Winners, Losers and Unlikely Survivors in the New Energy Order | Alberta Oil and Gas Industry
Here we take a 360-degree snapshot of who’s up, who’s down and who’s reinventing themselves in the oil and gas business
by Michael McCullough Scott Messenger and Stephanie Sparks
Horizontal Drillers
Pity the smaller oilfield services companies stuck with conventional, vertical drilling rigs; they made up the nearly three-quarters of Canadian rigs that sat idle, on average, over the course of most of 2009. By contrast, the directional rigs operated by the big companies with the wherewithal to build them (Precision Drilling Trust, Ensign Energy Services Inc., Trinidad Drilling Ltd.), are working flat out in plays like the Montney, Horn River, Bakken and Pembina. By the same token, services firms focused on fracking and completion of horizontal wells (Baker Hughes Inc., Trican Well Service Ltd.) are keeping themselves busy.
Government of Alberta
By introducing permanent drilling incentives and a lower royalty regime for conventional oil and gas last month, Ed Stelmach’s government has largely reversed course on the 2007 “Our Fair Share: Report of the Royalty Review Panel,” that so incensed the oilpatch.
“Our Fair Share” – also commissioned by Stelmach – boldly aimed to raise revenue from oil and gas to $2 billion per year. Instead provincial resource revenues dropped nearly $2 billion last year compared with 2008 (when the old regime was still in effect), as the government scrambled to placate industry with temporary incentives to invest during the downturn.
Now the oilpatch is trumpeting the new rate package as positive and the government says the change will enhance Alberta’s attraction for investment. But the sliding scale of royalties means that government coffers still won’t fatten up – estimates are that royalties will be $785 million less than the “Fair Share” plan.
SAGD Operators
It doesn’t take an accountant to realize that the decoupling of oil and gas prices – oil being priced high from a historical perspective, natural gas low – has put oilsands producers using the process called steam-assisted gravity drainage (SAGD, pronounced sag-dee) in a sweet spot. Their revenues for blended bitumen are healthy – discounted just 10% from light, sweet crude – while their number-one operating expense, natural gas with which to create steam to inject underground, is down and looking to stay that way. No wonder the list of new projects and expansions on the go is growing: Firebag 3 (Suncor Energy Inc.), Christina Lake (Cenovus Energy Corp.), Foster Creek (Cenovus), Surmont (ConocoPhillips/Total E&P Canada Ltd.), Sunrise (Husky Energy Inc.) and Kirby (Canadian Natural Resources Ltd.).
Without the impact on land and water that mining operations have, oilsands drillers may also be less vulnerable to censure from the environmental movement. Perhaps feeling their oats, last year the non-mining producers formed their own In Situ Oil Sands Alliance as a way to differentiate their voice from the miners in other policy debates.
Mackenzie Pipeline
Even with the value of a natural gas pipeline originating from deposits on Alaska’s North Slope being questioned in the wake of shale formations in the Lower 48, the Northwest Territories’ Mackenzie Gas Project grinds toward reality regardless of market indicators. Just before the close of 2009, the Joint Review Panel delivered its assessment of the social, environmental and economic impact of the $16-billion, 1,200-kilometre natural gas pipeline. Though its report concluded in support, the 176 conditions the panel attached to its approval have irked industry backers that have invested millions in the project since its conception more than three decades ago. This September, the National Energy Board will weigh the recommendations and rebuttals and deliver its final ruling. But with enough shale gas in the U.S. to negate imports for what some wager could be as much as 100 years, a federal green light for the northern pipeline would initiate little more than a make-work project of unprecedented scale, with the possibility of real payoff as remote as the Mackenzie Delta itself.
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