PIPELINE NEWS Saskatchewan’s Petroleum Monthly
July 2017
Canada Post Publication No. 40069240
www.pipelinenews.ca
Volume 10 Issue 2
2017 SASKATCHEWAN
OIL & GAS SHOW
Weyburn Unit up for sale
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Spartan's Rick McHardy, Oilman of the Year A3
OSY Rentals gets real
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This is what Day 1 looked like for the Saskatchewan Oil and Gas Show in Weyburn, which ran June 7-8. This is the view inside Crescent Point Place. Photo by Brian Zinchuk
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PIPELINE NEWS July 2017
Weyburn Unit up for sale, Midale Unit sold BOTH SE SASK. CO2-EOR UNITS CHANGING HANDS
By Brian Zinchuk Calgary, Weyburn, Midale – On June 20, Cenovus Energy Inc., operator of the Weyburn Unit, announced it is selling its interest in that unique oilfield, in addition to several other properties so that it can fund its purchase of assets from ConocoPhillips. Three weeks earlier, on June 1, Apache Canada announced it had sold its Midale Unit to Cardinal Energy Ltd., along with other assets, for $330 million. The Weyburn Unit was part of the assets hived off from EnCana when the parent company split into EnCana and Cenovus in 2009. At the time, EnCana became largely a natural gas company, and Cenovus focused on oil. The Midale Unit was purchased by Apache in 1999 from Shell. Apache implemented its CO2 flood in 2005, after a pilot project that first started in 1984 and demonstration project that began in 1999. When reached for comment, Apache spokesperson Castlen Kennedy emailed, “Apache can confirm it has agreed to sell its assets at House Mountain and Midale to Calgary-based Cardinal Energy Ltd. The sale of these assets is in line with Apache’s efforts to further streamline its portfolio and focus on our high-growth areas of opportunity, particularly in the Permian Basin. Apache sincerely appreciates the efforts of Apache employees who helped manage and operate these assets over the years. Their commitment to safety and operational excellence established
The Cenovus Goodwater plant will soon be sold. File photo, submitted by Cenovus
a strong track record for the assets, setting them up for success under the new owner.” During its investor day Cenovus put forward a five-year plan that the company expects will generate 14 per cent annualized free funds flow growth through 2021 at a West Texas Intermediate (WTI) price of US$55 per barrel while increasing production at a six per cent compound annual growth rate and reducing its debt. Cenovus is progressing its plan to divest non-core assets and is targeting between $4 billion and $5 billion in announced sales agreements by the end of the year, which is expected to
more than satisfy the $3.6 billion asset sale bridge facility used to help fund the acquisition from ConocoPhillips. The company is now targeting to reach divestiture agreements by the end of 2017 for its entire legacy conventional portfolio. The divestiture processes for the Pelican Lake and Suffield assets are already well underway, and the company is now in the process of preparing data rooms for its Palliser asset in southern Alberta and its Weyburn CO2 enhanced oil operation in southern Saskatchewan. Combined, all of these assets are expected to produce approximately 112,000 boepd in 2017.
“We’ve had significant interest in our assets by a variety of potential purchasers and we’re confident we can achieve our divestiture target,” said Brian Ferguson, Cenovus president and CEO. “Reducing our debt position is our number one priority and we remain committed to strengthening our balance sheet and maintaining investment grade credit ratings. By taking these actions, we believe we’re poised to deliver significant value to shareholders over the coming years.” Ferguson, who has been president and CEO since Cenovus’ inception, also announced his retirement Oct. 31, 2017.
Rick McHardy induction biography Weyburn – Rick McHardy was named Saskatchewan Oilman of the Year on June 7. Minister of Energy and Resources Dustin Duncan read this biography as part of the induction ceremony: Rick McHardy was born in Oshawa, Ontario but moved with his family to Saskatoon at the age of nine. “My dad was a professional engineer who worked for DuPont. When I was nine, he decided he wanted to make a dramatic a career change. He got a job in Saskatchewan with the corrections service training prisoners to make furniture. Of course, at the time as a kid, I thought my life was ruined. But then you make new friends and move on,” Rick says. Rick attended the University of Saskatchewan from which he graduated with degrees in commerce and law. “At that time in the 1990s, there weren’t a lot of jobs for young law-
yers in Saskatchewan so, like a lot of young people at the time, I headed to Calgary.” Rick practiced corporate and securities law in Calgary until 2004, most recently as a Partner with McCarthy Tetrault LLP. While Rick’s educational background did not prepare him for the oil and gas industry, junior oil and gas companies made up much of his client base in Calgary. His legal career got him into oil industry boardrooms at a young age and allowed him to learn from “the best of the best.” Like his father before him, Rick started to look for a career change and the oil and gas industry was a natural fit. In 2004, he left his practice to found Titan Exploration Ltd., which was focused in the Shaunavon play in southwest Sask. Titan’s production grew from zero to approximately 2,300 barrels per day before the company was sold to Canetic in 2008.
Rick started two other companies – Spartan Exploration Ltd. and Spartan Oil Corp. that followed this same cycle that Rick calls “zero to five and out” – building up assets in a junior oil company with an eye to flipping them to a larger one. “The cycle in the industry was changing with everything getting bigger – bigger deals, bigger companies and we followed that trend.” In 2013, Rick started Spartan Energy Corp. While most other companies were preoccupied with the Bakken play, Spartan Energy identified an opportunity to consolidate and develop assets in the conventional Mississippian fairway in southeast Saskatchewan, an older field where drilling dated back to the 1950s and 1960s. Spartan Energy initially grew production through drilling and a few acquisitions which brought the company to around 9,300 barrels/
day in early 2016. Then, the industry was sent reeling by the downturn in oil prices. Spartan Energy was able to take advantage of the downturn through an aggressive round of acquisitions that dramatically increased its assets. Today, the company that began as a $25 million start-up has grown to produce 21,000 barrels per day, to hold a land base of 376,000 acres and to have a market capitalization of $1.4 billion. Despite the downturn in the industry, Rick says that Spartan is “the best company we’ve ever been.” “We are generating positive cashflow at $40 a barrel, so anything north of that puts us in good shape.” Outside of work, Rick and his wife have two teenage boys. A lot of his spare time is taken up watching his older son play junior hockey in Camrose. Rick and his wife also enjoy travelling and spending time at their cabin in Vernon.
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PIPELINE NEWS July 2017
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Oilman of Year: Rick McHardy By Brian Zinchuk Weyburn – Spartan Energy Corp. president and CEO Richard (“Rick”) McHardy was named Saskatchewan Oilman of the Year at the Saskatchewan Oil and Gas Show in Weyburn on June 7. The company has been on a growth tear. Pipeline News spoke to McHardy about the company’s growth during what have otherwise been tough times. “Yeah, 2016 was sort of a transformational year for us,” McHardy said. “It was a year that was primarily characterized by acquisitions. With oil prices being what they were, the organic side of the business was challenging last year. But out of that came some tremendous opportunity to grow through acquisition. We took advantage of it. We ended up doing five in total. The largest, of course, being the ARC acquisition at the end of the year. “In total, we bought just under 11,000 boepd, of which ARC would have been around 7,500 of that.” The company is now at around 22,000 boepd production, and has moved up from a junior to what would be considered an intermediate producer. “I guess it was threeand-a-half years ago now, we started the company with $25 million. And a lot of miles down the road, I think our enterprise value is now $1.4 billion,” McHardy said. “We are 99 per cent in Saskatchewan,” he said. They have a tiny amount near Drumheller, Alberta, that came from
recapitalizing a public shell. “Our strategy is to try to build a sustainable business. By that, our focus is on managing growth rates with decline rates. Decline rates are that tough thing that you kind of always worry about next year. You know, they’re real, and they do impact your ability to grow, especially when capital is hard to come by. So we’re focused on 10 to 12 per cent annual production growth within cash flow, which, because of the kind of assets we have, we do generate some pretty good cash flow out of that. And then we try to maintain our declines at about 25 per cent.” A typical new well will decline 60 to 70 per cent in the first year, he noted, saying their decline rate is actually quite low in this business. Spartan’s production is mostly conventional, primarily Mississippian. That includes Frobisher, Alida, a little bit of Tilston, some Ratcliffe near the Oungre area. “We have three rigs going right now,” he said. One moves around in the very southeast corner, up into the Queensdale area. Another spends most of its time at Alameda in the frac Midale area. The third will start drilling some Ratcliffe wells and Torquay wells near Oungre towards the end of the summer. Spartan intends to have three rigs going until the end of the year, according to McHardy. Earlier in the spring, Premier Brad Wall made headlines by inviting several oil companies to relocate their head offices
to Regina, offering incentives to do that and even office space in government buildings. Spartan was one of those invited. “We did get the invitation. Of course, it was an honour to get the invitation, but there’s some practical realities that come into play, in terms of people’s families and lives and spouses who have jobs, things like that,” McHardy said. “I don’t think that’s in the cards for us. With that said, we maintain a larger office here than we do in Calgary. We have close to 90 people here in our field office, mostly in Carlyle,” he said. Practically speaking, moving would be a difficult transition, he noted. When it comes to pipelines, McHardy explained, “Virtually all our batteries are pipelineconnected into what was the Enbridge system, now owned by Tundra.” That, in turn, means their production flows into the Enbridge mainline system, and into the American Midwest. If the proposed Energy East Pipeline goes ahead, with its proposed Cromer Lateral, that would allow Spartan to ship oil to Central and Eastern Canada. Asked about that, McHardy said, “I don’t know the specifics, but the reality is, any additional egress is good for our business.” They pay a marketing firm that looks, every day, for better ways to get their product to market. “Ultimately, being restricted to one sales point, we’re well aware of what differentials have done to Canadian pricing over the last few years. It’s a shame to see that
Rick McHardy, centre, president and CEO of Spartan Energy Corp., was named Oilman of the Year. On the left is Del Mondor, oil show chair, and on the right is Minister of Energy and Resources Dustin Duncan. Photo by Brian Zinchuk
money continually being sucked out of the Canadian system. As long as we have no choice but to send it one way, it’s going to continue to happen. “Whether its east or west or wherever, having more access points is critical for our business,” he said. They’ve looked at crude-by-rail, but from an environmental perspective, they prefer pipelines as a much safer way to transport crude. While feasible from a logistics standpoint, he noted, “Typically, with where the differentials are right now, there’s no economics in it. “It’s not so much the oil price – it’s the differential. You end up taking your crude-by-rail, you can get Brent pricing. The differentials, at one point, were as high as US$14 a barrel. The last time we did the math, it was between $6 and $8 per barrel, incremental, to put it on a rail car. So you have to be able to get that back somewhere.”
Spartan hasn’t dealt with pipeline constraints, McHardy said, “With the system we’re on, there’s ample capacity.” He noted there has been some apportionment issues, but generally speaking, the takeaway capacity is quite good. Selling into PADD II is not a limiting factor in and of itself, but McHardy pointed out, “Generally, Canadian crude gets a differential applied to it, versus the WTI pricing. They apply it, it almost doesn’t matter where it’s going. It just comes off the top. They’re just skimming that piece. It ends up taking money out of the Canadian economy.” Asked when oilfield services can start bringing their rates up so that they can start making money again and recapitalizing their businesses, McHardy replied, “There has to be a healthy industry there, I agree. “I think we do have to work together. Everybody has to be
reasonable. We have to be reasonable, they have to be reasonable, on the way up, on the way down. Unfortunately, it doesn’t always work that way in our business. The difficulty you have is producers aren’t making any money, either, right now. That’s the real problem. “With oil prices where they are, I would say we are probably in a unique position where our business actually functions reasonably well. But earnings are really, really hard to come by right now. Prices will have to come up a little bit. They already have, somewhat. They’ve bounced. I would say Q3, Q4, last year, was the bottom of where we saw service prices reach. They’ve come up, from there. “I think the ones that are hurting more are the pressure pumpers, that side of the business. There’s obviously the margin, but also having crews. A lot of that ► Page A6
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PIPELINE NEWS July 2017
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.
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It’s a leaner oilpatch, folks, and it shows It was three years ago this month that oil prices began their big decline. Three years, folks. We’re now entering year four. The downturn didn’t really show its teeth until Nov. 26, 2014, when OPEC met and decided to let the price of oil float. It took a header from US$75 a barrel and we haven’t seen it anywhere close since then. The Financial Post noted on June 14 that the vacant office space in downtown Calgary now roughly equates the total amount of office space in downtown Vancouver. So it’s with this in mind that one must consider some grumbling we’ve heard about attendance numbers at the Saskatchewan Oil and Gas Show, a.k.a. the Weyburn Oil Show. They’re down by about 1,000 or so. Apparently 3,951 attended. Considering how many layoffs there have been in the oilpatch in
Canada, being down by only 1,000 is amazing. You’ve probably read in a very large number of our stories in recent months there is a very common figure: half. Nearly all of the oilfield services businesses Pipeline News has spoken to in the last year had laid off roughly half of their staff compared to 2014 levels. In Carnduff, alone, in January our count ran into the hundreds of positions that were cut. That figure was confirmed time and time again, speaking to the people at the various booths at the oil show. Many have started hiring again, a little at a time, but the shrinkage by half, with some variation, was quite consistent. The reason this fact is often repeated is it provided context. If you read about one company having reduced its staffing by half, you might think they were the exceptional case, and things couldn’t have been that bad. They were.
So, it is within that context that one must consider the attendance at the oil show. Being down 1,000 isn’t bad at all. It’s actually quite good, given the number of people who have lost their jobs in the last few years. It used to be common to run into someone from Nova Scotia or Newfoundland working in Oxbow or Estevan. It’s not nearly as common now. They’ve largely gone home to wherever it was they came from. What’s more significant is that the show still sold out. And there were people there who were really the people the exhibitors were aiming to see. We encountered production foremen, CEOs and board members from several oil companies. All-in-all, it was a good show, and it’s great to see how Weyburn’s oilpatch comes together to do it every two years. We look forward to seeing you there, June 5-6, 2019.
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PIPELINE NEWS July 2017
OPINION
Did I just write, “We’re now entering year four?” While typing up this month’s editorial, something hit me like a ton of bricks. It was this statement, that rolled off the fingers easily enough when typed, but whose deeper meaning only came clear upon further consideration. “It was three years ago this month that oil prices began their big decline. Three years, folks. We’re now entering year four.” Entering year four. For so many people, myself most definitely included, there has been an underlying feeling of, “This downturn will pass any day now.” It didn’t. The second half of 2014 didn’t seem all that bad. The difference from US$100 for WTI to US$80 didn’t seem like much. After all, that was just a 20 per cent fluctuation. No biggie. For my oilfield commercial photography, things were busier than they had ever been. I had several companies who were waiting for me to get to them. I was on the cusp of the biggest project I had ever attempted, one that would take up nearly all of my
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FROM THE TOP OF THE PILE
By Brian Zinchuk
available time until October of 2015. I was about to sign a contract in December 2014 to get that project going. But OPEC had just met a few weeks before and decided to let oil prices freefall, and freefall they did. I told my clients, “If oil hits US$65, this project’s not going to fly.” It did the next week, and we haven’t seen that price since. Poof ! Gone. Indeed, the Canadian oil sector would collectively get on its knees to thank God if we had a consistent US$65 today. The wheels fell off. I was supposed to spend a week in Alberta in January 2015, visiting sites for Edson to Rocky Mountain House and Brooks, photographing various oilfield products. Poof ! Gone. For the first six months of that year, my photography revenue, largely oilfieldrelated, dropped something like 80 or 90 per cent. I shot a group picture for my kids’ school, and a couple grads, and that was pretty much it. No one was spending money in the oilfield as they were all trying to stave off going broke. Each day writing about compa-
nies struggling with the downturn, I understood probably better than most what was going on. But the underlying wish was always that things would turn around in short order. Some wishes don’t come true. So the oil industry contracted. Most companies I’ve spoken with had their labour forces shrunk by half compared to 2014. Only in the last six months have they started hiring again. Imagine if that ratio had hit another sector, like health care. Half the doctors and nurses, just gone. What about education? Half the teachers doing something other than teaching. Half the lawyers, gone. (Well, some might like that idea.) Oil in recent weeks has taken a worrying trend below US$50 per barrel for WTI. In fact, today, as I type this, oil just took a sickening turn below US$43 per barrel for WTI. The fifty dollar mark really does make a difference. If it stays much below that level for much longer, I expect the small recovery we’ve seen in recent months to stall. Lower for longer now seems like reality forever.
So, like it or lump it, this is the new norm. I think that realization settled in, industry-wide, in January, when oilfield service companies started hiring again. In large part, the wages they’re offering are not at all what was offered four years ago. That’s having an impact on finding people. Now in our fourth year of this downturn, it would be delusional to think otherwise. I thought it was very curious that Southeast College’s new rig worker program includes sessions on financial management. I’m guessing that advice will sound like, “Just because you are making good money now as a roughneck, that doesn’t mean you can actually afford a jacked up three-quarter ton truck, sled, quad and boat.” The truck and toy dealerships might not appreciate that, but it’s probably good advice. The days of freewheeling spending are a memory now, and for the foreseeable future. Brian Zinchuk is editor of Pipeline News. He can be reached at brian.zinchuk@sasktel.net.
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PIPELINE NEWS July 2017
No frac crews could be found you get bad wells. It’s just because you can’t get stuff done. “It’s a tricky issue. Prices can’t go up, too much, too fast. The margins we’re dealing with as well are razor thin right now,” McHardy said. The difference between US$45 and
Weyburn – Estevan’s Grant Fagerheim, of Whitecap Resources Inc., was inducted into the Saskatchewan Oil Patch Hall of Fame on June 7. Here is his biography, as read by Minister of Energy and Resources Dustin Duncan: Grant Fagerheim is chairman, president and chief executive officer of Whitecap Resources Inc. He also currently serves on the board of Advantage Oil & Gas Ltd., a TSX publicly-traded company. As well, he acts as advisor to KES7 Capital and Stream Asset Management. He has worked in both the up-
stream and downstream segments of the energy industry and while doing so attended the executive MBA program at Queen’s University. He was founder of Ketch Energy Ltd., Ketch Resources Ltd. and Kereco Energy Ltd. (Cadence). His past directorships include both public and private energy companies and an oil and gas service company. Grant was born and raised in Estevan, Saskatchewan where his father worked in the coal industry. Grant left home in 1977 to pursue his passion for hockey.
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Page A3 workforce left. They’re not necessarily coming back. We had some problem in Q1, for instance, in the Viking where we couldn’t get a crew to frac our wells. There simply wasn’t one. You end up missing numbers, not because
US$52 for WTI matters, he noted. “For a company like us, US$5 of WTI roughly translates into about $40 million cash flow. It definitely makes a difference. Small changes in the commodity price, either way, can have a big swing in your bottom line.”
Spartan has seen five to six per cent increases in vendor rates, on average, from the Q3, Q4 2016 low, which they can live with and plan for. “The things that really get you are the unexpected cost increases. Those cost increases need to be well-communicated,
in advance, and again reasonable. You can plan into things that way,” he said. It also makes a difference which way the trend is for oil prices, too. “We’re still committed, 100 per cent, to continue to grow in
this province. We think it’s a wonderful place to work. This is the fourth company we’ve built that has operations in Saskatchewan. I grew up in Saskatchewan. We can’t think of a place we’d rather do business, to be honest,” McHardy concluded.
Grant Fagerheim now in Hall of Fame He attended the University of Calgary and played hockey there and for a number of U.S. colleges. “Hockey has always been my passion and it’s a passion I’ve carried forward into my approach to business. Whether in business or in sports, I’ve always focused on building teams. Each iteration of my oil ventures has focused on assembling strong teams,” Grant says. Grant graduated with a business degree but was not immediately drawn to the oil industry at that time. He began to
form a series of companies initially focused on natural gas. Grant founded Whitecap in 2009 with a capitalization of $46 million, initially producing around 850 barrels a day. Today, the company is worth over $3.7 billion and produces just over 60,000 barrels a day. Whitecap has enjoyed success in spite of the downturn in the industry. “We were always cautious with debt so, when the downturn hit, we had the resources to pursue opportunities. You have to enjoy the
thrill of the hunt in this game,” Grant says. In his personal time, Grant enjoys playing oldtimer hockey and contributing to a variety of corporate and charitable boards. He has served as chairman of the Edge School for Athletes in Calgary. He has been a director of the Hockey Canada Foundation since January 2008, has served as chairman of the Foundation and was also a member of the Order of Hockey Canada executive committee. In recognition for his contributions to Canada he
was awarded the Queen’s Diamond Jubilee Medal created in 2012 to honour the 60th anniversary of Her Majesty Queen Elizabeth II. Through marriage, Grant has a strong family connection to the Saskatchewan Oil Patch Hall of Fame. Both his father-in-law, Bill Hay and his father before him are in the Hall of Fame. Grant and his wife Penny have two sons, Brandon and Brett. He keeps up active contact with Saskatchewan, especially with his sister in Regina.
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PIPELINE NEWS July 2017
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Randall Smith named Southeast Saskatchewan Oilman of the Year Weyburn – Randall Smith, president of Carlyle-based Spectrum Resource Group, was named Southeast Saskatchewan Oilman of the Year during the awards ceremony on June 7 in Weyburn, part of the Saskatchewan Oil and Gas Show. Minister of Energy and Resources Dustin Duncan read the following biography during Smith’s induction: Randall was born and raised in Oxbow Saskatchewan and has called southeast Saskatchewan home for most of his life. Randall attended school in Calgary twice, first graduating business admin and later petroleum land management with honours from Mount Royal in 1993. Randall’s first oil industry job was with Dome Petroleum in 1984. His next job was with Nowsco Well Service in Medicine Hat. Randall moved
back to Saskatchewan in 1988 to work for Encor Energy as an operator. After graduating school a second time Randall took a job with Williston Wildcatters in Arcola, Saskatchewan, starting on the rig, then as a well site geologist and finally moving into the land department. In 1995 Randall and partner Nick Lazic, whom he had met in geology class and then worked with at Wildcatters, started Spectrum Resource Group Inc. They have worked since to build Spectrum to what it is today. Randall and Nick have had a great partnership for over 20 years and have continually moved forward in business. They both love the challenges, especially finding new reserves in Southeast Saskatchewan. Spectrum has drilled over 300 wells, all in southeast Saskatchewan,
discovering a number of pools, selling some pools to major-size companies and developing some itself. The company currently has 12 employees and is assisted by a group of consultants and contractors in its operations. Randall is especially proud of this excellent team that executes on a daily basis., some of whom have been with the company for more than 15 years. Spectrum is a great place to work and provides fulfilling growth opportunities for its people. Randall enjoys the aspect of providing support for the many community groups in southeast Saskatchewan, helping many projects and recreation facilities that make Saskatchewan life great especially for our young people. Spectrum has operated successfully in southeast Saskatchewan
SE Sask Oilman of year Randall Smith, president of Spectrum Resource Group. Photo by Brian Zinchuk
for more than 20 years and is very proud to be from Saskatchewan. The plan is to continue
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PIPELINE NEWS July 2017
CAODC expects substantially more wells for 2017 Calgary – The Canadian Association of Oilwell Drilling Contractors (CAODC) announces its revised 2017 Drilling Forecast on June 13, and it’s in line with other forecasts that call for a significant increase. The CAODC projects there will be 6,842 wells drilled—an increase of 2,177 from original forecast. That equates to a 46.7 per cent increase from the original forecast of 4,665 wells. Projected 2017 operating days goes up to 71,839—an increase of 22,859 from original forecast. However, the projected rig count in for year end 2017: 635—a decrease of 30 rigs. That number is for the total fleet, which, according to Rig Locator, currently stands at 634. While the stabilization of WTI pricing and a relatively cold winter in western Canada have helped increase utilization rates for CAODC members, market access and US energy policy continue to limit Canadian industry competitiveness. Although the federal government
has approved Enbridge’s Line 3 and Kinder Morgan’s TMX pipeline projects, further delays are expected, according to the CAODC. An NDP-Green coalition government in British Columbia has indicated it would “use every tool in (its) toolbox” to stop the Trans Mountain Expansion project, while the panel reviewing Energy East is proposing new and redundant processes nine months after protests stopped the initial review proceedings. In the United States, outspoken government support for the oil and gas industry and U.S. energy independence has resulted in drilling activity in the Permian basin nearing a return to 2014 levels, noted the CAODC. Rig counts continue to grow because of more attractive day rates and lower costs, and CAODC members with U.S. operations are deploying capital and assets south of the border to take advantage of the more competitive marketplace. “Headwinds still prevail in our sector at home,” notes CAODC presi-
dent Mark Scholz. “The United States understands the world needs oil and gas, and embraces its industry as an opportunity. In Canada, some provincial governments, and the federal government, choose to speak of Canadian oil and gas as an old and embarrassing legacy, to be phased out at the earliest convenience.” Although Canadian utilization rates have increased year over year, cumulative regulatory and tax burdens and a lack of market access are keeping costs high and day rates low. “Our sector will not truly recover until provincial and federal governments accept the fact that oil and gas are an important part of the world’s energy future,” said Scholz. “We need leaders who are proud to recognize the value our industry, and the men and women who work in it, bring to the entire country. Sharing our responsible and ethical products with the world, and using our best-in-class expertise to shape the future of energy are easy wins for both the economy and the environment.”
The CAODC is anticipating a lot more rigs working this year, like Ensign Rig 356, seen last September north of Kindersley. File photo
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PIPELINE NEWS July 2017
A9
TEML’s president at oil show, meeting producers and landowners from the area By Brian Zinchuk Weyburn – Tundra Energy and Marketing Limited (TEML) had a strong presence at the Saskatchewan Oil and Gas Show on June 7-8. They had much more people there then could
possibly fit in their booth. Meeting with customers and land owners was Bryan Lankester, president. “We’re here to meet with our landowners, talk with them, because
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PIPELINE NEWS July 2017
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Land sale numbers up substantially Regina – Crown land sales, along with the number of active drilling rigs, are two of the most important leading indicators of the oil industry in Saskatchewan. Forecasts for 2017 drilling are up from both the Petroleum Services Association of Canada and Canadian Association of Oilwell Drilling Contractors, and now land sales have seen a big uptick as well. Driven by strong interest in an area prospective for heavy oil northeast of Lloydminster, the Ministry of Economy reported on June 8 that June’s public offering of Crown petroleum and natural gas rights raised $22.8 million dollars on June 7 – the largest revenue for a single public offering in almost three years. The total for the 2017 fiscal year to date is $24 million after two sales. The fiscal year’s current average price per hectare for Saskatchewan parcels is $828.81, almost double Alberta’s average of $470.71 for
conventional oil and gas parcels, and comes in the wake of recent upward trends in provincial drilling activity. Asked about the sale while attending the Saskatchewan Oil and Gas Show, Energy and Resources Minister Dustin Duncan said it was “the best land sale we’ve had in three years. Considering that the last two land sales were some of the lowest we’ve had in over a decade, it’s sure a nice turnaround we’ve had in the last couple of months. “It’s a positive sign for the industry, that companies are feeling more confident in being able to add to their inventory for the next couple of years for drilling locations,” he said. Duncan noted he was standing in the booth of a drilling contractor at the oil show, and it sounded like they were doing job interviews on the spot. As a leading indicator, he said that land sales combine
with the number of new wells being tracked to show companies have some capital at their disposal to spend through the drill bit, as well as adding drilling locations. Millennium Land Ltd. bid $4,002,780 to acquire a 1,327-hectare exploration licence located southwest of Midale. The parcel is prospective for multiple targets, particularly the Bakken Formation and the Three Forks Group/Torquay Formation. Two parcels northeast of Lloydminster in the St. Walburg area received bonus bids totalling $9,736,305 for 1,295 hectares, with one of these parcels receiving the highest dollar-per hectare at $8,116; these parcels are prospective for heavy oil in the Mannville Group, with well logs showing significant potential for the application of thermal recovery methods. The next public offering of petroleum and natural gas rights will be held on August 1, 2017.
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PIPELINE NEWS July 2017
A11
Whitecap Resources CEO Grant Fagerheim By Brian Zinchuk Weyburn – Grant Fagerheim, originally from Estevan, is now the president, CEO and chair of Whitecap Resources Ltd., was one of the people inducted into the Saskatchewan Oil Patch Hall of Fame on June 7 at the Saskatchewan Oil and Gas Show. Before the induction, he took a few minutes to speak with Pipeline News. Whitecap picked up a substantial amount of property from Husky in southwest Saskatchewan last year, part of a broad dispersal of Husky’s non-oilsands, non-heavy oil property. “One of the assets we acquired was from Husky, in southwest Saskatchewan, close to Swift Current. It was expanding our footprint in Saskatchewan. Typically we’ve been in the Kindersley area. We jumped into the play in southwest Saskatchewan. We think this is a
very good area for long term profitability. In Saskatchewan, we think the energy space still has lots of legs on it. “We produce between 57,000 and 60,000 barrels per day. Our production base in Saskatchewan is about 20,000 to 25,000 of that, about 35 to 40 per cent.” In the southwest the formations they target include the Atlas and Cantaur sand, as well as the Upper Shaunavon. “In the Kerrobert area, we’re playing in the Viking,” he said. The Kerrobert area has both heavy and light oil. He noted that the differential has come in a bit for heavy oil, but added, “We are principally a light oil producer.” The company has not historically been in southeast Saskatchewan. “We don’t have a technical team that is developed in that area. We’ve been really more focused on the western
Grant Fagerheim
side of the province. But that footprint can always change. It depends upon the economic evaluations that we see on a go-forward basis, because we do apply a lot of capital. For example, our drilling capital this year is just over $300 million,” Fagerheim said. The company usually runs five to seven rigs across Western Canada, of which, three are typically in Saskatchewan. Two of those are in the
Viking play, and one in southwest Saskatchewan. Asked about the differential in government between Alberta and Saskatchewan, and if Saskatchewan is a better place to put your money right now, he said, “Saskatchewan has been a preferred place. We think the leadership team, with Premier Brad Wall and his team, are much more friendly, fossil fuel friendly. We’re trying to help our economy for all Canadians. So we find Saskatchewan very favourable and we want to continue to have it being exploited.” Will any of Whitecap’s oil end up in the proposed pipeline projects? “Not in Keystone XL,” he said. “All oil will make its way to the best markets possible. Ours will preferentially make its way to the West Coast, down Trans Mountain.
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PIPELINE NEWS July 2017
TEML out in full force at oil show ▲
Page A9 Lankester said at their booth on July 7. “This is the number one show for us. “We’ve been meeting with a lot of producers. “We’re the new face in southeast Saskatchewan. We want people to know us, and to get to know us,” he said. TEML purchased Enbridge Inc. and Enbridge Income Fund Inc.’s south prairie region assets for $1.075 billion in cash. The deal closed on Dec. 1, 2016. Lankester said the meetings had gone great. “Most of the producers enjoy us because we’re connecting people when we can do it. We’re a smaller company now, and we can connect producers in. We connected a number of producers in last winter on very short notice,
TEML brought a lot of people out to the Saskatchewan Oil and Gas Show.
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area. Lots of people have active drilling plans going forward. Most of what we hear is, ‘If oil stays over US$50…’ “If it stays above US$50, they have active plans. So we’re working with a number of them. But it is trying times. Oil, today, hit US$45,
US$46.” Asked about opposition by the British Columbia New Democratic Party and Green Party to Kinder Morgan’s proposed Trans Mountain Expansion project, Lankester said, “I think, for the Canadian oil industry
as a whole, and also the Canadian economy, and the faith investors have in Canada, that project needs to go ahead. For the oilpatch and oil industry in particular, we need access to tidewater, for sure. So we all hope it will go ahead, in the very near future.”
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PIPELINE NEWS July 2017
Rig worker program still has room Estevan – When things were hopping in the oilpatch back in 20132014, Southeast College looked into what it could do to assist the oilpatch by offering a new rig worker program. But just as that program was about to get going, the oil sector crashed. Saskatchewan’s rig count went from regularly floating around 100 active drilling rigs to around 25. The sector contracted substantially, and there was little need to train up new rig hands when hundreds had been recently laid off. Step forward to 2017, and drilling activity has picked up somewhat. The active drilling rig count for Saskatchewan went up from around 25 in the summer of 2016 to a peak of 75 on March 1, 2017, with much of the winter
drilling season seeing around 60 active rigs. The reactivation of drilling rigs ended up pulling staff from service rigs, and in recent months it has been common to see service rig companies putting up help wanted billboards. In this context, Southeast College has revived its dormant rig worker program. It will begin July 10 and conclude July 21. As of June 15, there was still space available for new applicants, according to Sheena Onrait, who handles marketing and communication for the college. Melanie Mantei, Southeast College campus manager in Estevan, said they can take up to 18 people. The cost is $1,299, including materials, but completing the course
makes one eligible for a $550 bursary, sponsored by Enform. The net cost to the student is $745. The course includes taking five standard safety tickets required to work on drilling and service rigs: first aid with CPR, H2S Alive, transportation of dangerous goods, WHMIS 2015 and confined space. It does not, however, include fall arrest. Taking those tickets would typically cost $688. The rest of the time will include classes on knowledge and terminology of the industry, communications, resume writing, interview skills and financial management. They’re working on lining up rigs to visit as well. The pair noted the program is meant for people new to the industry
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It will provide a base knowledge and address what workers can expect. Onrait noted that it can sometimes be a “shock to the system.” The hope is to decrease new employee turnover. Tim Plemel of Weyburn-based Miller Well Servicing is the instructor. Onrait noted they hope to create something both the participants
and employers consider a worthy start in the oil industry. The new rig worker program should not be confused with the rig technician program, also offered by the college. Rig technician has been largely dormant, as they haven’t run it for around three years. “As a whole, the college has weathered the storm very well,” Onrait said. They took time
during the downturn to refresh their ground disturbance, confined space and fire training programs, as well as rework the rig worker program. While enrolments in their industry and safety programs have decreased, other programs and enrollments have increased. This includes the heavy equipment truck and transport program. Welding will also be brought back in the fall.
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PIPELINE NEWS July 2017
A15
Oh Sh!t Yeah lands in Weyburn By Brian Zinchuk Weyburn – When it comes to finding a new marketing strategy, you’d have to try really hard to top what OSY Rentals Ltd. of Major, Sask., has launched – their own reality TV show on YouTube. In case you’re wondering, OSY stands for Oh Sh!t Yeah, and that phrase sees some usage during the four episodes in season one. There’s also the occasional bleep thrown in for good measure because, let’s face it, this is the oilpatch. Actually, there’s a fair bit of language that gets bleeped in the seven to 12 minute episodes. It features Dallas Cairns, general manager,
his brother Greg Cairns, who handles logistics; Tim Dell, sales; Ken Kleinsasser, purchaser; Joanne Cairns, administrator; and Tyler Decker, yard foreman. Dallas and Tim founded OSY back in 2011, not long after Dallas was featured in a story in Pipeline News, when he worked with Clean Harbors in Arcola. There are four partners in OSY Rentals. The show is shot in a very familiar format if you’ve ever seen Ice Road Truckers, Highway Through Hell, Gold Rush or any other similar reality shows in recent years. The camera angles, the editing, the content – it’s all along the same lines. Like its Discovery Chan-
nel and History Channel brethren, the storytelling draws you into to watching normal guys doing what they do at work, every day. There’s even the deep-voiced narrator, providing a play-by-play. It wouldn’t be a reality show without some quirkiness. In Episode 2, for instance, Dallas shows off their hockey draft and the odd prizes they give away. That footage is interspersed with their delivery of a vapour tight tank on a barren prairie site in winter. Sister company Rival Hydrovac, which was also featured at the oil show, gets attention in Episode 3. They’re smaller hydrovacs that can actually run loaded, and be legal
Brothers Greg Cairns, left, and Dallas Cairns, are two of the partners in OSY Rentals.
under the weight specs allowed by transportation authorities. The trucks are built by Foremost in Stettler, Alta. Tim Dell is the focus of this episode. It wouldn’t be a real-
ity show without a visit to Las Vegas, in this case, to ConExpo 2017. It’s the biggest heavy equipment show in North America, held every three years. Rival had a unit
in the show. That was the focus of Episode 4. Sarcasm and smart alec remarks are the order of the day. Tim’s daughter, Karlee Dell, makes an ► Page A16
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A16
PIPELINE NEWS July 2017
Oilfield reality show ▲
Page A15 appearance, selling service trucks. Alcohol is most definitely consumed. The episode ends with the narrator saying, “We’ll be back for Season 2 in the fall of 2017, if we’re not out of business by then.” All of this is really meant to draw attention to their product lines, such as the vapor tight tank packages and hydrovacs seen throughout the series. You’ll see other tanks being moved around the yard, people working on flare hardware, and the like. In addition to their YouTube Channel, OSY Rentals has some conven-
tional marketing efforts too, such as a booth, for the first time, at the Saskatchewan Oil and Gas Show in Weyburn June 7-8. There they handed out some of the usual swag, but the key items were their line of spices – Chicken Sh!t, Special Sh!t, Bull Sh!t, Good Sh!t and Aw Sh!t. They also have a sauce called Hot Sh!t. All these got heavy play during the YouTube show. At the oil show in Weyburn, Greg could be seen with a cameraman in tow. That cameraman is long-time friend Adrian Halter, of Regina-based HalterMedia. Dallas
credits him with the production. They were filming for Season 2. The concept started with Adrian doing an oilfield reality show TV pilot for a TV channel that was called This Fracking Town, even though it didn’t have anything to do with fracking. It was just a catchy name. He made a short video, but in the end, they didn’t take any of it. “So I said, why don’t we just do it then?” Dallas said. “Let’s just call it Oh Sh!t Yeah, and let’s go. We didn’t even know what we were doing. He just started filming in the shop. So he does it all
by himself. One guy. He does the camera stuff. He puts a mic on us. He edits it. He puts music to it. He even writes what they’re going to say, and he get’s a guy from the U.S. to do a voiceover. “He asks the questions, like give me a description of this truck. “It’s going to be a little more Duck Dynasty than Ice Road Truckers,” Dallas added. “There’s going to be a bit of a plot to it.” He said, “Our main product is the vapour tight tank package. It’s a portable, single well battery. Everything comes on one package, one load.
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Greg Cairns, left, is videoed by Adrian Halter for OSY Rentals’ own reality show. Photo by Brian Zinchuk
We can set it up in twoand-a-half to four hours, from the time we go on site. “Nine times out of ten, we’ll come on right after the testers.” It’s primarily used for light oil and sour initial production While it may look like a pressure vessel, it is an atmospheric tank. “That was the original intention, was sour,” said Greg. The tank holds a little bit of pressure, so that you can push vapours to a flare stack or incinerator.
They have 52 units in the fleet. “The southeast has been very good to us. We’ve been here since 2014,” Dallas said. It’s considered a process unit, so it has a high-level, high pressure shutdown, Dallas noted. If having one of your big customers come to your booth and tell you they’re really happy with your product, then OSY had a good oil show. The online series can be found by searching YouTube for OSY Rentals.
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PIPELINE NEWS July 2017
A17
Back from the brink, Advance is now growing
By Brian Zinchuk Weyburn – A little over two years ago, Advance Engineered Products Group was a manufacturer in trouble. Oilpatch sales, which made up a very large portion of its sales of tanker trailers, dried up. Now, the Regina-based company is hiring again, and its order book is building. The company was one of the exhibitors at the Saskatchewan Oil and Gas Show on June 7-8. Doug Kee Jr., vice president of sales and marketing, was on hand at the booth, and spoke to Pipeline News on June 7. He’s the son of Doug Kee, who, with Gerry van Wachem and Ray Hicton, founded the company in 1984. It was sold in 2007 to another company. “In October 2015, we went through an ownership change. Our new owner is Ironbridge Equity, of Bay Street in Toronto,” Kee said. “They have quite a few Saskatchewan businesses. They only have Canadian companies. They’re funded by the Canadian Pension Plan, as well as HSBC, CIBC and a number of other banks and individuals. “We operated the company, with Advance Tank Production being one of the entities, and Advance Tank Centres being the service entities,” he said. Advance Tank Production includes the primary Regina manufacturing facility and Lazer Inox in SaintGermain-de-Grantham, Que. The service centres are in Surrey, B.C., Calgary, Edmonton, Lloydminster, Regina, and Saint-Germain. There are four warranty centres in Ontario and one in Winnipeg that are not owned by Advance, but are certified repair. “We were cut back in April 2015 to 35 on the
ing-rich area, and with the Bombardier contract, we can’t seem to get qualified employees there. It’s been really tough, but we’re trying.” They started adding people in Regina this year. Advance kept about 30-40 per cent of their total capacity. “We’re fully capable of doing about 40 a month, for both facilities, per site. In Regina, we did about 18 last month. In Lazer, we were at 14. ► Page A19
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floor in Regina and 35 in Lazer Inox. Our service entities were the same. We started cutting back on the indirect employee side a little bit, and being more efficient as far as office staff, wearing more hats, things like that. The direct employees, we otherwise kept,” he said. “Right now, we’re hiring in Regina. We’re booked out past October-November right now. We’re trying to get people at our Quebec facility. Part of the problem there is it is a very manufactur-
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PIPELINE NEWS July 2017
USTOMS ROKERS Oil show donates $25,000 to lobstermen for new trailer Weyburn – The Saskatchewan Oil and Gas Show Board showed its appreciation for 17 shows’ worth of lobster suppers with a donation of $25,000 towards the purchase of a new trailer to support those succulent meals. Ever since the oil show started in Weyburn, a group of volunteers, informally known as “Ray’s Cooking Crew,” have gathered to boil up
an Atlantic lobster feast for the oil show. The lobster supper is half of the steak or lobster meal offered for exhibitors the day before the oil show begins. The same crew also goes around southeast Saskatchewan cooking up a storm throughout June. This year, on June 3, they had a lobster supper for the Estevan Oilfield Technical Society Oilmen’s Golf Tournament.
The oil show saw them cook lobster on June 6 and roast on June 7. They were in Estevan for the Rotary lobsterfest on June 9, and followed up with a steak and lobster festival in Oxbow on June 17. The name of the crew arises from the long time head of the outfit, Ray Frehlick. Frehlick has stepped back in recent years, and Mike LaCoste has taken over
those duties. They operated under the auspices of the Estevan OTS. Del Mondor, chair of the oil show board, said the donation was “in recognition of the Estevan OTS cooking crew preparing lobster and cooking a couple of meals for us throughout the years. With 17 shows, it’s really a small token of our appreciation.” The crew had just started working on their
$30,000 budget for this project. The oil show donation will cover nearly all of that. They hope to sell some advertising on the new trailer, and the sale of the old trailer will hopefully make up the rest. “It’s very much appreciated,” said LaCoste. He pointed out that not only are their members volunteers, but the companies they work for allow them to take the time off to do this work.
Depending on the event, they’ll have six to 12 volunteers out. Conrad Meili, president of the Estevan OTS, noted the current trailer is undersized, date and in need of an upgrade. The new trailer will be 24 feet long, have shelves inside, and likely have mounted propane bottles with spooled hoses so they don’t have to drag propane bottles around.
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PIPELINE NEWS July 2017
A19
Advance looking to hire 24 in Regina plant ▲
Page A17 Their service staff in Regina has dropped from 23 in 2014 to 13 now. The impact was due to the oil side of the business. But they just hired one and are looking to hire more. Advance’s service side is also much more efficient now, he noted. The more experienced people were retained, and since then have gained even more experience. Kee noted a similar trend on the production side. “We don’t have quality issues. We don’t have any of that stuff that comes along with inexperienced employees. We kept the best-of-thebest, and they’re really good at their jobs.” Between the two manufacturing facilities, Kee thinks they need to hire 24 people at each of the plants between now and October. “Our big focus for the last few years has been diversification. We’re capable of doing sanitary, milk, chemical, petroleum, and so many other things. We’re doing DEF (diesel exhaust fluid) units for bulk hauling from the Moose Jaw area, all the way to the coast.” Those specialized trailers keep the DEF warm for the entire trip. “I need to be able to know, the next time there’s a downturn in the oil economy, there are other roads. We put so much of our eggs in one basket, that it got us into the trouble we were in in the first place,” Kee said. “Sixty per
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Doug Kee, Jr. brought a large contingent of Advance Engineering Products Group personnel to interact with customers at the oil show. Photo by Brian Zinchuk
cent of what we were manufacturing was for oil. Now, I’m going to say we built maybe seven crude tanks in the last two-and-a-half years. “We’ve got to make sure we’re smart about how we build. Maybe we have dedicated lines for what we build and how we build them. We’ve got milk customers. We own probably 50
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per cent of the milk market in Ontario and Quebec, now. It’s a big, big difference from where we were. “We’re grabbing different market shares. We’re trying to be aggressive in markets we weren’t in before,” Kee said. In conclusion, he noted that by getting lean, and management wearing many different hats, they’re down on
the floor, working with the guys. “The reason I have this big of a contingent, at this show, is I want them to interact and get involved with the customers, to see what these shows are about. “I’m excited about what we’re doing. I’m excited about the quality of our product. I think we’re going in the right direction,” Kee said.
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A20
PIPELINE NEWS July 2017