MAY / JUNE • 2015
The official publication of the Canadian Association of Drilling Engineers
Laying Low Exploring untapped territory in Quebec’s St. Lawrence Lowlands
PLUS EAST OF EDEN Setbacks keep the Energy East pipeline in limbo KEEP CALM AND CARRY ON Experts weigh in on opportunities during a challenging time
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MAY/JUNE • 2015
The official publication of the Canadian Association of Drilling Engineers
The mandate of the Canadian Association of Drilling Engineers is to provide high-quality technical meetings and to promote awareness on behalf of the drilling and well servicing industry. With more than 500 members from more than 300 companies, CADE represents a broad spectrum of experience in all areas of operations and technologies. Through CADE, members and the public can learn about the technical challenges and the in-depth experience of our members that continue to drive the industry forward. For drilling and completions specialists, CADE currently offers one of the best networking and knowledge sharing opportunities in the Canadian petroleum industry.
CANADIAN ASSOCIATION OF DRILLING ENGINEERS PO Box 957 STN M Calgary, AB T2P 2K4 Canada Phone: 877-801-1820 www.cadecanada.com PRESIDENT: Dan Schlosser PAST PRESIDENT: Jeff Arvidson WELL CONSTRUCTION JOURNAL EDITOR: Christian Gillis
WELL CONSTRUCTION JOURNAL IS PUBLISHED FOR CADE BY VENTURE PUBLISHING INC. 10259 105 Street Edmonton, AB T5J 1E3 Phone: 780-990-0839 Fax: 780-425-4921 Toll Free: 1-866-227-4276 circulation@venturepublishing.ca PUBLISHER: Ruth Kelly DIRECTOR OF CONTRACT PUBLISHING: Mifi Purvis MANAGING EDITOR: Lyndsie Bourgon ART DIRECTOR: Charles Burke ASSOCIATE ART DIRECTOR: Andrea deBoer PRODUCTION MANAGER: Betty Feniak Smith PRODUCTION TECHNICIANS: Brent Felzien, Brandon Hoover CIRCULATION COORDINATOR: Karen Reilly ACCOUNT EXECUTIVE: Kathy Kelley
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DEPARTMENTS 4
PRESIDENT’S MESSAGE
6
THE DRAWING BOARD
10 11 21 26
Editor’s note, member’s corner, news and notes, technical luncheons
STUDENT PROFILES
FEATURES 12 LAYING LOW
HELP WANTED BY THE NUMBERS
The St. Lawrence Lowlands promise untapped territory in Quebec
DRILLING DEEPER
CONTRIBUTING WRITERS: Robin Brunet, Lisa Catterall, Robbie Jeffrey, Séamus Smyth, Ryan Van Horne
PRINTED IN CANADA BY ION PRINT SOLUTIONS. RETURN UNDELIVERABLE MAIL TO 10259 105 ST. EDMONTON AB, T5J 1E3 CIRCULATION@VENTUREPUBLISHING.CA PUBLICATION MAIL AGREEMENT #40020055 CONTENTS © 2015 CADE. NOT TO BE REPRINTED OR REPRODUCED WITHOUT PERMISSION.
www.cadecanada.com
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16
EAST OF EDEN
18
THE FRENCH DISCONNECTION
23
THINKING OUTSIDE THE BOX
Setbacks and activism leave the Energy East pipeline in limbo
Is Quebec a no-go zone for industry?
It’s bad out there, but current market conditions can offer opportunities along with the challenges
18 may/june 2015
3
President’s
MESSAGE
Making Way in Quebec
Q Dan Schlosser CADE President
4
may/june 2015
UEBEC OFTEN SEEMS LIKE A TOUGH TERRAIN for our industry to work in. In this issue of Well Construction Journal, we learn why it has been so difficult for the energy industry to tap into the possibility of the St. Lawrence Lowlands, and we consider the moratorium on frac’ing in the region, which has meant years of stalled growth. With the Fraser Institute singling Quebec out as the worst place for energy investment in Canada, this is a timely topic there and across the country. We also take the time to consider some of the hold-ups surrounding the Energy East pipeline. As a country, it’s imperative that we get over the blockages that impede the transportation of western energy heading east. The east requires additional energy than what it currently produces, so there’s a strong need to get around the issues that currently stall that progress. Government, industry and activist groups will need to sit down and discuss their many concerns with the desire to reach a compromise and solution.
In my opinion, there is a lot of misinformation that is preventing good decisions from being made. I suspect that, similar to the moratorium on frac’ing, many players do not understand the process and may not have consulted knowledgeable experts. I acknowledge the mistrust of the oil and gas industry but relying on activists, who bring their own views to the table, is not the best method to determine the proper way of moving forward. If all players can find a time to sit down and talk frankly, we may find an efficient process for moving ahead instead of remaining stagnated. In my opinion, the safest, most cost effective and greenest way to ship hydrocarbon is by pipeline, and yet there are still challenges that block the pipeline from being reversed and delay the construction of the section that needs to be built. In the end, those that require energy will need to make way for it to be shipped through the province. In this sense, you can’t have your cake and eat it too.
Well Construction Journal
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The Drawing
BOARD
E D I TOR’S N OT E
A Closer Look at Storage Numbers
B
REAKUP HAS COME EARLY, BUT WITH IT AT LEAST
some optimism. Oil prices have climbed over the last couple of weeks, despite a recent fall from a high of just above $58. The good news is that a dropping rig count in the U.S has caused daily oil production to decline. This is the first sign of a turnaround, though media reports continue to try and derail any upward movement. U.S. weekly crude storage numbers continue to rise and some news articles would have you believe that this is due to a glut in world supply. The simple math says, if production is dropping but total storage is going up, then the amount of oil being consumed must be dropping as well. The reason for this is that American refineries are not making as much product, keeping drawdowns low. At some point the refineries will have to start making more product, and when that happens the storage levels will start to drop and the market will turn. Due to timing restrictions, CADE’s bowling tournament was postponed until next fall. We are, however, getting ready for the third-annual CADE Golf Tournament. There will be more information to follow over the next couple of months. Our 2015 technical luncheon presentations are continuing, so watch for registration emails or go to the website to get your tickets. Please watch for email announcements and check
the website for the start of our fall luncheons and upcoming topics and dates. Please don’t hesitate to contact us if you have any ideas for upcoming topics or issues you’d like to see presented at the luncheons or in print. We are also looking for topics that tie into our journal focus for each month. We hope to see more of this over the course of the year, and our next issue will focus on Australia. We hope you will participate and continue to make these events interesting and successful. If you have any issues you’d like to see covered, please email me and we will do our best to get the story. Don’t forget, we would like to publish any of your information and announcements on new products, new technologies and senior personnel changes each month. Please forward any announcements to us, as we would be excited to run them in our new feature section. We appreciate your continued support and look forward to seeing you at the upcoming luncheons. CHRISTIAN GILLIS, Managing Editor, Canadian Well Construction Journal christiang@hawkeyeengineering.ca Phone: (403) 265-4973
EXEC U TIVE TEAM
CADE Executive Team 2014/2015
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may/june 2015
President
Dan Schlosser
Vice President
Ryan Richardson rrichardson@secure-energy.ca
Education Chair
Linden Achen
lachen@westpetro.com
Membership Chair
Andy Newsome
andyn@xitechnologies.com
Social Chair
Kristy Hysert
kristy.hysert@shaw.ca
Treasurer
Cecil Conaghan
conaghan.concepts@gmail.com
WCJ Editor
Christian Gillis
christiang@hawkeyeengineering.ca
Sponsorship Chair
Craig Joyce
craigj@xitechnologies.com
Sponsorship Chair
Brooke Needer
Brooke.needer@cadecanada.com
IT Chairman
Matt Stuart
matt.stuart@surgeinc.com
Secretary
Tammy Todd
tammy.todd@taqa.ca
Communications
Oliver Descoteaux oliver.descoteaux@cadecanada.com
dschlosser@ncsfrac.com
Well Construction Journal
M EM B E R ’S C OR N E R WELCOME NEW MEMBERS
WHY BECOME A CADE MEMBER?
AMIN AMRAEI DAVID BERLANDO DAVE BLAKE BARB DENHAM ADAM DERRY SEYED HOSSEIN EMADIAN DAVE GLASSWICK BAILEY KOMARIC ADITYA MAHADEVAN BENSON AJIBOLA OLORUNSUYI TOBA OYEWOLE RUBEN DARIO PERDOMO VILORIA RILEY PRESCOTT BOB MORRELL AGHA TARIQ
As of 2015, the Canadian Association of Drilling Engineers (CADE) has been active for 40 years. With more than 500 members from more than 300 companies, CADE represents a large spectrum of experience in all areas of operations and technologies. For drilling and completions specialists, CADE currently offers one of the best networking and knowledge sharing opportunities in the Canadian petroleum industry. The skills and knowledge obtained by your participation in CADE will benefit you and your employer, with direct application to your professional career. CADE offers various means for members to connect and share their insights. Monthly technical luncheons are held with topical industry presentations. Other membership benefits include our monthly publication Well Construction Journal and a membership directory, which is the who’s who of the Canadian drilling industry. Our website – cadecanada.com – is an excellent focal point for industry events, blogs and other news. We are also active on LinkedIn and Twitter.
personnel, sales personnel and students. Student memberships are available to any post-secondary student interested in learning more about drilling and completions. Please feel free to share information about CADE with all the people in your organization who are interested in the drilling and completions industry.
CADE MEMBERSHIP RENEWALS CADE’s membership year is from September to September. During the summer, CADE members will receive an email and link for the renewal process on our website. Please remember the benefits of being a CADE member include APEGA’s professional development hour, staying abreast of technological and industry advances, drilling conferences and a great opportunity to network. Thank you for your support.
CADE MEMBERSHIP CHANGES Log on to cadecanada.com to become a member or to update your contact information.
WHO CAN BECOME A CADE MEMBER? CADE members can be anyone employed in the drilling and completions industry or anyone who is interested in the industry. Typical members include drilling and completions engineers, geologists, technical
www.cadecanada.com
may/june 2015
7
The Drawing
BOARD
N EW S AN D N OT ES
Technical luncheon dives deep on well casing design CADE’S APRIL LUNCHEON WAS VERY WELL ATTENDED and a great success. Mark Roitt of RPS Energy gave an excellent presentation on the fundamentals and tools of multi-fractured horizontal well casing design. He went into detail on how the process of proper casing design has changed with longer lateral sections in today’s style of drilling, also digging into how previous methods of casing design didn’t take into consideration some of the factors present in today’s wells. The topic was well received, and the crowd had a lot of questions and positive feedback. As usual, the Westin Calgary Hotel provided a great lunch and were gracious hosts. If you are interested in presenting on a new technology or a technical topic to our membership, please contact Allen Bekolay at abekolay@ compassdirectional.com
Yukon government gives go-ahead to frac’ing in Liard Basin IN A LONG-AWAITED ANNOUNCEMENT, THE YUKON government’s policy on hydraulic fracturing gives the go-ahead for certain regions of the territory as long as there is cooperation with the region’s First Nations populations. In the release, the minister of energy, mines and resources says the government is moving forward in a “cautious and responsible way.” The new policy will focus on frac’ing in the Liard Basin, located in the southeast region of the territory and known for being rich in natural gas reserves. The Liard is only two per cent of the Yukon’s land base, which the government hopes will strike a compromise between resource extraction and environmental protection. The policy comes as a result of a recommendation from the territorial legislature’s committee on frac’ing. The committee spent six months doing consultations about hydraulic fracturing and in
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may/june 2015
their final report they made 21 recommendations. The Yukon government says it has accepted all the recommendations put forth by the committee.
Well Construction Journal
TEC H N I CA L LU N C H EON S Save the Date: May 13, 2015 Topic: Brine 2.0 - A discussion on extending lateral lengths with brine, and methods for overcoming lubricity limitations. Presenter: Garrett Heath, Newpark Drilling Fluids CADE’s next technical luncheon will be given by Garrett Heath of Newpark Drilling Fluids and will consider the application of brines in long reach horizontal wells. Brine-based drilling fluids have increased in popularity as a solids-free or low-solids solution. The use of brine has helped operators realize lower total project costs through improved ROP and extended bit life in hard and compacted formations. We will explore basic fluid properties of base brines including coefficients of friction, water activity and dynamic viscosity, which can be engineered to help achieve longer reach laterals and faster penetration rates. We will also discuss some of the current methods and drilling fluid additives on the market. Garett Heath is currently the technical supervisor for Newpark Drilling Fluids, where he has worked for six years
in various technical positions. Acting as development lead for Fusion ™, Newpark’s proprietary brine system, he has developed expertise on brine systems.
Luncheon Tickets MEMBERS: $47.50 (plus GST) NON-MEMBERS: $55 (plus GST) FULL TABLES OF 10: $475 (plus GST) STUDENT: $20 (plus GST) GST REGISTRATION #R123175036 Visit www.cadecanada.com for all ticket purchases
Student
PROFILE
Young Talent Highlighting tomorrow’s best and brightest
S Scott Woldum Petroleum Engineering Technology SAIT
COTT WOLDUM IS CURRENTLY COMPLETING HIS FINAL YEAR OF
mechanical engineering at the University of Calgary. Growing up in Cochrane, engineering was always a natural fit for Woldum. From a young age, he has always been interested in determining how things worked, and he excelled in math and physics throughout school. Over the past several years, Woldum has gained exposure to the oil and gas industry in Alberta through a summer term as a field relief operator with Enerplus, followed by a 16-month internship with Apache Canada working in their production and reservoir engineering departments. Woldum is actively involved with the university’s Student Petroleum Engineering student chapter, where he currently holds roles of vice-president of communications and vice-president of finance. Woldum also has a keen interest in finance and is simultaneously pursuing a degree in economics. This past February he competed with the U of C finance trading team in the Rotman International Trading Competition in Toronto. The team came in 10th out of 50 entrants, beating teams from Columbia, Cornell, and McGill universities, among others. In the fall, Woldum will start a one-year master’s degree in economics. Following this, he hopes to develop a career in the energy industry that employs his skills in both engineering and economics. In his free time, he loves to travel and enjoys golfing, wakeboarding and skiing.
M
ITCHELL BAUMAN WAS BORN AND RAISED IN CALGARY AND
is the incoming vice-president of external relations for the Student Petroleum Society at SAIT Polytechnic. Starting as a contract operator, he has worked in the industry for just over three years as a field operator, most recently spending just under a year at ARC Resources in its Redwater field. After gaining valuable field experience, he chose to return to school and is currently enrolled in SAIT’s Petroleum Engineering Technology program. He has always been interested in the petroleum industry and believes that continuing his education will open up more possibilities in the future. Through his previous experience, and now in his role for the SPS, he hopes to help other students reach their goals through various events, including industry presentations. “Events such as these allow students that have not worked in the industry to network with company representatives and gain a competitive edge when entering the energy sector,” he says. After graduating, Bauman plans to return to the field, mixing his school-based and hands-on experience before moving into an office position.
10 may/june 2015
Mitchell Bauman Petroleum Engineering Technology SAIT
Well Construction Journal
HELP WANTED: Career Department FULL-TIME JOB LOSSES REPLACED WITH PART-TIME OPPORTUNITIES ACCORDING TO STATISTICS CANADA, ALBERTA’S JOBLESS RATE inched up to 5.5 per cent in March, with an added 3,400 people reporting that they were looking for work. The total number of jobs that the province lost during the month was actually 18,400 full-time positions, but it made up for that number by coming up with around 20,000 parttime jobs. The data shows a trend of full-time job losses being masked by the introduction of part-time work. The data also found that there was an increase in opportunities in the natural resources field for the first time in two months. In March, most of the province’s lost jobs came from the construction, manufacturing and technical industries. And there was a jump in the number of retail positions opening, perhaps explaining the shift towards part-time work. The numbers continue the trend of slow and steady unemployment growth in the first part of 2015 – in February, the rate rose from five per cent to 5.2 per cent in Calgary in that time. The national rate remained at 6.8 per cent in March, also thanks in part to a growing number of part-time positions offsetting the loss of full-time jobs.
DRILLING SLANG If you want to walk the walk on a drill site, it helps to talk the talk. Here are some terms and phrases often heard out in the field:
used incorrectly, to describe a zone from which hydrocarbons are produced.
BIG HOLE CHARGE: A charge designed to create perforations with
JET: A high-velocity fluid stream produced by the nozzles in the bit.
a large-diameter entrance hole. Charges are typically used in sand control completions.
PULSED NEUTRON SPECTROSCOPY MEASUREMENT: A form of measurement of gamma rays emitted by a formation.
ROCK TYPES: A set of characteristics that several rocks have in com-
Source: Schlumberger Oilfield Glossary
DEAN-STARK EXTRACTION: A method of measuring fluid saturation in a core sample by distillation extraction.
mon. The characteristics of interest are usually those pertaining to
GRAVITY OVERRIDE: A phenomenon of multiphase flow in a reser- fluid movement and fluid storage capacity. voir, in which less dense fluid flows on top and a more dense fluid flows at the bottom.
HORIZON: An informal term used to denote a surface or layer of rock that might be represented in seismic data. This term is often
www.cadecanada.com
SPACE FREQUENCY DOMAIN: A display of seismic data by wavenumber versus frequency, rather than location versus time during seismic processing.
may/june 2015
11
Special
REPORT
FAST FACTS The St. Lawrence Lowlands are sometimes called ‘the manufacturing heart’ of Canada. According to CAPP, Eastern Canada currently imports about 800,000 barrels per day, a number that could be offset by oil and gas development in Quebec.
Laying
Low
The St. Lawrence Lowlands promise untapped territory in Quebec
12
may/june 2015
Well Construction Journal
By Robin Brunet
LOCATION: St. Lawrence Lowlands, southern Quebec RESOURCE: Oil, natural gas SOURCE ROCK: Utica shale ESTIMATED RECOVERABLE RESERVES: Unknown PRODUCTION: Low-decline, high rate of return wells drilled by Crescent Point Energy. Continental Resources and Vermilion Energy are prepping development MAJOR PLAYERS: Petrolympic Ltd.; Junex Inc.; Questerre Energy Corporation; Altai Resources Inc.
www.cadecanada.com
T
HE ST. LAWRENCE LOWLANDS ARE A plain stretching along the St. Lawrence River between Québec City in the east and Brockville, Ontario, in the west. Its total area is 46,000 square kilometres, and although 70 per cent of the region is farmland, it’s the most heavily industrialized landform in Canada, containing most of the country’s manufacturing industries. Since 2008, when promising quantities of shale gas were discovered in the region, the Lowlands have held the potential to mark a new stage of exploration in Quebec’s sedimentary basins.
may/june 2015
13
Special
REPORT
FAST FACTS Utica Shale was deposited within the Appalachian Basin and was shaped by the Appalachian Mountain front that now borders the southeast side of the St. Lawrence Lowlands. NRCAN reports that shale gas exploration has reached unprecedented levels in Quebec.
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may/june 2015
Excitement over the Lowlands was quelled in 1000 and 2000 metres. With original gas in 2014, when the outgoing Parti Québécois govern- place (OGIP) estimates ranging from 120 to ment imposed a five-year ban on frac’ing in the 160 bcf per section, the deep play is considered region. But the Lowlands – as well as other areas promising. Five play types have been described: farther up the St. Lawrence River – remain tar- thermogenic shale gas or liquid-rich shale at gets for several key players, including Petrolympic shallow to middle depth; overthrusted shale gas; Ltd., Junex Inc., Questerre Energy Corporation biogenic gas shale; intra-Appalachian sub-basin and Altai Resources Inc. shale gas; and the oil-rich shale of the Macasty Germain Belzile, lecturer at HEC Montreal and Formation (Anticosti Basin). associate researcher at the Montreal Economic Institute, says the interest is not misplaced. “Que- HERE’S HOW THE MAIN PLAYERS BREAK DOWN: bec’s oil reserves are not known to any great de- Petrolympic owns 100 per cent of 139,920 acres gree of certainty. Nevertheless, we do know that over the Lowlands’ shallow carbonates platform the Lowlands, combined with the Gulf of Saint less than 30 kilometres southwest of Montreal. It Lawrence and Anticosti Island, have the greatest also owns 30 per cent of 536,041 acres with joint potential.” venture partner Squatex Energy and ResourcBelzile goes on to note that according to eval- es Inc. and another 12 per cent of 19,768 acres uations by Pétrolia Inc. and Junex, “There are through an agreement with Canbriam Energy more than 40 billion barrels of oil on Anticosti Inc. Altai holds 68,483 hectares of the Sorel-Trois Island. In the Old Harry oilfield between Quebec Rivières natural gas property, said to have signifand Newfoundland, there are about six billion icant potential for hydrocarbon production and barrels. The Haldimand and Galt oilfields in the storage. As for Junex, it holds 584,338 hectares, Gaspé contain around 0.25 billion barrels. At and according to Netherland, Sewell and Asso$100 a barrel, and assuming that just a tenth of ciates, net recoverable prospective gas resources these reserves are recoveron these licenses would be able, this is a resource worth of 3.7 tcf of natural gas. “Quebec is sitting on one of the $400 billion.” In February, Petrolymbiggest gas discoveries in North About 25 wells have been pic reported a summary of drilled in the Lowlands America, and it’s close to the biggest breakthroughs achieved on markets.” – Michael Binnion since 2008, with the interits joint venture property est focused on Ordovician with Squatex. Results of a calcareous shales of the Utica Group. Historically, recent work program on the property’s deepest exploration has been conducted in the Lowlands wells – Massé No 1 and Massé No 2 – compelled since the 1870s, but the first tests to assess the gas Petrolympic to state that it had “cracked the code potential of the Ordovician shale were conduct- of the petroleum systems in the Lower St. Lawed in the early-1970s by Shell Canada (the tests rence.” reportedly didn’t match the company’s expectaResults from Massé No 2 included the discovtions.) ery of heavy oil. The oil was first noticed when Lowlands shale is sporadically exposed at sur- the well reached the depth of 3,412 feet, and face along the St. Lawrence River’s north shore influxes of natural gas were also recorded over and is buried at progressively greater depths several intervals. eastward. It’s relatively rich in organic carbon Petrolympic and Squatex are drilling several and generally 100 to 200 metres thick. An un- kilometres south of Massé No 2 in the hopes of successful attempt to develop a horizontal well in expanding the property’s potential. The plays the shallower Lorraine shales took place in 1992. are all conventional with no massive hydraulic But in 2004, Junex initiated an evaluation of gas frac’ing required, and Petrolympic expects to potential of the Ordovician. In partnership with drill a production well in the near future. Forest Oil, the vertical well A250-Junex BecanQuesterre Energy’s appraisal of a shale gas cour no.8 was drilled and tested using hydraulic discovery in the region began in 2008 with “exfracturing, prompting other players to launch ex- cellent early results,” according to president and ploration wells. CEO Michael Binnion. Following a successful verTo date, most operations have been performed tical test well program in 2008 and 2009, Quesin about one third of the shale basin, between terre and its partner, Talisman Energy Inc. began Well Construction Journal
a pilot horizontal well program in 2010. back to 2009, when citizens and enviA subsequent independent assessment pegs ronmental groups expressed growing opthe prospective resources recoverable for position to exploration and entrusted it Questerre’s net interest at between 1.46 to study sustainable development of the tcf and 15.45 tcf with a best estimate of shale gas industry. It found that production activity in the Lowlands could pol4.43 tcf. Given Quebec’s lack of drilling in- lute the air, increase greenhouse gas emisfrastructure and current low oil prices, sions by up to 23 per cent and damage the landscape. It addcompanies with acreage To date, most operations have been ed that industry along the St. Lawrence – and government with the exception of performed in about one third of must work to rePetrolympic - have halted the shale basin, between 1000 and store public trust further drilling that may 2000 metres. in order to gain determine whether Utica widespread acceptance of frac’ing. gas can be profitably extracted. BAPE’s findings coincide with the QueA further setback came last December, when Quebec’s advisory office of envi- bec Liberal government’s recent review of ronmental hearings (Bureau d’audiences the entire oil and gas sector, with the aim publiques sur l’environnement, or BAPE), of tabling hydrocarbon legislation by the wrote that exploration and production of end of this year. Binnion says Questerre, “agrees with gas in the Lowlands “would not be advantageous for Quebec because of the magni- BAPE’s point that social acceptance for tude of the potential costs and externali- frac’ing is not there and that public conties, compared to royalties that would be fidence must be built. And we agree that collected by Quebec,” in a press release. we need a new hydrocarbon law.” But “Other concerns also remain, including he adds that BAPE isn’t the best judge of plans of social acceptability, legislation potential economic benefits to the province: and a lack of knowledge, particularly with “Quebec is sitting on one of the biggest gas discoveries in North America, and respect to water resources.” BAPE’s scrutiny of the Lowlands dates it’s close to the biggest markets.”
www.cadecanada.com
For his part, Belzile prefers including the Lowlands in a larger geographical appraisal of the St. Lawrence region – extending all the way to Newfoundland – to discuss Quebec’s total oil and gas potential. “The potential of the Lowlands is still very much unknown, and it’s questionable whether the region will ever be developed because, the frac’ing controversy aside, Quebec is considered a risky political environment in which to invest,” he says. Belzile is somewhat more optimistic about exploration on Anticosti Island, where exploration has supposedly found evidence of oil worth billions of dollars that could be extracted through frac’ing. Ironically, the very same government that suspended fracking – the Parti Quebecois – offered Petrolia and Corridor Resources Inc. $115 million for exploration work on the Island, and the Liberals are investing $100 million to drill 15 stratigraphic wells and three exploration wells on Anticosti using fracking. “Green groups oppose exploration, but haven’t gained much traction because the Island’s few inhabitants hope the activity will lead to employment for them,” he says. The economist adds that the estimated six billion barrels of oil in the Old Harry oilfield between Quebec and Newfoundland is a largely theoretical opportunity as “not much drilling has been done,” and although the Haldimand and Galt oilfields in the Gaspé contain around a quarterbillion barrels that are easily recoverable, “it’s not much volume.” Still, Belzile says a resource worth a cumulative $400 billion is nothing to sneeze at. “It’s just that so many questions remain: what course of action will the Liberals take? Will oil prices rebound enough for players to further explore? And will there ever be ‘social acceptability’ of frac’ing? “Quebec has substantial energy needs, but it also has a very powerful green movement. Combine this with a toxic political atmosphere, and it’s anyone’s guess whether the potential of the Lowlands and neighbouring regions will ever be fully realized.” may/june 2015
15
Development
REPORT
East of Eden Setbacks and activism leave the Energy East pipeline in limbo
W
HEN IT COMES TO THE ADVANTAGES
behind the Energy East pipeline, it’s about more than just finding a market for Alberta oil, says Michael Binnion, the president of Calgary-based Questerre Energy. “There are some national interests at stake here,” he says. “Those, and Quebec’s strategic interests, I don’t think have been an important enough part of this debate.” Canada is the fifth-largest oil producer in the world, yet still imports foreign crude to refineries in Quebec and New Brunswick. Binnion, who is also the president of the Quebec Oil and Gas Association (QOGA), says this situation is bad for both oil companies and
16 may/june 2015
Canadian citizens, especially if Western Canadian crude has to be sold at a significant discount from world prices because of a lack of market access. “In the absence of pipelines, we sell our crude at a discount,” Binnion says. “It’s just insane; it makes no sense.” Canada is a net exporter of crude oil, and the crude oil refined in Quebec and Atlantic Canada – with the exception of a small percentage of the Newfoundland oil processed at Come By Chance – is imported from South America, Africa and the North Sea. The different oil benchmarks create another disadvantage for Canadian crude.
Edmonton Par is priced in Cushing, Okla., along with West Texas Intermediate (WTI). Both took a hit because of the abundant supply of oil on the North American market. Brent has replaced WTI as the global crude price benchmark and eastern refineries must pay a premium to import Brent oil, even though it is an inferior grade of crude. The Keystone XL pipeline would have paid Canadian producers a better price because it would give them access to the heavy-crude refineries on the Gulf Coast that can handle oilsands crude. “The lesson of [Keystone] is Canada should not rely on one market,” Binnion says. He says the United States is reaping the Well Construction Journal
By Ryan Van Horne benefits of about $20 billion per year that could go to Canada, if it created another market for that oil. This would help the West and Quebec primarily, but also the country as a whole. Canadian refineries buying Canadian crude strengthens the economy because money stays in Canada and provides tax revenue, which helps pay for schools and hospitals. In early-April, TransCanada Corp. pushed back the earliest date oil could begin flowing through the $12 billion Energy East pipeline to 2020. This new “in-service” date is two years farther down the road because TransCanada is abandoning plans to build a terminal in Cacouna, Que., over environmental concerns. Beluga whales live in the St. Lawrence Estuary near Cacouna and a recommendation to change the whales’ status to an endangered species played a factor in the extension. “Our goal has been to strike a balance between TransCanada’s commitment to minimize environmental impacts and the imperative to build modern infrastructure to safely transport the energy Canadians need and consume every day,” TransCanada president and CEO Russ Girling said in an April 2015 press release. While Quebec would welcome increased Canadian crude supply to invigorate its refining industry, the province is concerned about the supply of natural gas if the east-flowing pipeline is switched from gas to oil. “TransCanada has been promising that their proposal will ensure Quebec has access to the gas supplies that it needs,” Binnion says. In the spring of 2014, a new Liberal government took over from a Parti Québécois regime, and though there were already positive signs from the previous government, the new one, says Binnion, is “trying to be more open to business” and has raised hopes a little bit. Warren Mabee, associate director of the Queen’s Institute for Energy and Environmental Policy, is intrigued by the Energy East proposal. “I’m not a knee-jerk environmentalist,” he says. He realizes renewables are only part of the mix and so he focuses on ways to make fossil fuel consumption more efficient and to reduce environmental risk. He thinks the pipeline proposal could be safer than the current method of shipping it by rail or through older pipelines. It remains unclear how much Western Canadian crude will be refined in Quebec – the more the better – but if it turns out to just be a host to ship oil to export markets then it’s less likely to garner support in Quebec, Mabee says. “Eastern Canada is not as comfortable with this infrastructure as Western Canada,” he says. It’s not “NIMBYism or knee-jerk eastern elitism,” he adds, it’s just that people are less likely to be accepting of the risks unless there’s a big influx of jobs or tax revenues. He says it’s important to look at the project through a Canadian lens because so much of the money distributed to the provinces comes through Ottawa. “It’s not a relationship that is always fully transparent, so it’s easy for provinces to overlook it,” says Mabee, who agrees with Binnion that the new Quebec government is more open to the project because they’re more likely to think of the federation. “I don’t think they will give a project like this a carte blanche, though,” he says. “They would have to have the right economic arguments put before them.” Mabee praised TransCanada for the way it’s approaching opponents www.cadecanada.com
and hurdles. “TransCanada is doing the best job they can to show that they’re listening to these concerns and to try to develop real partnerships along the way,” he says. “That is kind of a prerequisite to get that social licence. They’ve learned a lot from their Keystone experience.” Bob Schulz, a professor of strategic management at the Haskayne School of Business at the University of Calgary, says construction of the pipeline would be the easiest part of the process. Getting the green light will take up most of the time before completion and will present the most challenges. “There are some 120 First Nations band lands on the way to the East and all those contracts for gas would have to be done,” Schulz says. “If all the agreements were in place, it might take two years to build.” Energy East is the largest and most complex energy infrastructure project in Canadian history. “I think it really is one of these defining moments in Canadian policy,” Mabee says. “If I had to put money on it. I would say that eventually this pipeline will be built.” He’s not sure where the terminus will be, or when it will be completed, but it could take as long as 10 years. “The discussion that needs to take place can’t be rushed,” he says. “If the proponent or the respective government decide to rush, there is much greater chance the whole thing will fall apart.”
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The French Disconnection Is Quebec a no-go zone for industry?
I
F THERE’S ONE PROVINCE THAT OIL AND GAS
companies wish to do business in, it’s apparently not Quebec. In its most recent annual Global Petroleum Survey, the Fraser Institute placed Quebec in last place in almost every category when it came to being a favourable province for conducting business in the oil and gas sector. The Fraser Institute’s senior director of natural resource studies, Kenneth P. Green, says Quebec’s most unattractive qualities boil down to uncertainty: about regulation enforcement, new regulations
18 may/june 2015
being created by the province in the middle of investment periods and the cost of regulatory compliance. The survey began in 2007 and covered 54 jurisdictions, with this recent iteration featuring responses from 710 people working with 563 companies. The surveys were completed anonymously by oil and gas senior management and executives across Canada. Many companies are not happy with the province’s fiscal terms, like licenses, production terms and taxation, and this is a major factor contributing to Quebec’s poor results. It marked the fifth straight Well Construction Journal
By Séamus Smyth
Anticosti Island, Quebec
“We think it’s important that governments get the policies right when it comes to managing and protecting the environment while also allowing for the economic benefits that accrue from developing our economic resources that flow to Canadians,” says Green. Although Pétrolia president and CEO Alexandre Gagnon was not surprised by the survey’s results, he says it’s not all doom and gloom in his province. “The good thing is that we are working. This year and last year have both been busy. We are looking forward to developing other projects even if we do not have the gas explorations or shale projects,” he says. Pétrolia is 10 per cent owned by the year that Quebec’s score has declined in the provincial government. Institute’s survey. “Investment is a gamble – Gagnon says the province of Quebec, along with oil, you are putting money in well before with oil and gas companies, has had “a bad you get money back,” says Green, who point- experience” with shale gas projects, which ed out that the uncertainty of whether or not has likely added to the dismal reputation the the provincial government province currently “We think we could change the would remain stern on polmaintains in the financial situation of this province. icies was another key factor survey. SpecificalIt is a big challenge and it’s an in why Quebec scored so low. ly, the provincial “On the side that you hope g o v e r n m e n t ’s opportunity.” – Alexandre Gagnon to control is the certainty of handling of varigovernment policies, as you are ensured that ous contentious projects has created a void things won’t change while you are working.” between potential business partners and the Green notes that the oil and gas sector has east coast jurisdiction. always, and will continue to play a massive One improvement Gagnon would like to role in the Canadian economy. “The use and see is a simplified process for obtaining persale of oil and gas is really a foundation of the mission to work. “We need to move forward Canadian economy. Historically, this is what in government regulations with a single winbuilt Canada and it is what we continue to dow, like you see in Alberta or B.C.,” he says. thrive on,” he says. “There are no miraculous “Just one office to deal with all permits and giant new economies waiting to take over for stuff like that. This needs to be put in place.” And he notes that the government is this economic productivity. www.cadecanada.com
learning from its past errors: “I think the negativity is based on past perceptions and now things are changing and we are on the right track to develop this industry,” he says. A recent road map provided by the Quebec government, which lays out a new hydrocarbon law, is another step that has Gagnon and his team optimistic about the industry in his home province. And a new provincial government at the helm has made it clear that they are eager to develop gas resources, most recently exemplified by the finance minister Carlos Leitao’s March budget, which allows for Pétrolia to complete an assessment of the oil and gas potential of Gaspésie. On the provincial government’s official website, it says the province is “prepared to commit itself to the development of the hydrocarbon option by proceeding step by step in an entirely transparent manner.” That means taking immediate action to create suitable conditions before it contemplates hydrocarbon exploitation, and ensuring that the right conditions exist to promote Quebec’s economic development and the development of its regions. The government recognizing that it can play a more productive role in development, along with exploration work on Île d’Anticosti, has Gagnon eager to prove the naysayers wrong about his home. “All our permits are in Quebec. Our team is based in Quebec City; we are looking to develop this not just for us, but for the province of Quebec,” he says. “We think we could change the financial situation of this province. It is a big challenge and it’s an opportunity.” may/june 2015
19
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By the
NUMBERS
Stats at a Glance Canadian Rig Counts April 16, 2015
Drilling
Down
Total
Utilization
Alberta
49
478
527
9%
B.C.
25
57
82
31%
Manitoba
0
15
15
–
New Brunswick
0
0
0
–
Newfoundland
0
0
0
–
Northwest Territories
0
0
0
–
Quebec
0
1
0
–
Saskatchewan
5
126
131
4%
Totals
79
678
757
10%
Source: Alberta Department of Energy
Alberta Rig Activity Rig Count:
Fleet utilization:
February 2015
554
38%
February 2014
571
71%
2014 Total
567
44%
2013 Total
600
39%
Source: Alberta Department of Energy
Top 5 Most Active Drillers in Western Canada
Top 5 Most Active Operators April 16, 2015
April 16, 2015
Active
Total
Precision Drilling Corp.
19
175
Akita Drilling Ltd.
13
35
Ensign Energy Services Inc.
10
85
Nabors Industries Ltd.
7
57
CanElson Drilling Inc.
7
29
Source: FirstEnergy Capital
www.cadecanada.com
Active Rigs Progress Energy Canada Ltd.
10
Encana Corporation
7
Seven Generations Energy Ltd.
7
Royal Dutch Shell plc
7
Peyto Exploration and Development Corp.
6
Source: CAODC
may/june 2015
21
By the
NUMBERS Alberta Land Sales March 2015
March 2015
March 2014
YTD 2015
YTD 2014
$36.5 million
$85.9 million
$100.2 million
$133.5 million
$193.52
$818.49
$198.34
$464.87
$21.1 million
$536,048
$21.7 million
$1.82 million
$1027.65
$232.66
$476.14
$190.89
Oil and Natural Gas Land Sales Price Per Hectare Oil Sands Land Sales Price Per Hectare Source: Alberta Department of Energy
Alberta Well Licences
Approval issued by the Alberta Energy Regulator
February 2015
Licenced Wells
Drilling Type
Natural Gas
Horizontal
203
Vertical/Direct Horizontal Vertical/Direct Horizontal Vertical/Direct Horizontal Vertical/Direct Evaluation
47 – – 188 32 45 163 575
Coal Bed Methane Crude Oil Bitumen
Total Licences
TOTAL:
1253
Source: Alberta Energy Regulator
Alberta Spudded Wells
(estimates)
February 2015
February 2015
Number of Wells Spudded
Number of Wells Completed
2015
2014
2013
2014
January
830
1540
1616
January
381
442
451
February
507
1613
1823
February
640
626
388
March
765
1078
March
812
812
April
296
337
April
701
574
May
295
268
May
434
305
June
292
452
June
272
379
July
633
647
July
373
367
August
508
794
August
474
389
September
564
720
September
458
628
October
490
741
October
753
342
November
579
692
November
671
613
December
333
539
December
530
551
Source: Alberta Department of Energy
22 may/june 2015
Alberta Completed Wells
2013
2015
Source: Alberta Department of Energy
Well Construction Journal
Economics
REPORT
By Lisa Catterall
Thinking Outside the Box It’s bad out there, but current market conditions can offer opportunities along with the challenges
A
MID THE MURK OF 2015’s FINANCIAL
uncertainty, one thing is clear: this recovery will take time. But we also know economic cycles are just that – cyclical. The nature of oil and gas prices is such that they will fluctuate over time. So what is it about the market in 2015 that has changed the oil and gas industry? W. Randy Hawkings, president and CEO of CanElson Drilling and chairman of the CAODC, has survived more than one downturn in the past. With more than 22 years of experience as a drilling engineer, and more than a decade working as a drilling contractor, Hawkings has learned to ride the waves of the economy. He says that while
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this year has brought up a number of challenges not seen in the last decade, these same concerns are not entirely new. “This feels the same as 1986 to me,” says Hawkings, “When I look at 1986, it took a long time for prices to recover. And I think, in 2009, we were back up at $70/barrel within 10 months [after the fall in prices]. Today I’m not sure we see that happening. What’s different compared to ’09, is that I’m seeing more evidence of people being a little more cautious rather than running their debt up.” ATB Financial’s Economic Outlook for 2015 notes that company cutbacks have become more common and the decrease in capital expenditures has also led to reductions in employment. Though may/june 2015
23
Economics
REPORT
unpleasant, the Economic Outlook notes that this behavior is an “entirely normal pattern for a labour market that has faced energy price shocks numerous times in the past.” Expecting further stress on the job market through the summer of 2015, ATB cautions against giving up entirely on the economy. “This is a very normal part of Alberta’s cyclical economy,” Todd Hirsch, chief economist at ATB Financial, said in March. “This is not going to be one of the worst downturns we’ve ever seen.” Access to capital has become a major concern for many service companies, meaning slow growth and a reluctance to borrow money to continue expansion. Instead, they’re looking for ways to cut back and reduce the costs of drilling. “There are some with very good balance sheets who are drilling ahead, who are saying, hey, we’ve got an opportunity to drill ahead with much lower prices. But those companies are the exception,” says Hawkings. high. Now, in the face of economic turmoil and In the current economy, companies are faced slowdown, is time for innovation. “The guys who with cutting back operations or using equity or will have work are the guys who work hard and debt to finance their moves. Many smaller comthink outside the box. They may have to redefine panies don’t have debt available them to continue the box, it may not be as to grow, and many are seeking to avoid the option of “The guys who will have work are the simple as just thinking outside of it,” says Hawkings. borrowing by reducing the guys who work hard and think outside With institutions like number of operations they the box. They may have to redefine the ATB Financial calling for oil are involved in. But this box, it may not be as simple as just price stabilization and an doesn’t mean that job cuts thinking outside of it.” eventual recovery by yearare the only option. – W. Randy Hawkings end, companies will be smart “For drilling engineers, to avoid hasty cutbacks. it’s an opportunity to have However, industry experts like Hawkings and a closer look at how things are done, and look ARC Financial’s Peter Tertzakian are not calling for new, innovative ways to start rethinking and for a smooth or quick recovery. In February, readjust our baseline thinking,” Hawkings says. Tertzakian said he expected a “seesaw recovery, “Now is the time to question everything, find characterized by ups and downs of varying size.” ways to increase efficiencies and drill economically Hawkings says the best advice he can offer at $50/barrel,” he adds. “How do you all-around to drilling engineers is that lowered activity optimize the process from a cost perspective? and changing job prospects still offer valuable When everybody’s busy, and everybody’s running opportunities. hard you may not look at things quite the same as “If you get an opportunity to go out in the field, when you have $50/barrel oil. Now, you have to instead of sitting in the office, I’d take it in a adapt to the new reality.” minute. For those kids that have always been OVER THE LAST 50 YEARS, OIL PRICES HAVE RANGED in an office, they need to take that as an from less than $20/barrel to more than $140/barrel, opportunity because they get the hands-on and in that same time, the Albertan economy experience to actually see where the rubber meets has moved from boom to bust and back again. the road,” he says, “That will prove invaluable Decreased overtime hours and more efficient down the road, when you’re actually back in the work habits have reduced drilling costs, and these office putting together programs and thinking measures are often overlooked when oil prices are about how it’s done.”
24 may/june 2015
Well Construction Journal
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Drilling
DEEPER
By Robbie Jeffrey
Should I Stay or Should I Go? The oil and gas sector is laying off employees in droves, despite its own warnings
S
HOULD WE PANIC YET? IN THE FIRST FEW projects. Cenovus Energy’s Christina Lake months of 2015, job losses in the oil and Foster Creek projects, for example, have and gas sector have been consistent. a remarkably low break-even cost of US$40According to Enform’s Petroleum $45 per barrel, and the company plans to Human Resources Council (PHRC), 7,000 jobs soldier on through its expansion. will disappear this year. And according the Yet Christina Lake and Foster Creek (and ministry of Jobs, Skills, Training and Labour, a willowy 13 per cent of companies) do not 64 per cent of large-group layoffs in the first an industry make. Which is a shame, because quarter of 2015 were tied to the oil patch. All the argument to retain labour is persuasive: in this paints a grim picture for oil-dependent 1986, after the price of crude oil plummeted, Alberta: employment fell by 14,000 jobs in flocks of the industry’s hard-won talent left, February alone and slowing research unemployment and development increased to 5.3 per down to a crawl. In 1986, after the price of crude oil cent, up nearly one “Companies don’t plummeted, flocks of the industry’s full per cent from want to increase hard-won talent left, slowing research January. the skills gap,” says and development down to a crawl. Needless to say, Howes. “There’s oil and gas compaan effort to try to nies aren’t searching for skilled labour with maintain that level of expertise within the the same fervour as this time last year. A company, because they’ve had experience recent report from the PHRC claimed that 55 with previous downturns where they’ve lost per cent of companies within the industry that.” Vidallo adds that today’s downturn, plan to decrease their workforce – only 13 per concentrated as it is within oil and gas, cent plan to increase their staff numbers. The means that laid-off employees might simply Canadian Association of Petroleum Produc- pack their bags and head for greener pastures. ers (CAPP) predicts 19,300 indirect job losses And don’t forget about the elephant in the due to a reduction in active drilling wells and room – a looming retirement cliff. A 2013 fleet utilization, and a 33 per cent decline in PHRC study found that 45,000 of the indusshort-term capital spending. try’s 200,000 employees will be eligible to But Carol Howes, director of PHRC, and retire throughout the next decade. “ConsidClaudine Vidallo, project manager for labour ering retirement turnover alone, Canada will market information, see the layoffs less as need more workers to meet the needs of the the end times and more as a recalibration oil and gas industry,” Howes told the Calgary within the industry. “Our perception is that Herald in March. companies are trying a number of different So if this is just a recalibration, what will a and innovative ways to hold on to staff,” full-blown downturn look like? The oil and says Howes. Vidallo points out that many gas sector has learned the hard way that emcompanies are still retaining their workforce ployee retention pays off. Now it just needs or hiring employees for ongoing and new to take its own advice.
26
may/june 2015
Well Construction Journal
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