LAST WORD

Canada’s heavy oil in­dus­try can adapt to any chal­lenge. And to­day’s dif­fi­cult chal­lenges are no dif­fer­ent

Alberta Oil - - CONTENTS - BY DARCY SPADY

Canada’s heavy oil in­dus­try can adapt to any chal­lenge. And to­day’s dif­fi­cult chal­lenges are no dif­fer­ent

AL­BERTA IS A GLOBAL LEADER IN

pe­tro­leum engi­neer­ing in­no­va­tion. But why? I think about this ques­tion a lot, ac­tu­ally. Re­cently, I was asked to present on the topic of pro­duc­ing heavy oil un­der bad eco­nom­ics, at a con­fer­ence in Lima, Peru. De­spite be­ing schooled in the sub­ject in the early 1980s by some of the lu­mi­nar­ies of the time, and hav­ing worked in it dur­ing my ca­reer, I was a bit daunted by the ques­tion. What do I, as a Cana­dian, know that is unique about pro­duc­ing heavy oil? Well, a lot ac­tu­ally. We are lead­ers in the in­dus­try world­wide be­cause of not just our in­no­va­tion, but be­cause of care­ful plan­ning.

Squeez­ing and re­act­ing is our strength. Every­where in the world the oil in­dus­try is handed reser­voir rock of all types—of­ten garbage, but some­times gems. In Al­berta, we are blessed with av­er­age to poor con­di­tions, heav­ily picked over by decades of ex­plo­ration and ex­ploita­tion. And we are so­phis­ti­cated.

What we have learned is that when squeezed hard by poor rocks, tough sur­face con­di­tions and re­mote lo­ca­tions, we re­act quickly by in­no­vat­ing with ef­fi­ciency and tech­nol­ogy—of­ten quicker than oth­ers. We are one of the global lead­ers in small, ag­gres­sive ju­nior and in­ter­me­di­ate com­pa­nies, which are hud­dled to­gether in Cal­gary swap­ping tech­ni­cal se­crets, and even peo­ple for that mat­ter.

When I was in univer­sity, we talked about what we could do with the ideal oil price sce­nario of $40, $50 or $60 per bar­rel—some­thing we could only fan­ta­size about in the 1980s. Wisely at the time, the govern­ment was also pre­par­ing the reg­u­la­tory ground­work for what would be­come known the world over as the heavy oil in­dus­try.

Four things have made the Al­berta and Western Canada heavy oil in­dus­try what it is to­day: reg­u­la­tion, in­cu­ba­tion, pro­lif­er­a­tion and di­ver­si­fi­ca­tion.

First, we as a com­mu­nity—in­clud­ing in­dus­try, landown­ers, lo­cal stake­hold­ers and govern­ment—par­tic­i­pated in build­ing an ex­cel­lent reg­u­la­tory frame­work. It con­tem­plated growth and in­clu­sion, which are still very im­por­tant to­day.

Through govern­ment and in­dus­try fund­ing, such as the Al­berta Oil Sands Tech­ni­cal & Re­search Au­thor­ity and other part­ner­ships in Al­berta and Saskatchewan, in­cu­ba­tion be­came the or­der of the day. Pi­lot projects, test sites and lots of aca­demic think­ing and mod­el­ling were hap­pen­ing all over the place. We were talk­ing cyclic steam stim­u­la­tion, soak­ing, drain­ing, SAGD and all kinds of flood­ing with all kinds of flood agents, in­clud­ing fire. These were heady times and would one day be bet­ter, if only the oil price would catch up. We were squeez­ing tech­nol­ogy to catch up with price.

Then it hap­pened. The price in­creased and sud­denly the world no­ticed the size of the re­source in Al­berta. Pro­lif­er­a­tion was upon us. Ev­ery­one from every­where was some­how pay­ing at­ten­tion to Al­berta. Squeez­ing was over, and now we were re­act­ing. All those years of think­ing were now pay­ing off. Prof­itable prod­ucts were ship­ping to mar­kets. Ev­ery­thing was in our fa­vor: in­vest­ment, ser­vice costs and avail­abil­ity, land ac­cess, la­bor, a sta­ble reg­u­la­tory en­vi­ron­ment and, most im­por­tantly, a healthy oil price. We re­acted by har­vest­ing the fruits of our plan­ning and in­no­va­tion.

Then the party ended. The com­mod­ity price has crashed, the eco­nom­ics don’t make much sense and the in­vest­ment has dried up. We are forced to look to di­ver­si­fi­ca­tion. We are us­ing dif­fer­ent mech­a­nisms, such as the con­tro­ver­sial cold-pro­duc­tion method. We are look­ing for bet­ter rocks. We are look­ing at small, ef­fi­cient projects, per­haps in Saskatchewan rather than Al­berta. Di­ver­si­fi­ca­tion has been forced on us and that is a good thing. Ba­sic eco­nomic rules ap­ply— squeez­ing and re­act­ing, all over again.

So what do I tell the good folks in Peru about pro­duc­ing heavy oil dur­ing low prices? I gave them a case study, and we were the case. Al­berta is a suc­cess be­cause the play­ers did a very suc­cess­ful two-step: squeeze and re­act. This, cou­pled with the four key foun­da­tional el­e­ments—reg­u­la­tion, in­cu­ba­tion, pro­lif­er­a­tion and di­ver­si­fi­ca­tion—lets me stand at the mi­cro­phone and proudly de­clare how it is done.

Darcy Spady is the pres­i­dent of the So­ci­ety of Pe­tro­leum Engi­neers, and the man­ag­ing direc­tor of Cal­gary-based Broad­view En­ergy As­set Man­age­ment

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