel and drawing on the steam supply from an existing steam generation source.

There will be a vapour recovery system for the asphalt loading system and tanks.

Leak detection and a repair program is intended to minimize emission of volatile organic compounds.

The proposed new Husky asphalt refinery at Lloydminster had an open house on March 1. This is the proposed site, the south side of the upgrader complex. Photo by Brian Zinchuk The construction area is limited to the existing upgrader complex.

The majority of the construction workforce will be coming from Lloydminster, and buses will be provided to minimize traffic.

The project will see a workforce peaking at approximately 800 people.

Once complete, it will result in 50 full-time jobs in operations. The economic spinoffs include increased business for local businesses and increased tax revenue for municipal and provincial governments.

Husky has not yet released a dollar value for the project, nor has it been approved for

construction yet or a timeframe been given.

According to the Ministry of Environment, as of mid-March the company had not yet submitted for an environmental permit.

The Saskatchewan provincial budget of March 22 included a refence to a new oil processing royalty incentive which will be worth up to $75 million per approved project. (See related story Page A2).

In the company’s Feb. 24 conference call discussing its 2016 yearend, CEO Rob Peabody said, “In regard to upcoming turnarounds, work is scheduled at both the Lloyd upgrader

and the asphalt plant in the second quarter of this year. The upgrader is set for a seven-week maintenance program, while the asphalt plant will undergo a four-week turnaround.”

Thermal expansion continues The refinery development appears to go hand-in-hand with the company’s growth in thermal heavy oil production. Peabody noted, “The final significant initiative for the year was to build out a deep inventory of projects in which to invest in the future. In the heavy oil segment alone, we’ve identified 18 new Lloyd thermal projects that

together represent more than 150,000 barrels per day of potential development.”

He added, “We sanctioned 30,000 barrels per day worth of new Lloyd thermals at Dee Valley, Spruce Lake North and Spruce Lake Central. We expect to see first oil from all three projects in 2020. This is in addition to the 10,000 barrels per day now under construction at Rush Lake 2, with production on track for the first half of 2019.”

Rush Lake 2 is east of Maidstone, Dee Valley is just north of Maidstone, and the two Spruce Lake projects are southeast of St. Walburg.

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PIPELINE NEWS April 2017

PIPELINE NEWS

EDITORIAL

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Now we’ve hit the reset button, how about a sovereign wealth fund?

There was one thing we didn’t see in this most recent provincial budget, but it was certainly there – a giant reset button.

For many years now, the provincial government could count on non-renewable resources to bring in about one-fifth of the revenues needed to pay for things like hospitals, schools, highways and jails.

Most of that money was from oil, but occasionally potash would be the top number. While we like to think uranium is important, it’s really not, revenuewise. It doesn’t even get its own line item anymore in most budget documents.

However, over the past three years oil, potash and uranium are all down. Non-renewable resource revenue dropped to about one-tenth of the province’s income, and that’s a big problem. After two years of trying to ride it out, the Saskatchewan Party government, unlike the NDP in Alberta or the Liberals in Ottawa, decided to act decisively.

(We should add the federal deficit is nearly entirely of the Liberals own doing.)

Fundamentally it means instead of relying on the pumpjacks to pay a good chunk of the bills, we will be; mostly through new taxes, but also through reduced government expenditures. The expansion of the PST alone, plus ratchetting it up one per cent to six per cent, is expected to bring in an additional $865 million per year. It doesn’t make up for the loss of oil revenue, but it helps.

This re-jigging of where our revenues come from dramatically reduces our reliance on nonrenewable resources like oil and potash. Once complete, it should wean us off much of our our dependency on oil, especially.

So what happens when things in the commodities world eventually turn around? These days,

few, if any are forecasting oil to hit $100 again in the next several years. But what if it does? What if potash spikes and starts bringing in billions again?

What do we do with the money?

The wrong answer is to say, “Well, time to restore all those spending cuts from 2017!”

If we do that, based on resource revenue instead of taxation, we’ll just have to make the same cuts again in the next down cycle.

Instead, we should fire up a sovereign wealth fund.

Now, we're well aware Premier Brad Wall strongly believes one should pay off the mortgage before putting money in the bank. Perhaps. If we suddenly got $100 oil again for a few years, we might be able to do just that – and retire a big chunk of debt – if we put any additional money over today’s level straight on debt.

But maybe another consideration might be to put half of all additional non-renewable resource revenue on debt, and the other half into a sovereign wealth fund? It might not be an elegant solution, but it would be a start. Heck, North Dakota used to produce 90,000 bpd back around 2008, then spiked to over a million bpd before the downturn hit. It’s got something like $3 billion in a sovereign wealth fund, and we’ve got squat, and until a few years ago, we were producing a lot more oil than they were for decades.

Those civil servants who took pay cuts won’t like this idea. Nor will they like the idea of low, if any, raises for the foreseeable future. But a good sovereign wealth fund could make all the difference in the world the next time we see a downturn like this.

If we’re going to do it, 2018 is the year to start.

PIPELINE NEWS April 2017

So now we know what oil paid for So now we know what oil has been paying for.

But that’s only the half of it, quite literally.

Peppered throughout the 2017 provincial budget, which came down March 22, were numerous references to how low oil and potash prices have hurt the province’s revenue. I’m going to qualify that and point out it has been mostly oil, something I have been spouting off for at least a year.

I recall several years ago attending a presentation at the Regina Williston Basin Petroleum Conference. One of the keynote speakers was one of those oil forecasters whose job it is to predict what the price of oil will be, and where it is going. He explained that the way he predicts the price of oil is by simply following what the Saudi oil minister says.

If the Saudi oil minister says oil will be $60 a barrel, that is what the price of oil becomes. If he says it will be $100 a barrel, it becomes $100 a barrel. OPEC follows.

Based on that enlightening knowledge, there is one person and one person, only, on this entire planet, that can make these budget issues go away, and it’s not Brad Wall. It’s the Saudi oil minister.

Unless you can get him to ratchet up the price of oil, we are stuck with dealing with $50 oil, and the provincial revenues that number entails.

The hole in revenues for the past several years has been nearly entirely from oil, although low potash has had an impact too, and uranium to a much lesser extent.

This year oil is expected to bring in $670 million, which is an improvement from last years $557 million. We used to bring in $1.6 billion or more, per year, from oil and land sales. And for those who think we get a lot from uranium royalties? We don’t.

It doesn’t even get its own line item on the revenue charts. It’s lumped in with “other” that includes things like coal and gold. Natural gas is now a

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rounding error.

Oil has dropped not only in value, but in volume as a result in the decline in price. In 2014-15 we produced 187.4 million barrels. The 2017-18 budget forecasts only 163.8 million barrels, a decline of 12.6 per cent in volume.

So for all those who don’t like oil, we now know some of the things it paid for, and those are the things we are going to do without. And remember, we still have a very large $685 million deficit remaining, after these cuts. If the Saskatchewan Party had truly cut to the bone, they would have had to double nearly all these numbers to hit break even status this year.

It means we paid less on PST. It means government workers got 3.5 per cent more in wages. It means our heavily subsidized Crown corporation bus service got its subsidies from oil. Our provincial library system got half its money from oil. Universities are losing funding, about five per cent, money that was covered by oil. Even funerals for those on social assistance were covered by oil revenues.

Oil revenue meant everyone paid less on their education property taxes.

If the cuts to public spending were anywhere near as harsh as what the oilfield has gone through, the cuts would have been a lot deeper. To eliminate the deficit entirely, it is likely the PST would have gone up two points, not one. Government workers would be facing pay cuts in the range of seven per cent, not 3.5. Universities would have seen a 10 per cent cut, not five. Raises? No one in government would see raises of any type, union contracts be damned.

All of those cuts are trivial compared to what the oilpatch has endured since 2014. Nearly every oilfield services business I have spoken to in the last year has cut their workforce by roughly half since

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2014. Of those who remained, most took substantial cuts in pay, hours or both.

Those bemoaning the cuts in this year’s provincial budget are often the same type of people who don’t really like oil. I wonder, if they realized what oil has been paying for, they might change their tune now.

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

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PIPELINE NEWS April 2017

▲

Stoughton refinery now $750 million Page A2

Stemler, spent a substantial portion of March on the road in Saskatchewan, meeting with government officials in Regina, potential vendors in the region and others. On March 21 he made a presentation to members of the Estevan Chamber of Commerce and city council. The following day he spoke to the

Weyburn Chamber of Commerce at their annual general meeting.

While the company now has an engineer of record, they have not yet made who that is public.

The engineer of record will act as an engineering, procurement and construction management company for the project.

The project’s dollar value has now risen to C$750 million, accord-

ing to Stemler.

On March 21 Dominion signed a nonbinding letter of intent (LOI) with Ceres Global Ag Corp. to evaluate the use of Ceres’ Northgate Terminal as an in-take and off-take partnership for the proposed Stoughton refinery. The two sites are approximately 91 kilometres apart as the crow flies, so any development would require a transportation

strategy between the two facilities.

“Having this LOI in place has allowed both parties to functionally move forward toward an agreement,” said Stemler, Dominion CEO. “Ceres Northgate Terminal, through its connection to the BNSF Railway, has agreed to assess supplying supplemental Bakken Sweet Crude for the Stoughton Refinery as well as purchasing finished product off-take such as ultra low sulphur diesel, ultra low sulphur

gasoline and jet ‘A’ fuels.”

“Dominion and our engineer of record will work closely with Ceres to explore all commodity requirements and Canadian and U.S. logistics to and from the Northgate terminal,” said Stan Wilson, Quantum CEO. Paul Ferguson, general manager of energy and industrial products with Ceres, confirmed to Pipeline News on March 22 that they were in discussions with Dominion.

He noted their $100 million Northgate Com-

modity Logistics Centre had two 120-car loop tracks plus associated yard tracks for a total of seven miles of rail. There is room to add a third loop track if the opportunity presents itself, as well as additional yard tracks. “It appears to be an opportunity to be a good fit,” Ferguson said.

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Dominion Energy Processing Group, Inc. CEO Keith Stemler, standing, spoke to representatives of the Estevan Chamber of Commerce and Estevan city council on March 21.

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PIPELINE NEWS April 2017

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Keystone XL gets presidential permit

The Keystone XL pipeline will involve 260 kilometres of right-of-way cutting across the southwest corner of Saskatchewan. Graphic courtesy TransCanada

He went on, “It’s a great day for American jobs and a historic moment for North American and energy independence. This announcement is part of a new era of American energy policy that will lower costs for American families — and very significantly — reduce our dependence on foreign oil, and create thousands of jobs right here in America.

“And I also would like to add I think it’s a lot safer to have pipe-

lines than to use other forms of transportation for your product.

“When completed, the Keystone XL pipeline will span 900 miles — wow — and have the capacity to deliver more than 800,000 barrels of oil per day to the Gulf Coast refineries. That’s some big pipeline.

“The fact is that this $8 billion investment in American energy was delayed for so long — it demonstrates how our government has too often failed its citizens

and companies over the past long period of time.

Today, we begin to make things right and to do things right. Today we take one more step in putting the jobs, wages, and economic security of American citizens first.

Put America first.”

Russ Girling, standing beside Trump in the Oval Office, said, “This is a very, very important day for us — for our company. So on behalf of thousands of people that have worked very hard to get here — as you’ve pointed out, very long time to get here — but we’re very relieved, and very much just want to get to work.

“Some of those folks I have with me today — the building trades with Sean McGarvey; some of our — construction contractor, Quanta; our pipe suppliers from Welspun. There’s thousands of people that are just ready and itching to get to work. We got a lot of work to do in the field, but as you pointed out, this is the safest and most reliable way to move our products to market. We’re going to use the best technology and be able to create thousands of jobs and important tax revenues in local communities.

“That’s something often that’s overlooked in new projects like this, is local communi-

ties benefit greatly from these projects. It gives them tax revenues in which they can invest in schools, hospitals, roads, teachers, nurses — all of those things — build the fabric of communities and make those places better for those folks to live.

“So, again, thank you very much for this opportunity, and we’re not going to let you down, sir,” Girling concluded.

Trump asked when construction would begin, to which Girling replied, “Well, we’ve got some work to do in Nebraska to get our permits there…”

The president said he would call the governor of Nebraska that day.

In a press release on March 24, TransCanada said it will continue to engage key stakeholders and neighbors throughPage A8 ▲

 By Brian Zinchuk Washington – The Keystone XL pipeline has finally, after eight years, received the Presidential Permit required to build across the Canada-U.S. border.

The announcement was made on March 24, with President Donald Trump bringing in TransCanada president Russ Girling, among others, into the Oval Office to make the announcement.

In one of his first acts as president, Trump signed an executive order on Jan. 24 by which he invited TransCanada to resubmit its application for the pipeline. Its initial application had been kyboshed by former President Barack Obama on Nov. 6, 2015, after seven years of review.

According to a transcript of the announcement on the White House web page, Trump said, “Today, I’m pleased to announce the official approval of the presidential permit for the Keystone XL Pipeline.

TransCanada will finally be allowed to complete this long overdue project with efficiency and with speed. We’re working out the final details as we speak. It’s going to be an incredible pipeline, greatest technology known to man or woman. And frankly, we’re very proud of it.

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A8

PIPELINE NEWS April 2017

Nalco Champion improving labs in Carlyle and Estevan  By Brian Zinchuk Carlyle – Nalco Champion is reinvigorating its operations in Saskatchewan, with a grand opening coming up soon for a revitalized Carlyle location, and improvements in Estevan and Lloydminster.

Senior vice-president Terry Burleson was in southeast Saskatchewan on Feb. 23. He spoke to Pipeline News via phone regarding the changes.

“We’ve survived the downturn like everybody else,” he said. “When you go through something like that, you’ve got a couple choices – roll up,

hunker down, or reassess where you’re at. What we’ve chosen to do is invest more in the area.

We’ve done that with upgrading our facility in Carlyle – a new facility, with a new lab that’s coming in next week.

We’re also upgrading our lab in Estevan. Over the last six months we’ve made some strategic hires, really trying to bring more experience back into the area.

“During the boom time, we had lots of young folks come into the industry. You go into the downturn, and sometimes, the younger folks,

if they get burned, they don’t come back. We took this time to really replace with more experienced people.”

Murray Millar and Mike LaCoste were two of those recently hired by Nalco Champion.

The company is looking at adding staff in the Shaunavon area. In Estevan and Carlyle they have 24 people combined.

There’s seven in Shaunavon, three in Weyburn, and about 40 people in Lloydminster.

“We do have a brand new facility we opened in Lloydminster probably about a year-and-a-half

ago,” Burleson said.

In the southeast they’re into production chemistry and frac chemistry as well. Water treatment, for recycle/reuse is another product line.

“We had labs in the area, but a lot of stuff was going to Calgary. To shorten the turnaround time, we’ve brought the labs more local. There’ll still be some testing that will take place in Calgary, but we’re trying to do quicker turnaround time in the routine analysis we do – wet chemistry and solids analysis, as well as emulsion breaking,” he said.

It should mean a five-to-seven day turnaround time will be reduced to two-to-three days.

“Overall, we’re trying to increase market share for all customers,” Burleson said.

Each area has a warehouse, and the company has in-house chemical delivery.

Burleson said he wanted to highlight Nalco Champion's leadership in problem areas such as paraffin, H₂S, corrosion, water management and CO₂ flooding.

Burleson thinks the business will be stabilized

and improving in 2017.

“Everybody will get stabilized. Service companies will be able to rebuild a little bit. I see even better times for 2018. I think there is some speculation on the supply and demand balance. If we bring up production between Canada and the Lower-48, will Saudi Arabia pull back on their cuts? That’s probably the only worry out there.

If the economy shows improvement in the U.S. and elsewhere, that will take care of itself.”

A grand opening in Carlyle is planned for some time this spring.

Keystone XL will also take Bakkea oil ▲

Page A7 out Nebraska, Montana and South Dakota to obtain the necessary permits and approvals to advance this project to construction.

In conjunction, TransCanada has

discontinued its claim under Chapter 11 of the North American Free Trade Agreement (NAFTA) and will end its U.S. Constitutional challenge.

The Keystone XL Pipeline Project is a

proposed 1,897km, 36-inch-diameter crude oil pipeline, beginning in Hardisty, Alta., and extending south to Steele City, Neb. The project originally ran right to the Texas Gulf Coast, but it was split

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several years ago and the southern portion has been built and is in operation.

While often overlooked in other media, the up to 15 per cent of the pipeline’s 830,000 bpd capacity is desig-

nated for North Dakota-produced Bakken oil, which would join the pipeline at Baker, Mont.

The right-of-way cuts across the very southwest corner of Saskatchewan, running

from Burstall, right past Shaunavon and crosses the American border at Monchy.

Canada’s National Energy Board approved construction of the Canadian portion in March 2010.

PIPELINE NEWS April 2017

A9

Brian Blanchette looks after HSE concerns for Baytex in Saskatchewan Maidstone – When Brian Blanchette left the oil producer he had been working with to join Baytex nearly 20 years ago, he wasn’t alone.

“Everyone I worked with came over to Baytex, so I did, too,” said the health, safety and environment advisor for Baytex Energy Corp. in Saskatchewan on Feb. 21.

“Seven or eight came over. That was in 1998.”

He started out in the oilpatch working on a flushby unit for five years, operating oil wells and batteries for another producer.

Blanchette took a pay cut to come to Baytex. “I’ve never been happier,” he said.

Blanchette was born and raised in Maidstone.

“Dad was a farmer and a school caretaker. We moved into town in Grade 9,” he said.

Over the years he’s been involved in Maidstone minor hockey for about 10 years. He was a volunteer with the local fire department for 20 years. He also was part of the Silver Lake Regional Park board.

Blanchette golfs and fishes, and enjoys his cabin at the lake with his wife, Joanne.

Local boy took the jump to Baytex, and never looked back

Lashburn was halfway

Paul Lawrence is the long-time field superintendent for Baytex Energy Corp. at Maidstone.

Maidstone – Paul Lawrence has been with Baytex Energy Corp.’s Maidstone area Soda Lake operations since the beginning, when the company purchased the area from Dorset in 1997.

Lawrence, 55, is originally from Red Water, Alta. He was born in Fort McMurray.

“I came to Lashburn to this job when I was 30. I started out with Texaco Resources,” he said. There he worked as a roustabout on a crew truck.

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Esso bought them out. He was then in Bon Accord, 20 minutes from Red Water. “Dorset bought out that piece from Esso. I took the move. My wife is from Prince Albert, so this got us halfway.”

Paul has been married to Donna for 35 years this year.

Lawrence used to play hockey, but gave that up a few years ago.

“I like fishing, tinkering with cars, welding,” he said.

For several years he was active with Scouts.

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PIPELINE NEWS April 2017

Baytex drilling multi-laterals near Maidstone Maidstone – Baytex Energy Corp. has been a key player in the Maidstone oilpatch, with its Soda Lake field southwest of the community seeing active drilling during the winter season.

One drilling rig has been punching holes this past winter, increasing the area’s production with promising wells.

Pipeline News visited the operation on Feb. 21, meeting with Paul Lawrence, Baytex Energy Corp.’s field superintendent in the company’s Soda Lake field, Brian Blanchette, HSE advisor for Saskatchewan, and Andrew Loosley, Baytex’s director of stakeholder relations. He flew out from Calgary to take part in the tour.

Lawrence was working with Dorset when Baytex bought them out in 1997. He’s seen the ups and the downs. He noted that the Maid-

stone-area field was one of Baytex’s initial forays, and they bought it right when the oilpatch was at a crawl. “It went down to US$7 a barrel, and things stopped,” he said of the industry.

While he’s got 20 years in with Baytex, Lawrence is far from the exception.

“Right now, probably everybody is longterm,” Lawrence said. One person is around three years, but “the rest of us are well over 10 years.”

That includes their contract operators.

There are seven total field operator runs supporting the Soda Lake operation, with 14 field operators, an electrician, a general maintenance person, two battery operators and two administrators.

In total they look after about 250 wells. Production is coming up due to Baytex’s drilling program in the area. While they

won’t say the numbers, Lawrence said, “The wells we are drilling are very good.”

Loosley added, “These are some of the best wells we have in our portfolio. This is an important area for Baytex for growth.”

Baytex has a sand retention pit, administered by NewAlta, near Carruthers. (Full disclosure: the writer used to run an excavator for a subcontractor in that pit for a year around 2002.

He only got the excavator stuck to the top of the counterweight once, but Lawrence and Blanchette still remember the additional excavator and dozer coming in to dig it out.)

“There was lots of sand at that time. Tons of it… We don’t handle near as much sand as we used to,” Lawrence said.

The Baytex Soda Lake field is approxi-

mately 13 kilometres east-west, and 16 kilometres north-south, between Highway 16 and the Battle River. It straddles Highway 21, with the bulk being on the west side of the highway.

The Soda Lake field is being developed with horizontal, multilateral wells, with a verti-

cal depth of about 700 metres.

The company’s March 7 press release noted, “At Soda Lake, we have drilled six of eight multi-lateral horizontal wells planned for the first quarter of 2017 (16 multi-lateral horizontal wells are planned for the full-year). Depending on

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the overall length and completion, well costs range from $700,000 to $900,000 with an average 30-day initial production rate of approximately 130 bpd. Through efficient operational execution and lower service costs, the cost to drill, complete and equip our first six Page A11 ▲

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An active drilling program, with several laterals per well, has kept Baytex Energy Corp. busy over the winter near Maidstone. Photo by Brian Zinchuk

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A11

Up to four legs per well ▲

Page A10 multi-lateral wells have come in approximately 15 per cent below budget

with 30-day initial production rates either meeting or exceeding expectations. Our

Oil companies will often own their own pipelines, but what if your pipelines are trucks? In that case, unlike most oil companies, Baytex Energy Corp. has its own trucking division, Aim Transport. Photo by Brian Zinchuk

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sand base to not case them,” Lawrence said, adding there’s not a lot of sand being produced.

“This Soda Lake area never saw a lot of sand. It was more of Carrutherssouth.”

A land-swap with Husky resulted in that southern land going to Husky.

“The new wells, the guys are seeing 0.1 per cent sand,” Lawrence said.

Lawrence pointed out that CHOPS (cold heavy oil production with sand) is not their standard technique. “There are so many new ideas.

We’re using waterflood EOR. That’s the next step.”

The mineral rights are nearly all held by the

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flood area has sufficient volumes of water that they can pipeline it into the battery. The produced water is then returned to the field for waterflood purposes.

Otherwise there are numerous trucks that are a constant flow in and out. Baytex is a rarity in having its own, in-house trucking company that does the hauling, Aim Transport. Roughly 40 Page A12

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The oil is 12 to 13 API, making it pretty thick.

Artificial lift is handled with progressing cavity pumps to surface tanks, although they are testing a few electric submersible pumps in a progressing cavity configuration. Continuous rod is the norm. Most of the field’s product is trucked to the central Soda Lake battery, but their water-

▲

most recent two wells are expected to generate 30-day initial production rates of approximately 175 bpd.”

Lawrence said, “Back in the day, when Baytex took over, they were drilling horizontal wells with one leg. As Baytex has done their homework, they’re drilling multilaterals. We’ll see, here, two to four out of one well.”

Loosely noted that other areas will see as many as 13 legs. One at Peace River has 16 legs.

Thousand-metre lengths are pretty normal for legs. There are some 1,600 metre legs.

“We’ve developed the technology and expertise in-house,” Loosley said.

“We’ve got the right

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PIPELINE NEWS April 2017

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Page A11 per cent of their volumes are pipelined into the battery, and the remainder is trucked.

The field is dominated by single well batteries, but there are some six-well pads. These days, two-well pads are common for new sites.

In addition to the primary battery at 2-3646-24-W3, they have a smaller battery in the area that does quite a bit less volume.

The Soda Lake battery itself has a large treater and a smaller test treater. There are two free water knockouts that handle about 90 per cent of the separation. In the last two years they’ve added a vapour recovery system.

“All the oil is trucked out of here,” Lawrence said.

The roads have dramatically improved in the years since Baytex first moved into the Soda Lake field. Lawrence jokes that sometimes truckers would take the ditch instead, they were so bad. But

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The terrain south of Maidstone where Baytex’s Soda Lake field lies can be quite hilly.

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that’s not the case now, as Highway 21 was realigned and improved about 15 years ago.

There is no sales pipeline from Soda Lake.

The finished product goes by truck to Repsol at Chauvin, Alta.

From there it goes to

Hardisty where it enters the mainline pipeline network.

“We know all the landowners,” said Blanchette, adding they will often call in directly if they have an issue to be dealt with.

Baytex supports

multiple scholarships in local schools, as well as clubs and sports like skating and hockey. The local hospital is also a regular recipient of support.

Loosley said, “Our focus is our people in the field.”

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A13

Traffic has picked up for Keranda  By Brian Zinchuk Maidstone – “There’s definitely a lot more traffic. Traffic-wise, that means dollars,” said Kevin Pike, partner in Maidstone’s Keranda Industrial Supply Ltd. The supply store caters to both the oilfield and agriculture, and that’s a good thing, too, since agriculture picked up some of the slack of the downturn that has impacted the patch since 2014.

“We’ve been pretty steady,” he said on Feb. 21. Their business supports both the oil sector and agriculture.

Maidstone, in a way, has been an early leader in the steam assisted gravity drainage (SAGD) method of heavy oil extraction, with the Pike’s Peak plant north of the community having several decades of operation under its belt, and Pike’s Peak South was built nearby a few years ago, not far from where Kevin Pike lives.

Husky is looking at several thermal heavy oil projects in the area, each 10,000 bpd. The Rush Lake thermal plant, roughly 16 kilometres due east of Maidstone, has a large pad cleared for Rush Lake 2, the second project there.

Others are in consideration for the region, including Dee Valley, 10 kilometres north of Maidstone.

Once these operations get going, however, they don’t have a lot of supply store needs.

When Keranda started 37 years ago, about 30 per cent of their business was oil, and 70 per cent was farm and urban. Oil grew to the point where it was 70 per cent of the business. Now things are about 50/50.

“Ag was stable,” Pike said, but added, “Mind you, the last three years have had really nice crops. Farmers are builders. If they’re doing well, they’re putting up shops,

etc.”

However, the last harvest was a tough one.

“Guys were swathing in the snow,” Pike said.

When it comes to oilfield supply, Keranda is a classic “rope, soap and dope” store, carrying the usual items crews need to keep things working in the field.

There’s lot of hosing, cam-locks, filters, hydraulics and tools being picked up for workers.

“We do supply a lot of things to the oilfield, like mechanics – tuneup kits, material,” Pike said.

They don’t see a big spike in business when a new thermal plant is built, as much of that is supplied from elsewhere.

In June 2016 business flattened out then started to pick up slowly.

Pike said, “We found our bottom about eight months ago. Year-toyear, we’re going up slightly.”

“Sometimes slow growth is better than the

pounding when it gets out of hand,” he said.

Unlike most oilfield services companies Pipeline News has spoken to over the past year, Keranda did not go into layoff mode when the downturn hit.

“No, I wouldn’t lay anyone off. They’re too hard to train,” he said. It resulted in the company dipping into its coffers, but they still have the people they had in 2014, 11 in total.

“We’re definitely more organized than we used to be,” he said. They tore sections of the store apart and got things organized during the downturn. The benefits of that work will be long-lasting. “If it speeds up again, everyone will have to shift one gear. A lot of things are organized a lot better,” he said.

For 2017, Pike said, “We’re optimistic. We’re always optimistic. That’s why we kept all our staff.”

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Kevin Pike is one of the partners in Keranda Industrial Supply Ltd. in Maidstone. Photo by Brian Zinchuk

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PIPELINE NEWS April 2017

Husky spill being referred to Ministry of Justice Regina – Energy and Resources Minister Dustin Duncan announced on March 23 that the Ministry of the Economy has completed its investigation of the Husky pipeline incident on July 21, 2016. The findings of this investigation have been provided to the Ministry of Justice.

“Since the Husky spill in July, we’ve recognized that we need to do better when it comes to preventing incidents,” Duncan said. “The changes announced today will help ensure that workers and the environment are well-protected moving forward.”

Though the final report has been provided to the Ministry of Justice, and cannot be released at this time, a statement of substantive findings of the investigation has been provided.

The cause of the pipeline break was due to mechanical cracking in a buckle in the pipeline.

The buckle was caused by ground movement on the slope which occurred over many years.

The investigators have concluded that the slope movement was not a sudden one-time event. The volume of spilled material is approximately 225 cubic meters of oil blended with distillates.

It is estimated that roughly 60 per cent was contained or recovered on land prior to the point of entry into the river.

The released volume was independently calculated by the investigators. This volume calculation will continue to guide the provincial response and monitoring of the cleanup.

The timeline surrounding the occurrence and reporting of the pipeline failure is as follows: • Based on an analysis of the operating data, the investigators have concluded that the leak began on July 20, the day before the discovery of the spill.

• The pipeline’s dual alarm leak detection systems were issuing notices to the operators of potential problems prior to the spill and continued until the system was

shut down for scheduled maintenance at 7:15 a.m. on July 21.

• Husky’s response to the alarms has been extensively investigated and the details concerning their reasons for not shutting down the system are being reviewed by the Ministry of Justice.

The Government of Saskatchewan was first notified of the spill when a member of the public reported an oil slick on the river near the bridge.

This call was received at approximately 8:30 a.m.

After obtaining additional information from the caller, two staff members from the Ministry of the Economy’s field office in Lloydminster were dispatched to the bridge at approximately 8:40 a.m. to investigate the source of the spill. They arrived on site at approximately 9:35 a.m. and confirmed there was a significant amount of oil on the river.

The source of the oil was not immediately known and staff began a search of the area.

Ministry staff also contacted Husky at 9:50

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a.m. to advise it of the incident and ask if they had any knowledge of the spill. Husky confirmed that it had also received a report of oil on the river and staff were also looking for potential sources.

At 10 a.m. Husky contacted the Ministry of the Economy to confirm the location of the incident at its crossing upstream of the bridge.

The broader multiagency provincial response was activated at that point with the Ministry of Environment formally assuming overall provincial lead for the response in accordance with longstanding procedures for substantive discharges impacting water bodies. The Ministry of the Economy staff shifted their focus to the immediate cleanup of oil on the right of way and the investigation of the cause of the break.

The ministry is taking steps to improve regulations, based on the report’s findings. These steps include: • The Pipelines Amendment Act, 2016

(Bill 43) will be passed by the end of spring session, which will provide the foundation for strengthening regulatory requirements for pipelines. These changes are broad-based and will address a variety of gaps in the current legislative framework.

• The Ministry of the Economy will immediately begin work on a compliance audit of the integrity management programs of companies that operate pipelines across major water crossings. This work will build off the inspections conducted last year but will include a review of corporate oversight of these programs.

• Economy will be working with key stake holders and third-party experts to develop appropriate regulatory standards for water crossings.

The Husky investigations have revealed that current regulatory standards and integrity management practices need to be strengthened to fully address the types of risks associated with these lo-

cations (slope movement in particular).

• Economy will also be reviewing the design of legacy water crossings to determine whether additional measures may be needed to manage geotechnical risk. The Husky pipeline was built in 1997 based on the engineering standards of the time. The ministry will be working to ensure that any deficiencies in these older designs are addressed by operators in terms of the integrity management practices or new mitigation measures.

“We have consulted with industry on these actions,” Duncan said.

“Working together, we will ensure the timely implementation of any changes.”

While the technical review—conducted in partnership between Skystone International, the Ministries of the Economy, Environment, and the Water Security Agency—is complete, the full report will be released once all prosecution processes and any appeals have been concluded.

PIPELINE NEWS April 2017

A15

Arnett & Burgess Pipeliners celebrates 60 years have worked at A&B have run it. We’re here to support the guys who run it.”

The company established permanent roots in Sedgewick, Alta., in 1974. Tom Arnett, Les’ son, became president in 1988. In 1996 they built new offices at Sedgewick.

The 21st century saw the establishment of several field offices across the west. In 2002 they opened a field office in Bashaw, Alta.

Another was opened in Athabasca, Alta., in 2008.

Six years ago A&B opened an office in Regina, and two years later set up shop in Estevan.

Their current Estevan location is immediately adjacent to the printing plant that prints Pipeline News, on the west side of the city.

In 2014 Quanta Services acquired A&B. It includes Banister and O.J. Pipelines among its 21 onshore oil and gas infrastructure divisions.

It also has numerous electrical power divi-

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“We are shareholders within the larger entity,” Arnett said.

“We all run as basically independent owner operators, but with the governance expected of a public company,” she said.

In 2015, Arnett & Burgess Pipeliners (Rockies) LLC was established to service the northern Rockies and Bakken infrastructure needs. And if you’re wondering why those Bakken needs aren’t out of Estevan, it’s because in 2016 the company established a presence in Watford City, N.D., in the North Dakota Bakken field. “We’re really busy in North Dakota right now,” she said, with about 50 workers there. A&B Pipeliner’s affiliation with Quanta made it much easier to start operations in the United States, since they already had established business apparatus for things like health care plans. That’s not much of a consideration in Canada.

Last year the company opened a new office and fab shop at Sedgewick.

“This past winter we had about 650 people at peak in the field, plus additional staff in the office,” said Carey. Their manhours have been at pretty much record levels, but prices are still “compressed” due to the downturn in the oil sector.

Carey said they have “fairly diversified and loyal customers.”

In Saskatchewan, they’ve been reasonably active. The construction of the Regina bypass meant there was work to be had relocating pipelines, out of the way of the new bypass. They’ve also worked on pipeline integrity projects and even in the potash sector.

For 2017, she said, “I think it’s interesting for us. We’re expanding in capacity and geography.”

While there are major mainline projects in the works for Canada, she noted they

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added there has been tremendous inflation of costs, with the low Canadian dollar making buying equipment much more expensive. While labour costs may have gone down 10 per cent, the cost of equipment has gone up 35 per cent.

The rate cuts have come to an unsustainable level, and she fears the inelasticity of quality inputs will mean Page A16

OUR PEOPLE

OUR DIFFERENCE The long term culture at A&B is both distinct and strong, with many 2nd, 3rd and 4th generation employees. This makes A&B a preferred employer and contractor.

Our longevity in the industry has been a direct result of continually practicing our core values of: quality, safety, and integrity.

A&B would like to welcome Tyler Featherstone, Divisional Construction Manager, Sam Nezamloo, Estimator and Dean Nutzhorn, Construction Manager to our Regina team.

• • • •

Serving the industry since 1975

are not a mainline, biginch pipeline contractor.

Rather, their forte is in medium-diameter work.

Since the new year, Pipeline News has been asking nearly everyone when they feel they will be able to start bringing the rates they charge their clients back up.

Carey noted that different areas of the industries had been hit with various cuts, and they were not uniform. She

▲

 By Brian Zinchuk Sedgewick, Alta. – Very few companies in the oilpatch last 60 years. Fewer still remain as the same legal entity throughout that time.

But on Feb. 22, Arnett & Burgess Pipeliners Ltd. hit six decades in operation.

The company recently transitioned to its third generation running the business. Carey Arnett became president in January although her father Tom Arnett is still CEO. Carey spoke to Pipeline News on March 20.

The company was founded by Les Arnett (Carey’s grandfather) and Ray Burgess in 1957. Les became one of the founding members of the Canadian Gas Association in 1959. Ray Burgess sold his interests in the business to Les Arnett in 1968 to pursue an opportunity in Australia.

The Arnett family has run the company for its entire lifespan, although Carey said that, “The people who

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Tyler, a local to Prince Albert, SK, has been working with A&B for 15 years.

Beginning his career as a labourer, then moving to lead, to foreman, followed by superintendent, and now Construction Manager, Tyler is a true A&B Pipeliner.

Sam brings with him valuable experience as both a cost estimator and project engineer with a background in construction, integrity, and the maintenance of pipelines and facilities. Sam is also a licensed professional engineer (P.Eng) in Saskatchewan.

Dean has been in the oil and gas industry for 12 years. He brings valuable facilities experience to A&B. He loves Saskatchewan - Lake Diefenbaker particularly.

abpipeliners.com Arnett & Burgess builds and maintains pipeline infrastructure based on the principles of quality, safety and integrity.

A16

PIPELINE NEWS April 2017

Competency is so important ▲

Page A15 price inflation if things go up too quickly.

Also, there’s been a big exodus of workers in the industry. “Any

pipeliner not from here went home,” she said.

When it’s time to start bringing people back into the industry, it will be a challenge, as you can’t just put anyone

to work. Carey pointed out there’s a difference between a labourer and a pipeline labourer, for instance.

“Competency is so important,” she said.

Lease gravel and maintenance: Hardy Services A&B Pipeliners worked on the Vantage Pipeline in 2012. File photo.

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Maidstone – Hardy Services is plugging along at Maidstone.

Jordan Brett is a foreman with Hardy.

He noted they gravel leases and provide ongoing maintenance. That includes snow removal, although this past winter didn’t see a lot of snow in northwest Saskatchewan.

“We have sanders to sand ice on oil leases and hills,” Brett said on Feb. 21. “We do a fair amount, but not as much as other years.

Hardy has 10 people working in Maidstone, which is a satellite location. Privately-owned Hardy is based in Paradise Hill. Like most other oilfield services companies Pipeline News

has spoken to over the past year, their staff numbers are about half compared to 2014.

Hardy Services bought Maidstone’s TWB Construction Ltd. in May 2014.

Brett said they haven’t seen a pickup in business yet. “We’re steady,” he said.

Some of Hardy’s work includes servicing local SAGD (often referred to as “thermal”) operations.

Trevor Minke is the manager of the Maidstone shop. He said, “It’s very slow compared to what we should be.”

He’s spent 15 years with the company, finding his way to Hardy after working as a

Trevor Minke is the manager of the Hardy Services Maidstone shop.

Photo by Brian Zinchuk

long haul truck driver.

Minke’s run equipment and driven truck since he left school.

“They’re saying it’s supposed to pick up.”

The company is bidding on work on local upcoming SAGD projects.

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PIPELINE NEWS April 2017

A17

US$60 oil is about all we can ask for, says GreMur owner  By Brian Zinchuk Maidstone – Asked how things have been going, Bob Ormiston of GreMur Industries Ltd. in Maidstone responded, “It’s going.”

“It’s been relatively slow the last three years, ever since oil took a dive.”

Pipeline News visited GreMur on Feb. 21.

“I see a little more action in the field,” he said, noting there are a few drilling rigs nearby. He pointed out Husky has got a few projects going on including the Rush Lake 2 and the Dee Valley thermal projects, each planned for 10,000 bpd production.

“The pad is already made up at Rush Lake,” he said.

GreMur provides construction maintenance for the oilfield, including general welding. They’ve done rig welding as well, but are not doing so at the moment. The company has five crew trucks and

Bob Ormiston, left owns GreMur Industries Ltd. Behind him welder Nic Weston works on short pieces of pipe.

two welding trucks, plus various contractors. The work is general for local producers.

“There’s maintenance going on. The dollars are

tight. They want to spend the least they possibly can,” he said.

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hardly find a guy to work,” Ormiston said. “That was December 2014. Then in January, there was absolutely no work.”

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He guessed there was a million square feet of empty shops in Lloydminster industrial parks.

A drive through the Border City by Pipeline News the next day confirmed a high number of industrial shops with “For Lease” signs in front.

“Heavy oil employs more people than any aspect of the oil industry.

I have seven employees, plus a secretary. I’ve had to lay guys off. I was at 12, in 2014,” Ormiston said.

“The price of oil is not going to be anywhere near what we have seen for a long time. I think we are going to have to be happy with oil prices between where they are today and maybe a high of US$60. Who knows, which, in the big scale of things, is not that bad.”

When the price of oil was US$100 per barrel, it was a little crazy, too. Ormiston said, “Let’s face it, there was so much chaos at that. You can’t find the people. They want you to get more iron. Men will jump (to other companies) for a buck an hour.

Page A19

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A18

PIPELINE NEWS April 2017

Estevan OTS 58th Annual Open Bonspiel

The 58th Annual Estevan Oilfield Technical Society Open Bonspiel took place March 23-25, with 28 teams taking part. Photos by Brian Zinchuk

Brent Gedak Welding won the A-event, scoring two in the eight end to break an 8-8 tie.

They were, from left, skip Brent Gedak, third Jesse Rosengren, second Justin Fieber and lead Evan Wild.

Estevan Meter 2 won the B-event. The team was made up of, from left, skip Jarett Mosley, third Curt Johnson, second Chris Kennedy, and lead Justin Lefebvre.

17th Biennial Randy McGillicky of McGillicky Oilfield Construction played in the C2 final. His team lost to C&D Electric.

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PIPELINE NEWS April 2017

A19

GreMur in for long haul ▲

Page A17 Now, people get a job and they will work harder to hold it. I think you see that in any town oil is in.”

“I think the oil industry is going to have a tough time replacing people when the time arrives where they need new people. There is not the people, and they don’t want to come back, to go through this all over again. The feast and the famine, in the big picture, is it really worth it? A stable job, with benefits, for years and years – a lot of people are heading in that direction,” Ormiston said. “It’s sad. I’ve spent my whole life in the oil industry. You can see it.”

Ormiston said this downturn has been worse than the downturn of 1986. Back then, he said, “I spent a lot of time on the phone, looking for work. I was all over Western Canada.”

This downturn, he said, has been longer, and is hitting more areas.

Ormiston said, “This industry employs so many people. Some people are naïve to what’s going on. It’s not just the oil workers and direct people working in the oilfield.

It’s right across the whole country. This country is geared for energy, I don’t care what anybody says. It runs on energy. It employs so many people. You take the oil factor out of Canada, what do you do with that many people?

“You can farm 100 sections of land with 10 people.”

Ormiston thinks 2017 will be better for them than 2016. “There’s a lot of good talk out there,” he said, but added he doesn’t expect oil to go up much in price, so people have to be happy

with where it is, up to US$60 per barrel.

He’s not looking at hiring now, but he’s buoyed by seeing some drilling and service rigs around. “Last year, you could hardly find a rig around this country,” Ormiston said.

Asked when he

expects companies like his can start bringing their rates up again, he responded, “I think it’s going to be a year-plus.

Until there’s better signs, we’re in this for the long haul. If we can keep our heads above water for the time being, that’s all you can ask for.”

Brad Sutherland operates a band saw in the GreMur Industries shop in Maidstone.

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PIPELINE NEWS April 2017

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