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
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