MEET THE HUNTERS

From Alberta’s first strike to Saskatchewan’s fu­ture, these three gen­er­a­tions of the Hunter fam­ily have seen—and done—it all

Alberta Oil - - FRONT PAGE -

IT WAS 1945, THE SEC­OND WORLD WAR was still rag­ing, and, per­pet­u­ally con­cerned with find­ing new oil sup­plies to fuel the Al­lied war ef­fort, the Cana­dian gov­ern­ment was pay­ing Prairie wild­cat­ters to push their drilling rigs all the way to “the base­ment.” The term refers to the low­est reaches of the gran­ite bedrock deep be­low much of North Amer­ica. And, af­ter plung­ing down through three ice ages and 400 mil­lion years of pre-his­tory, it’s the last door there is to knock on be­fore punching through the Earth’s su­per-heated crust and, pre­sum­ably, shak­ing hands with the Devil. It’s also where one of the Cana­dian en­ergy sec­tor’s most en­dur­ing fam­ily dy­nas­ties was forged—a dynasty that con­tin­ues to this day.

At 81, Don Hunter is a sec­ond­gen­er­a­tion Alberta oil­man. He re­mem­bers his fa­ther, Vern, an oil rig tool pusher, bang­ing on that ge­o­log­i­cal “base­ment” door so of­ten and so fruit­lessly that for years he car­ried the nick­name “Dry Hole” Hunter.

But all that would change in 1947, the year Vern drilled the Le­duc No. 1 oil well south of Ed­mon­ton. It would be the gusher that ush­ered in the mod­ern Cana­dian oil era.

TO­DAY, STAND­ING ON THE SITE

of his fa­ther’s leg­endary oil strike, Don re­mem­bers the oc­ca­sion less for its his­toric im­port than its prac­ti­cal out­come. While the suc­cess­ful find at Le­duc No. 1 may have forever ce­mented the Hunter fam­ily name into the his­tory books, it also put Don and his fa­ther into the first home the young ado­les­cent ever knew. Be­fore that, the two had bounced from skid shack to skid shack, Don at­tend­ing 18 dif­fer­ent schools—many of them twice— across ru­ral Alberta and Saskatchewan be­fore he was even a teenager.

Life had been tough for Cana­dian oil wild­cat­ters in the long years lead­ing up to and af­ter the De­pres­sion, with a few small com­pa­nies crank­ing dusty holes into the ground look­ing for some­thing that no­body was sure was even there.

As early as 1923, when Vern took his first job with Cal­gary’s Roy­alite Oil, more than a dozen ju­nior com­pa­nies were al­ready scour­ing Alberta for con­ven­tional crude, nearly all of them con­fined to a south­ern patch of land around Turner Val­ley. But fast-for­ward 25 years and, with the Ed­mon­ton oil rush un­der­way and money start­ing to trickle in from Toronto in­vestors and Turner Val­ley oil wells, it seemed the era of the ju­nior com­pany was fi­nally upon them. “If you had $20,000 cash and two drilling con­tracts, you could go and buy a drilling rig,” says Dan Clay­pool, an oil­field his­to­rian and Hunter fam­ily friend. “That’s what started a lot of small lit­tle en­tre­pre­neur com­pa­nies.” The Cal­gary-based Pe­tro­leum His­tory So­ci­ety main­tains records of more than 40 ju­nior oil com­pa­nies founded in Alberta in the decade im­me­di­ately fol­low­ing the Le­duc strike—more new­com­ers than any other decade be­fore.

Un­like the ju­nior com­pa­nies spawned in the mod­ern frack­ing boom, to whom the world’s big­gest banks ea­gerly lent bil­lions in cheap loans, the mid-cen­tury wild­cat­ters had lit­tle to no in­sti­tu­tional mus­cle be­hind them. “A lot of guys mort­gaged their houses,” Clay­pool says. “And a lot of them lost it.” Don Hunter re­mem­bers those years as a time of door-to-door share sell­ers and silent fi­nan­cial back­ers. “There was al­ways a sugar daddy some­where,” he says. “There was a lot of rich peo­ple in Cal­gary—even at the turn of the cen­tury—like ranch­ers who had made a lot of money.” And there was still fund­ing flow­ing in from East­ern Canada, just not from the kinds of in­sti­tu­tional lenders that are so preva­lent in the busi­ness to­day. “In­di­vid­ual in­vestors from Down East re­ally wanted to get into the oil busi­ness,” Don says, his voice mim­ick­ing the tone of an ad­ven­ture-seek­ing city slicker. “They had read about the strike and so it was kind of like a gold rush.”

A lax reg­u­la­tory at­mos­phere only fanned the en­thu­si­asm. “The word en­vi­ron­ment was not even in our vo­cab­u­lary at that time,” Clay­pool says of the early years he spent drilling and com­plet­ing wells in Alberta. “No­body ever thought aban­don­ing or­phaned wells was a prob­lem.” By the time Don fol­lowed his fa­ther into the ju­nior oil busi­ness, quit­ting his job at Im­pe­rial Oil to co-found Res­man Oil and Gas, the era of the wild­cat­ter was in full swing. “It was eas­ier then to get into the busi­ness; all you needed was money,” he says. Clay­pool agrees: “To­day you go to the gov­ern­ment to tell them you’re in­ter­ested in a plot of land and they will put it out to bid. So you’re now bid­ding against the Shells and the Im­pe­ri­als of the world, and the only rea­son one of them would farm it out to you is if they thought the land was just worth­less.”

It wasn’t just the su­per­ma­jors’ money that was be­gin­ning to push the mom-and-pop op­er­a­tors out of the oil busi­ness, ei­ther. Gov­ern­ments and banks even­tu­ally started to fol­low their lead on reg­u­la­tory stan­dards, too. “The big oil com­pa­nies started to go the ex­tra mile [on en­vi­ron­men­tal poli­cies], even though it wasn’t nec­es­sary, and they re­ally didn’t care; they just wanted to get rid of us,” Don says. “So then sud­denly

“IF YOU HAD AN OIL PROP­ERTY AND YOU DIDN’ T DO ANY­THING WHEN OIL WAS $100, THEN WHAT WERE YOU DO­ING ?” - JIM HUNTER

the banks and the con­ser­va­tion board comes along and says, ‘Well, Im­pe­rial Oil is do­ing it this way, and they must know bet­ter than you lit­tle guys, so now you have to do it that way, too.’” In truth, many of the su­per­ma­jors op­er­at­ing in Alberta at the time had lit­tle to no clue about best prac­tices in oil ex­trac­tion and aban­don­ment on the Cana­dian Prairie. Af­ter all, such poli­cies were of­ten ap­plied com­pa­ny­wide, mean­ing they were writ­ten in Lon­don or New York, and were meant to ap­ply not just to Alberta, but to Texas, In­dia and the Arc­tic, as well.

It’s an un­der­dog story that still res­onates with ju­nior oil com­pa­nies to­day. Af­ter Alberta’s en­ergy reg­u­la­tor rolled out more strin­gent re­quire­ments for com­pa­nies look­ing to buy as­sets in early 2016, the un­in­tended ef­fect be­came a les­son in the tyranny of good in­ten­tions. Be­fore the rule change, oil pro­duc­ers were re­quired by the Alberta En­ergy Reg­u­la­tor (AER) to put up a se­cu­rity de­posit to cover the cost of re­claim­ing or­phaned oil wells if the com­pany’s li­a­bil­ity man­age­ment rat­ing fell be­low 1.0 in a stan­dard as­setto-li­a­bil­ity com­par­i­son. But the new rule dou­bled the re­quired ra­tio to 2.0 or higher, forc­ing some po­ten­tial buy­ers out of the mar­ket and mak­ing it harder for strug­gling com­pa­nies to sell as­sets to raise funds. The pur­pose was to pro­tect Alberta tax­pay­ers from get­ting stuck with the bill when a com­pany goes un­der and the prov­ince has to pay to dis­pose of its dis­used wells. But, for the more than 200 ju­nior oil com­pa­nies al­ready rid­ing the ra­zor’s edge of bank­ruptcy in Alberta, the re­stricted ac­cess to cap­i­tal has be­come a ma­jor—even fa­tal—op­er­a­tional risk.

But it’s more than just Alberta’s new reg­u­la­tory regime that’s put so many ju­niors on their heels. Mod­ern

drilling tech­nolo­gies are in­creas­ingly ex­pen­sive; banks are hes­i­tant to lend money in a down mar­ket; and new oil plays are harder to come by than ever be­fore. In many ways, start­ing a ju­nior com­pany to­day isn’t all that dif­fer­ent from start­ing out in the un­cer­tainty of the mid-cen­tury, when tech­nolo­gies were un­proven, pri­vate cash was all that was avail­able and data of un­tapped for­ma­tions were hard to come by. But in one im­por­tant way, the old role of the ju­nior as the ex­plorer and first-mover on a new play has been flipped on its head. The North Amer­i­can wild­cat­ter is en­dan­gered and has been forced to adapt. To­day, it’s more likely that a ju­nior oil com­pany is buy­ing small leases that were ne­glected by larger firms—leases on reser­voirs that may have been ver­ti­cally drilled, de­vel­oped and aban­doned, but haven’t been hy­drauli­cally frac­tured or other­wise stim­u­lated with new tech­nolo­gies to re­cover the resid­ual oil, yet.

AN AU­GUST RE­PORT FROM SCOT­TISH

con­sult­ing firm Wood Macken­zie found that oil ex­plor­ers in 2015 found just one-tenth of the amount of oil they have found on av­er­age since 1960, leav­ing re­cent oil dis­cov­er­ies at a six-decade low. In 2016, they ex­pected to find even less. If true, the ju­nior oil sec­tor may be riskier to­day than it’s ever been. Still, it holds a spe­cial at­trac­tion for some, and you can count among them Jim Hunter, Don’s son and the grand­son of Vern. In 2014, he co-founded Turn­stone En­ergy af­ter of­fload­ing his pre­vi­ous com­pany, Flag­stone En­ergy, close to the mar­ket high in 2013. “The big­gest prob­lem has just been get­ting our hands on de­cent as­sets,” says the third­gen­er­a­tion oil­man and Turn­stone’s chief oper­a­tor. That as­set hunt has led the Cal­gary-based com­pany to look east to Saskatchewan, where, to­day, all of the com­pany’s lands and pro­duc­tion are fo­cused. “[Flag­stone] we started in 2006 with only $14 mil­lion; so it was rel­a­tively eas­ier to raise that kind of money. But back then we were still drilling ver­ti­cal wells, so you didn’t need as much cap­i­tal,” Jim says. “But in the 10 years since then, pretty much every­body drills hor­i­zon­tal wells. If you’re drilling a ver­ti­cal well, it’s just to see if the zone is there so you can drill a fracked hor­i­zon­tal through it.”

Pro­duc­ing just 50 bar­rels of con­ven­tional oil per day, Turn­stone is un­de­ni­ably a ju­nior com­pany. But the days of fund­ing a mom-and-pop en­ergy firm on shares sold door-todoor are long since gone. Turn­stone raised $50 mil­lion af­ter its Oc­to­ber launch, a far cry even from the $14 mil­lion that kick-started Flag­stone just a decade be­fore. “To­day, $14 mil­lion would get you nowhere,” Jim says. “And be­cause so many of these as­sets are just aer­ated through all the years of $90 and $100 oil, to find an as­set that has any­thing left to do on it is pretty tough.” For ju­niors, the search likely won’t get any eas­ier, no mat­ter how good the tech­nol­ogy gets at wring­ing new oil from the same old rocks. But the def­i­ni­tion of a ju­nior com­pany and its role are chang­ing to ac­com­mo­date larger and larger “lit­tle guys,” even if the eco­nom­ics that cre­ated the oil wild­cat­ters of yes­ter­year are forever be­hind us. For his part, though, Jim isn’t look­ing back. “If you had an oil prop­erty and you didn’t do any­thing with it when oil was $100,” he says, “then what were you do­ing?”

AL­BER­TAOIL­MAGAZINE.COM - VERN HUNTER - Born in Nan­ton, Alberta, in 1906, Vern “Dry Hole” Hunter drilled the Le­duc No. 1 oil well 40 years later, putting the Cana­dian oil in­dus­try on the map

THE LE­DUC NO. 1 OIL WELL IN 1947. “IF YOU HAD $20,000 CASH AND TWO DRILLING CON­TRACTS, YOU COULD GO AND BUY A DRILLING RIG. THAT’S WHAT STARTED A LOT OF SMALL LIT­TLE EN­TRE­PRE­NEUR COM­PA­NIES.” SAYS DAN CLAY­POOL

FA­THER AND SON, VERN AND DON HUNTER, PIC­TURED IN 1948 AT THE GOLDEN SPIKE NO. 1 OIL WELL, THE BEST-PRO­DUC­ING OIL WELL IN CANADA AT THE TIME

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