Profiles by Gordon Jaremko

Winning plaudits from green factions may not rank high on industry’s to-do list. Yet Alberta Oil’s list of innovators — from companies pioneering new supply chain relationships, to those using next-generation technologies to reshape age-old practices — proves that environmental imperatives and profit are anything but mutually exclusive. Welcome to the new frontier.

Interview by Gordon Jaremko

Tim Shipton occupies a vantage point in Edmonton that gives him a big-picture view. As president of Alberta Enterprise Group, he leads a public policy advocacy group of businesses with more than 30,000 employees in fields from accounting to steel. As a former finance director for the Progressive Conservative Party of Alberta, he knows politics inside out.

Alberta Oil: You told a Calgary industry conference held by the Canadian Institute that Alberta needs an “oil sands response team.” Why?
Tim Shipton: We’re at a political crossroads. We all cheered when we were recognized as having the world’s second-biggest oil asset. We forgot the responsibility that goes with such an asset. We have to stand up with confidence and defend our industry. If some of the climate change policies that the critics talk about pass unopposed, by default we’re going to see a historic transfer of wealth out of Alberta to the rest of Canada and the world that is going to tear up the fabric of Confederation.

AO: When will this all come to a head?
TS: We’re paused now. We’re in a time out. I put the critical moment five years down the road. We’re going to come out of recession. We’re going to see if the oil sands industry learned its lessons or whether it will go at breakneck speed, driving up costs and environmental effects. There has been a shift in society. The industry’s mantra has been that oil demand will always be there and criticism is no big deal. But political pressure against it, originating with environmental movements, isn’t going to go away. We need a fundamental rethink about how we’re perceived globally and how we do business.

AO: Do business leaders understand the risks?
TS: They’ve seen they can no longer sit on the sidelines and let government tell the story in isolation. During the trade mission that Alberta Enterprise Group took to Geneva in 2009, it was made obvious to us that there could be massive costs placed on every barrel that comes out of the oil sands. But we’ve seen no practical or tangible result.

AO: What is to be done?
TS: Industry needs to embrace organizations like ours who want to get out and help. There needs to be a sharing of information. The only way we’ll be successful is with the facts. The facts are on our side. But the facts need to come out in a timely fashion. If they don’t, you’re lost. You need to be there. Resources have to be dedicated to this. A segment of society is immune to facts. What we’re fighting for is the hearts and minds of average Canadians. That’s who is going to decide whether we should have the trust to develop the resource. It’s not going to be radical environmentalists. You don’t demonize those people. You work hard and earnestly to respond with the facts. This is the first time Alberta has been global news. We have to develop coherent strategies to deal with that.

In the black gold rush that followed the 1947 Leduc discovery south of Edmonton, D.H. (Derry) MacFarlane and his peers stopped short of killing for oil. But taking chances on succumbing to exposure or dying in road, snowmobile and airplane accidents went with their turf.

“I was thinking all the time, ‘I’m going to freeze to death,’” MacFarlane recalled as he reminisced about his youth as an industry pioneer at a Calgary meeting of the Canadian Petroleum History Society. He paid plenty of dues while rising to the top of his professional ladder, where he served terms as president of the Canadian Oil Scouts Association and, eventually, the International Oil Scouts Association.

MacFarlane also accepts a blunter word for himself and his occupational peers: spies. Industrial espionage was a fixture of the exploration era. Until the late 1970s, swaths of Alberta – with an area 95 per cent as big as Texas but only 15 per cent of its population – were terra incognita for oil and gas hunters. Fresh gushers were still to be had. Rivalry for prime drilling targets was fierce. Companies watched one another for clues that untried patches of mineral rights – “land,” in industry jargon – were worth bidding on at fortnightly provincial auctions.

Alberta let explorers keep well results secret for two years as “tight holes.” But drilling rigs were too big to hide and exhibited telltale signs of discoveries or failures. Scouts staked out wells, watching the action with telescopes and binoculars. Depths could be deduced, for instance, by counting standard-length pieces of drill pipe that crews hauled up to change bits. Use of some equipment – such as geological core sampling devices or production testing gear like tanks and flare stacks – was a dead giveaway of a discovery.

Nature made the stakeouts dangerous. In the exploration heyday, as now, most drilling waited for winter to freeze northern mud and muskeg swamp hard enough to support heavy machinery – and potentially congeal a spy’s blood.

Espionage was so common that the industry evolved an institution to save on spying time, costs and personal risks. Scouts held weekly meetings called checks to swap status reports on routine wells that only extended or developed known discoveries.

But oil companies kept rights to hold back information on fresh exploration by designating wells as tight or “wildcat” throws of investment dice. The secrets were duly noted as dares to venture out for frigid vigils at remote drilling sites.

MacFarlane had two brushes with hypothermia. Both were lethal reality versions of Jack London’s classic 1902 short story, To Build a Fire, about a Klondike gold prospector who froze to death because a small mistake out in the Yukon cold left his fingers too numb to light a match.

Gordon Kelly has been in training for all 75 years of his life for the advocacy role he takes on as author of The Oil Sands: Canada’s Path to Clean Energy? He was born into the officer class of the global energy industry.

An international oil company built Kelly’s birthplace – Talara, on the Pacific coast of northern Peru – as a refining and shipping port for wells dating back to 1850. Use of surface seeps that attracted the industry has an even older pedigree. Early Spanish seafarers caulked wooden sailing ship hulls with boiled tar skimmed from pits dug into foothills of the nearby La Brea Mountains.

His father, T.D. Kelly, worked in the Peruvian seaport for Imperial Oil before the Second World War. At the time, the Canadian firm doubled as a foreign expansion arm of its majority shareholder, the ancestor of ExxonMobil Corp.

After wartime service as a naval captain, the elder Kelly moved the family to Canada and helped launch the modern Alberta industry as manager of Imperial’s transportation department. The son joined Imperial after earning an engineering degree in Toronto. Kelly also obtained an MBA from Harvard University, but not before he got his hands dirty learning industry ways.

Until the mid-1970s, Imperial owned drilling rigs and put freshly hired engineers and earth scientists through rugged basic training on them. Kelly’s 1956 rig classmates included the late Bill Hopper, going through his industry baptism by labor with Imperial two decades before he rose to national fame as chief executive officer of Petro-Canada.

Kelly attained prominence as planning manager of Dome Petroleum, a 1970s household name that rivaled Hopper’s federal government-owned national oil company as a driving force of Canadian corporate takeovers and frontier drilling. Kelly unsuccessfully opposed the final takeover that eventually bankrupted Dome, and then switched into international consulting. He has worked in 24 nations for private and state clients including the Organization of Petroleum Exporting Countries.

Kelly poured about three years of work into his 324-page book, hiring Calgary contractor Kingsley Publishing for editorial, printing and marketing services. He rapidly attracted an industry following, selling about 1,000 copies or one-fourth of the initial press run before its official launch in Calgary last November.

Kelly voices the often espoused philosophy of Alberta engineers and managers that knowledge is power and accurate information changes minds. Facts can effectively counter emotionally tinged enviro-political campaigns pressing for a halt to oil sands development, Kelly insists.

“The strength of this is it doesn’t take sides,” he says, holding up a copy of his book. The author says he worked overtime on purging his text of personal feelings. The tone is cool. The oilman-author does not rant. He does not hesitate to discuss industry flaws.

Profiles by Gordon Jaremko

Times turned tough. Talent stood out.

Alberta Oil’s first annual C-Suite Stars awards recognizes those individuals that proved to be capable of surviving, thriving and building platforms for future growth through events that few imagined to be possible until they happened.

As this year wore on, the shocks of the late-2008 energy price drop and global credit crisis faded but severe effects lingered. It has been survival of the fittest.

Within the context of this challenging year, the 2009 C-Suite Stars were selected based on observed trends and performances. This group of six emerged from qualified candidates.

The selection process started with recognition that there is far more to industry leadership than can ever be measured by quarterly financial statements. Alberta Oil bases its views on trends spotted with full-time daily tracking of developments revealed by an array of sources, from corporate disclosures and article interviews to regulatory cases and travel to industry operating areas.

Alberta Oil identified three key trends this year. First was the rise of resource plays, with the formerly little-known term coming into common use for a harvesting or manufacturing approach to producing energy commodities with advancing technology. Not surprisingly, there was also sharpened focus on economic efficiency as energy prices slid and showed signs of staying well down from 2008 highs for the foreseeable future. Finally, the industry responded to a growing emphasis on adapting to increasingly sensitive natural and human environments.

As the inaugural C-Suite Stars demonstrate, the fittest can do more than survive – they can excel.

Encana’s CEO is transforming the gas industry’s M.O.

Randy Eresman’s enthusiasm is infectious. Zest breaks through the professionally reserved exterior of the petroleum engineer in the chief executive officer’s suite at EnCana Corp. when he talks about the future his teams are building.

The example set by EnCana’s rise to the top among North American natural gas producers – a stature highlighted by the Eiffel Tower-like steel frame under rapid construction for the firm’s new 58-storey headquarters and Calgary’s tallest skyscraper – is changing the structure and vocabulary of the energy industry. Enter resource plays.

“We now call them gas factories,” Eresman says in describing the new M.O. The old standard method of operating prompted previous generations of trend-setters to call themselves hunters and coin the word explorationists. The new pattern has industry leaders billing themselves as manufacturers.

The old way was a secretive pursuit of wealth needles – scattered fossil fuel deposits concentrated by natural pressure on porous rock formations into pools that flowed at the touch of drill bits. The new approach harvests entire geological haystacks by using advanced technology to extract resources embedded too tightly in dense rock to flow except through artificial capillary webs of man-made channels.

Instead of derricks built in portable pieces that spend much of their time roving around widely dispersed targets, the new M.O. is evolving fit-for-purpose rigs that work around the clock at fixed locations. In a resource play, ownership is acquired over a big block of rock saturated with fossil fuel. A stable pad or working surface is built. Self-propelled rigs that swivel and move short distances, akin to robots on auto assembly lines, drill potentially dozens of kilometers-long horizontal wells across the geological formation. Multiple “fracs”, or injections of fluids under extreme pressure, fracture myriad flow channels into tightly grained rock by breaking it up the way a sudden impact shatters a safety glass window.

“You gain amazing efficiency by not moving equipment,” Eresman says. Along with the specialized drilling rigs, truck-mounted frac pumping equipment stays on location and uses low-cost deliveries of bulk materials. Sites are organized and lit up to run safely around the clock seven days a week. Operating services such as pipelines, power supplies, instrument arrays, control systems and crew quarters are large and concentrated with their costs spread thinly over high production volumes. Environmental effects are reduced compared to the old pattern of widely dispersed wells, spiders’ webs of long but small-diameter pipelines and scattered processing plants.

EnCana uses the new approach in Wyoming and Texas, and is transplanting it into Canada, initially at northern British Columbia’s Horn River shale gas deposit. The new industry M.O. is tailor-made for the long-range market outlook that overtook the old hunting methods in 2009. “A lot of our industry has been inspired with the idea of ever-rising energy prices,” Eresman recalls. “This new strategy works well with flat long-term prices. We think natural gas will be constrained in a narrower and lower range than we used to believe in.”

Interview by Gordon Jaremko

Alberta Oil: Don Thompson, president of the Oil Sands Developers Group, admits his industry is politically cornered with limited means of defending itself against green critics aiming to knock it out of action by tarring its reputation when he says, “Often the facts are kind of boring compared to the spin.” Does the U.S. government base energy policy on facts?
Laura Lochman: I hope so. We certainly make an effort. Policy needs to be based on facts and discussions between all stakeholders. That debate has to take place. It has to be based on the facts as we understand them. The conversation has to take place at several levels. It’s about being engaged. There needs to be effort put into communicating the role Canada plays on environmental improvements. Publicly reporting results can only help.

AO: Is Canada being taken for granted as the largest supplier of oil imports by the U.S. – and would it be smart for Alberta to develop alternative markets?
LL: The Obama administration wants to reduce reliance on foreign oil over the long term. There are commitments to reduce emissions, encourage low-carbon forms of energy, and develop a strong international agreement on climate change. But oil will continue to be a large part of the energy mix. I’d like to make somewhat of a distinction between foreign oil and Canadian oil. That line doesn’t really exist when we’re talking about Canadian oil. We really are truly a North American energy market. Canada is a close and trusted neighbor. Look at the State Department’s approval for construction of the new Alberta Clipper oil export pipeline. The statement referred to American strategic interests in increasing the diversity of oil sources, increasing non-OPEC supplies, Canada as a reliable partner, and free trade agreements that augment the security of its supplies. There are environmental concerns. We want to work in a way that ensures we have both clean energy supplies and economic growth.

AO: Can you forecast results of the debate over climate change and fossil fuels in the U.S. Congress?
LL: You can’t predict the finished product or the date when it will come. I just talked to two U.S. senators and they don’t know either. Regarding the Waxman-Markey American Clean Energy and Security Act in the House of Representatives, I know there are concerns. We can be sure the final legislative product from the Senate will look very different from the version passed by the House. But we can also be sure that carbon emissions will be among the administration’s priorities.

Oil, cars and guilty feelings about carbon exhaust were not always powers in the land. The culture of mobility and its addiction to liquid fossil fuels – and the side-effects from liberated youth and long-distance family vacations to suburbs and traffic jams – evolved slowly.

It took nearly four decades after the first commercial oil well was drilled in the United States in 1859 for history to record the first American automobile accident. In 1896, New York City motorist Henry Wells opened the road carnage era by colliding with bicycle rider Evylyn Thomas. She broke her leg. Wells went to jail.

Canadians boast priority on both of those historical scorecards: discovery and mishap.

The 150th birthday party for the first oil well in North America was held at its southern Ontario site near Sarnia in mid-2008. American custodians of their pioneer drilling legacy at Oil City in western Pennsylvania acknowledged the claim by attending the Canadian festivities last year.

The unhappy record of the first known traffic accident belongs to a Prince Edward Island priest, Father Antoine Belcourt. While showing off a steam-powered car that he imported from the U.S. at a parish picnic in 1866, he lost control. The vehicle ran off the road, smashed through a fence and rolled over. The only harm done was to his pride and the early reputation of the horseless carriage. Belcourt quit driving on the spot. The vehicle’s engine was turned into a stationary water pump, reports automotive history buff Austin Bowman.

While little noticed outside the communities closest to the discovery sites where the celebrations were held, the 150th anniversaries of the first Canadian and American oil wells generated an outpouring of entertaining and often enlightening historical research. Some has been posted for free viewing on Internet sites like and www.oil150.com.

Among the lessons taught by the research are central points that industry participants try to make in current environmental and political debates.
Requirements for natural resources and energy do not change overnight. Society is pervaded with a wide range of uses for oil.

In its early years, oil was used as much for medicinal purposes as for fuel. The oldest recognizable modern oil product is Vaseline. The brand name entered the market for lotions, salves, ointments, skin care preparations and numerous recipes used by pharmacists in 1871.

The jelly was just one item made from petroleum wax that at first annoyed early oil developers but soon became a valuable sideline. The byproduct’s uses included candles, matches, chewing gum, food and leather preservatives, garment waterproofing, and insulation for telegraph lines and electrical wiring.

Petrochemicals came into widespread use long before the age of plastics and synthetic garments, derived from oil and natural gas by complex manipulation of their hydrocarbon molecules, dawned during the Second World War. Early petroleum products in heavy use by the time of the First World War included synthetic toluene, the T in TNT. Another early refinery byproduct – isopropyl alcohol, also known as rubbing alcohol – was a fixture in health care, preservatives, shampoo, perfume and cosmetics. In the American Prohibition era, determined drinkers used the synthetic stuff as a more toxic but less regulated substitute for ethyl alcohol distilled from crops.

Just because consumers live in Alberta does not mean they understand or trust gas and power suppliers. A charge of misleading practices that the provincial government filed in court against a Calgary energy merchant this fall, acting on a customer complaint, was just a sample of friction between the public and the industry.

The telephone lines of the Alberta Utilities Consumer Advocate hum with 4,500 calls a month, reports Karin Gashus. The busy grievance pace was set before she had time, following her summer appointment as the agency’s chief, to carry out a commitment to reverse results of opinion polling that shows the energy ombudsman is one of the least known provincial government services.

Much of the agency’s $8-million annual budget pays for participation in regulatory cases that rarely attract attention outside an inner circle of experts. Gashus has set her sights on raising the profile of the six-year-old utilities watchdog to the stature of a familiar brand that pops into energy consumers’ minds whenever questions crop up about gas and power service.

Gashus emphasizes the agency’s stature as an independent energy observer and advocate. “We have allegiance to nobody,” she says.

The watchdog’s budget is covered by a share in overall power revenues rather than a government grant. An advisory council includes veterans of farming, ranching, local governments, small and family businesses and charitable public services.

Her plans include opening a Calgary office for the agency, which to date has been concentrated in Edmonton. Two big, province-wide issues are developing that will heighten need for the advocacy office, she observes.

The first one surfaced in mid-2009, when the Conservative government authorized AltaLink LP and Atco Electric to start planning construction of the first new power transmission lines between Edmonton and Calgary in about two decades. The action raised alarms among landowner, environmental and consumer groups that brought previous versions of the proposed grid additions to a standstill before the former Alberta Energy and Utilities Board.

Not the least of the worries is that the regulatory arena has changed. The AEUB has been split back into the two agencies that managed energy issues before they were merged as part of early-1990s budget cuts. The Alberta Utilities Commission again regulates consumer service franchises. The Energy Resources Conservation Board is back in action as a supply and industrial development watchdog.

The opening round of the revived transmission line fight left the consumer ombudsman on the sidelines. It was a murky affair of grand political and industrial strategy, debating new provincial legislation that enables the projects to go ahead without seeking to repeat a 2005 AEUB ruling that additional wires are needed.

The political fuss showed the power tangle is hotter and more complicated than ever as a result of civic rivalry that previously only simmered beneath the surface. Edmonton’s city-owned Epcor Inc. is defending its interests in current and planned coal-fired power stations by supporting new transmission lines to spread their output across the province. Calgary’s civic utility, Enmax Corp., rejects added wires as unnecessary if it is allowed to build new gas-fired generating projects in its own market area.

There is a simpler way to anticipate at least the direction of oil price movements than probing through murky, slowly accumulating data on supply and demand for the physical commodity, according to research by two Texas economists. Watch changes in the value of the United States dollar compared to other currencies. Then point the oil price arrow in the opposite direction. This rule-of-thumb barometer will be right 80 per cent of the time, they say.
A striking correlation between the greenback and oil – and a record of dramatic change – emerged from a review of three decades of relationships by Kenneth Medlock and Amy Jaffe, who are research fellows in the James Baker III Institute for Public Policy at Houston’s Rice University. There are neglected but “inescapable facts” about the parallel evolution of global energy and financial trading, the economists say.

Between 1986 and 2000, the correlation between oil prices and the value of the U.S. dollar compared to an index of other currencies was a statistically insignificant 0.08, report Medlock and Jaffe. That is, oil and the greenback moved in step only eight per cent of the time.

Since 2001 the correlation increased drastically to a highly significant 0.82, the researchers found. Oil and the U.S. dollar are simultaneously on the move 82 per cent of the time. The statistical yardstick is also consistently a minus quantity, meaning the two items go in opposite directions. When the American dollar goes down, oil goes up, and vice-versa.

The increased correlation has developed in tandem with a big change in the leading indicator of oil prices: trading in futures contracts on commodity exchanges. Speculators that have little or no direct involvement in oil production or consumption – a tribe known as noncommercial traders or financial players in polite official language – now account for about 50 per cent of commodity-futures activity. Prior to 2002, they drove only 20 per cent of trading on average. Oil suppliers and buyers used to dominate the exchanges, making them tools for setting up financial hedges against unpredictable price movements.

For an oil exporter country like Canada, the research of Medlock and Jaffe pinpoints a financial risk element in commodity prices. For a big importer like the U.S., which spent $331 billion on foreign oil in 2008, the research findings highlight twin perils to living standards: simultaneously rising costs and falling purchasing power.

“The threat to U.S. economic health and national security is that the dollar risks getting caught in a vicious cycle where continually rising oil prices feed the U.S. trade deficit, leading to increased U.S. indebtedness and thereby an even weaker dollar, which further drives oil prices higher,” the Texas researchers write.

In a saber-toothed tiger fossil, an iron workhorse snowshoe, homesteader artifacts from toys to tools, and mementos of roving artistic, music and literary celebrities – all have places of honor on crowded shelves and walls in the Rolla Pub. So do a portrait of an early drilling derrick and a nameplate off a modern rig signed by its crew.

“A community is like a puzzle. Everyone’s a tiny piece. When it all fits together, it’s beautiful. It doesn’t matter where people come from. The only prerequisite is respect,” says pub owner Patti Martin.

“We have a tendency to lose our history,” she says. “We live in such a transient world. Most people are away from home. I make them feel at home. People have hearts if you let them.” Her decades-long labor of collector’s love has earned her establishment fame as a must-see travel stop and official British Columbia heritage site in scenic country near the Alberta border northeast of Dawson Creek.

Her records confirm that oil and natural gas drilling – and a sometimes uneasy marriage of farming and industry – are older than roads and ambulance services in the vast Peace River region of northeastern B.C. A homesteader, J.B. Pierce, made the first discovery near Rolla at a spot called Braden’s Crossing, named after another pioneer farmer.

Pierce found an oily seep in 1914 and had it analyzed in Edmonton at the University of Alberta. By 1922, he drilled a successful well and built a mini-gas utility that fueled a boiler, blacksmith forge and cookhouse stove. The network sprung an undetectable leak of naturally clean, odorless gas in late 1936, and an explosion and fire incinerated a building. Using horse-drawn sleighs, it took two days to transport burn victims 20 kilometers along frontier trails to the nearest medical aid in Pouce Coupe.

A safer version of the fossil fuels industry than its homemade beginnings – employing homesteaders but run by professionals – gradually spread. A project to build a B.C.- wide gas pipeline network emerged well before the 1947 Leduc gusher launched the modern Alberta industry.

“A lot of people wouldn’t have their farms now if it wasn’t for oil and gas jobs. It’s been a tradition all through Alberta and B.C. These people had to work hard to pay for their quarter-sections and implements. It’s also how lots of the kids paid their way through university,” says the Rolla hostess and historian.

“It’s amazing to see how hard people worked,” recalls her retired brother-in-law, Dick Martin. “You couldn’t be a prima donna coming up to this area. You had to be a worker. No one had special status. It was a community. If you went to the mayor, he’d treat you like a brother.”

So it was no surprise when elected leaders of the region’s local governments, organized as the Peace River Regional District, formed a common front to issue a unanimous summer statement deploring sporadic bomb attacks on gas installations southeast of Dawson Creek and Rolla, near Tomslake. “These bombings are violent criminal acts that threaten and endanger the lives of the people who live and work in our community,” the circular said. “Creating fear in the workplace, in our residents and our communities, is no way to find solutions to perceived problems.”

But the regional character also made it unsurprising that no immediate arrests were made after EnCana Corp. doubled its reward for turning in the bomber to $1 million. Streaks of self-sufficiency and independence inherited from the pioneers of northern B.C. farming and industry run deep. Casting suspicion on neighbors is no more part of the heritage than either terrorism or knuckling under to authority.

Frontier times are still a vivid memory. “It’s not that long ago really,” says Patti Martin. Her pub collection includes a still-fresh photo of a schoolboy setting out on horseback with a rifle in his hands for some small-game hunting.

“They were really strong-willed people. It’s still in the genes of the kids – that will, that strength. A lot came up here because there weren’t any rules. They were escaping civilization to make one of their own.”

“It’s hard,” Brian Krausert says as he describes the troubled times among oilfield entrepreneurs. “It’s not a lot of fun. You’re putting in a lot of blood, sweat and tears.”

But rough rides go with the turf, he adds. “You’ve got to go through the experience. Otherwise it’s sort of like trying to have sex by reading the book. Sometimes you’ve got to get into the fray.”

No firm has more staying power than his in a notoriously turbulent field. He runs the oldest member in the Canadian Association of Oilwell Drilling Contractors. CAODC had its 60th birthday in June. Krausert’s family-owned Beaver Drilling Ltd. turned 44.

He does not mince words about the industry’s harsh code of feast or famine. “When the rigs aren’t working, the jobs disappear. That’s the way it’s always been. You get paid well when you’re working. The moment the job ends, your pay goes to zero.”

Survival is a case of staying in shape to make comebacks after lean spells of low energy prices, revenues, investment, drilling and employment. “You’ve got to go through one of these every now and then to figure out how to do it,” Krausert says.

His family has been mastering the art of oilfield survival since the birth of the western Canadian industry south of Calgary at Turner Valley after the First World War. His father – the late Sam Krausert, an honorary lifetime CAODC member – lived in a shantytown and worked on rigs during the Great Depression. The era inaugurated the industry’s boom-bust cycles, with fresh drilling successes setting off flurries of activity followed by dry periods in between gushers.

Beaver Drilling qualified as a pioneer when the firm started up in 1965. As late as the 1970s, some big exploration and production corporations still adhered to an older tradition of owning rigs and doing their own fieldwork. The CAODC began with only six members in 1949, two years after the Leduc discovery on Edmonton’s southern fringe. But the gusher launched a vastly bigger industry than the Turner Valley mini-boom ever became and opened up opportunities for its most entrepreneurial veterans.

Regardless of its roller-coaster cycles, the contemporary industry is an improvement on the original Alberta oil fortune hunt, Krausert says. “It’s more efficient. It’s a better business. It allows more people to make money rather than have just a handful of companies running the whole store. In the old days, you were on the team or you weren’t.”

Until the last boom, the 9,500 to 10,000 wells forecast for this year would have rated as a healthy workload. It took until 1994 for the annual drilling total to top 10,000. It took another 10 years to reach the peak 20,000-plus wells hit in 2004-06, fueled by rocketing natural gas prices and new export pipeline capacity.

The current lull spells hardship partly because contractors were out on a limb as it arrived, after adding equipment and recruiting workers as if the peak was going to last. In the 1970s and early-’80s boom, contractors fielded 330 to 560 rigs. The fleet stayed smaller than 600 rigs through the 1990s. The number mushroomed to nearly 900 rigs in 2003–07. About four-fifths of the equipment and personnel were concentrated in Alberta and focused on shallow, small gas targets that were only worth chasing if energy prices stayed high.

Krausert avoided over-enlarging his firm by minding lessons taught by his family, and especially a renowned mentor. Rather than step directly up into his legacy, the president’s office at Beaver, he studied geology at the University of Alberta. His degree qualified him for an apprenticeship with James Carl (J.C.) Anderson, who built Anderson Exploration from scratch into a 990-employee powerhouse that Oklahoma-based Devon Energy Corp. bought for US$3.4 billion in 2001.

Krausert learned a formula for durability that is easy to preach in lean times but hard to remember and practice when it matters most – in fat times of high ambition, competition, credit and temptation. “J.C. drummed it into me on many occasions. You don’t have to be the biggest. But own what you own. If you have no debt and own what you own, nobody can tell you what to do. You control your own destiny.”

Industry is up against a political wall. It shows in polling by Alberta’s Clean Air Strategic Alliance. Even in the province that relies more than any other on resource production for livelihoods and the means to pay for public services, the majority instinctively blame environmental ills on the supply side of the economy. Mass consumption ranks as a secondary concern.

Prevailing attitudes were probed in research to support recommendations for a clean air strategy that appeared in a report released this summer by the CASA coalition of government, business, environmental and scholarly organizations. The poll asked, “When you think about air quality, what problems or issues are most important to you?”

Participants in the survey mentioned industry emissions 281 times. Exhaust from autos, aircraft and traffic in general came up 216 times. Population increases, industrial development associated with urban growth and city smog came up 108 times.

Cue Peter Tertzakian. He stands out as Calgary’s eloquent fossil fuels philosopher – and certainly the most popular thinker and author with a day job. His position as chief energy economist at ARC Financial Corp. stations him high in the industry that much of the public loves to hate.

Tertzakian’s second book, The End of Energy Obesity: Breaking today’s energy addiction for a prosperous and secure tomorrow, is a pioneer foray into filling the gap in popular opinion that shows in the CASA poll. He documents connections between fossil fuel production and lifestyles that developed nations take for granted.

That is a formidable task. He reminds consumers that they have to accept some responsibility. The fossil fuels industry does not operate in a vacuum. Consumption is a driving force of industrial activity that has risen to the top of targets of fashionable disdain. Oil sands projects are built and power plants burn coal on a colossal scale because demand for the products is immense. The dominant roles of fossil fuels have yet to be dented by green substitutes because mass markets like cheap energy.

Tertzakian’s venture into the court of public opinion is ambitious. His 296-page book, published by John Wiley & Sons Inc., is tailored to attract an American audience, with much of the data describing trends in the United States and details such as prices expressed in U.S. Author appearances are planned in the big media markets of the Atlantic seaboard.

How does a geophysicist employed by an Alberta energy production and technology investment house lure a publisher into taking a chance on printing a message liable to be greeted as an unwanted inconvenient truth? Tertzakian is as hip as Al Gore, the movie-making climate change evangelist who famously boasted about being in on the birth of the Internet during his unsuccessful 2000 run for the White House.

The Albertan makes no extravagant claims. But he is a self-confessed “technology bug” on a serious scale. He personally buys expensive early versions of new gadgets. He is also a professional at this game. He has made a living at spotting advances with big potential. He participated in the digital communications and dot-com revolution for six years of the 1990s as a technology analyst for an investment firm.

He is adept with the equipment and fluent in the lingo of the digital age. He tells the energy story in a vocabulary that makes sense to the current generation, using concepts such as “virtualization” or the conversion of artifacts and activities into digital counterparts.

By Patrycja Romanowska

Much like arguments for tariffs and against globalization, enthusiastic predictions about the coming collapse of world trade are rarely the topics of choice for an economist talking to a gathering of Alberta oil patch players.

Yet these were among the less contentious assertions by the keynote speaker at the Energy Services Summit in Edmonton this summer. Former CIBC energy guru Jeff Rubin put a radically different spin on the conference theme, Positioning for the Upturn, than ex-premier Ralph Klein, who delivered a speech full of back-slappin’, git-’er-done sloganeering.

“Within the next 12 months, we are going to see triple-digit oil prices,” predicted Rubin, author of Why Your World is About to Get a Whole Lot Smaller. “If we don’t, it means we are still in a recession.” He maintains that relatively low oil prices are the result of a temporary demand shock caused by the credit crunch, rather than long-term market fundamentals that he sees as poised to push oil prices through the roof very soon.
This prediction went over well in Edmonton, where many in the crowd spent the conference coffee break discussing effects of the crisis on their Alberta-based energy servicing businesses. Rubin generated big grins with his key statement: “The world of cheap oil is over.”

But he also had a warning: “Just remember that the better things get for Alberta, the worse things get in the world.”

As Rubin elaborated on his themes in peak-oil lingo and economist-speak, his audience became a little less convinced that what they were hearing was all that desirable. His view does not bode well for oil demand in the long run.

“Conventional oil production hasn’t grown since 2004,” he said. “Read ‘conventional’ as affordable.”

The International Energy Agency and other major think-tanks are predicting that more new oil supplies will come out of Alberta in the next 15 years than Saudi Arabia. But “this place ain’t built for $50 oil,” he said. “And, at $200 a barrel, which everyone here probably wants, people are going to get off the road.”

The oil sands product “is not the kind of oil you can afford.” And it will ultimately wreck the world economy, which is designed to function on cheap oil.

There was silence in the hall as Rubin’s audience mentally reviewed the spotty record of economist predictions. Oil has always had a funny way of defying theory. The world’s growing appetite for the stuff long seemed to disregard the most fundamental consumption axiom, which says that as prices rise, demand declines.

Rushing to the defense of his discipline, Rubin said the increase in world demand should be deconstructed regionally to understand the trends. Demand has not grown in places where people pay the full price for oil. In the United States, consumption has remained the same since 2005. In Western Europe, demand fell for two years before the recession.

The fastest growing demand, he said, is not in China or India, but in member nations of the Organization of Petroleum Exporting Countries. In OPEC’s case, heavily subsidized fuel, always sold at the same price, has led to an increasingly energy-intensive way of life.

“Everyone believes they have a God-given right to consume as much oil as they want,” said Rubin. Saudi Arabia uses ever more of its production in water desalination plants, which comprise 70 per cent of such operations in the world, and to generate electricity. Saudi utilities pay a pittance for oil – $0.07 per gallon, or less than two cents a liter.

As OPEC nations reduce exports to satisfy domestic needs, industrialization in China and inventions like the Tata Nano car in India keep world demand rising, markets will turn to more technically difficult, expensive oil supplies. Rubin believes this has already begun causing radical changes.

It was the 2008 record oil price, not subprime mortgages in the U.S., that caused the financial crisis, he stated. The last four out of five recessions were caused by an oil price shock, in his view. Why think this one is any different?

Interview by Gordon Jaremko

Alberta Oil: Why go to bat for bitumen?
Pat Nelson: I started out in the oil sands. It’s an absolute passion for me. Right out of university in the mid-1970s I went to work for the first plant, Great Canadian Oil Sands, as manager of financial control. I loved Fort McMurray. When I was the minister of energy, I went there at every opportunity. It’s just a dream. You can go up there and, with your bare hands, pick up the richest crude in the world. You pick up the sand, squeeze it, smell it and realize that’s the richest crude in the world. That’s the jewel of Alberta.

AO: What is IOSA, the In Situ Oil Sands Alliance, about?
PN: We want to provide a perspective that has received very little attention until now and deserves much more. Mining is a mature industry. Upgrading is emerging. By comparison, in situ is new. But more than 80 per cent of the oil sands are in situ. They’re too deep for mining.

AO: What difference will that make?
PN: About 85 per cent of future oil sands development will be by well bores, and that’s good news. It’s similar to the conventional industry. There is only 10 per cent to 15 per cent of the land disturbance of bitumen mines. In-situ developments share roads rather than fragment the environment with new ones. Currently, the most common production method is steam injection. But in situ uses non-potable water. It’s not fit for human consumption and 90 per cent of it is recycled. Technologies are being improved and new ones are being developed that use less steam or none at all. So far, there have been 2.6 million tonnes of reductions in annual greenhouse gas emissions – that’s like taking 550,000 cars off the roads. Alberta has always been known as a leader in technology development.

AO: What does IOSA aim to do?
PN: We want to plant a balanced perspective. Polls say 55 per cent of Canadians believe the oil sands are having a negative impact on the environment. We will view public dialogue as way of doing business. Effective communication means two-way and balanced communication. That’s what we are committed to.

AO: How big a factor is the IOSA group?
PN: Our members are independent, entrepreneurial Alberta companies. To date, their capital spending is $2.5 billion. They have more than 500,000 hectares of oil sands leases that they paid over $300 million to buy from the province. Their winter drilling employs 1,500 Albertans. This group is just getting started. They expect to spend $7 billion over the next five years. Their 20 billion barrels of recoverable bitumen reserves are enough for production of one million barrels a day for over 30 years.

By Gordon Jaremko

Out where the products are extracted and shipped, the role of fossil fuels in Alberta livelihoods is clear. At the Hardisty oil pipeline and trading hub southeast of Edmonton, a 388-bed camp for workers building growth projects has increased the town population by about 50 per cent and raised the tone of travel accommodations.

Even in the global economic slump, energy employers provide immaculate rooms, hotel-like creature comforts and professionally prepared cuisine to keep the skilled talent needed by industrial projects. Annual incomes often still run into six digits.

But there is no complacency in this energy hot spot. The camp radiates a message that the engine of growth is mobile and never guaranteed to stay still. The sprawling structure comes apart fast in truckload-sized units that can be easily shipped elsewhere.

Albertans get the message. “From January to April, it was absolutely dead in this town,” says Bonnie Whidden, president of Hardisty Business Group and owner of Country Inspirations, a tea and antiques emporium. “The crash really affected all the businesses here.”

The global credit and energy price meltdowns did not make Enbridge Inc. and TransCanada Corp. stop their Hardisty pipeline and tank construction programs. But workers, local contractors, farmers and merchants got a whiff of the potential for sudden setback that is all too familiar in a province renowned for resource boom’n’bust cycles. “A lot of people were playing it safe and hanging onto their money,” says Whidden.

While she reports trade is picking up again, the crisis is reviving Alberta desire for stronger livelihoods that inspired former premier Peter Lougheed’s 1970s and ’80s industrial diversification policy.

“We can’t rely totally on the oil,” Whidden says as she outlines plans from rehabilitating old main street buildings to town marketing drives. The work camp’s residents likewise voice hopes of breaking old habits of exporting raw natural resources for the lowest costs and fastest profits possible.

In the eyes of Gordon Rees, an electrician installing control systems in gargantuan new Hardisty oil storage tanks, an emerging international division of energy industry roles is more dangerous than the latest financial fiasco. Such skilled workers are natural allies of employers and local government leaders in Alberta areas where refineries and petrochemical plants are economic mainstays.

Like the Industrial Heartland Association northeast of Edmonton, Rees wants new policies to counter the trend of exporting a growing share of the oil sands in the form of Alberta’s crudest product, bitumen. The result is upgrading plants built and manned by thousands of rival workers in the United States, and maybe in Asia unless the right conditions go into approvals for new pipeline and tanker port plans.

“Bit by bit we’re just selling our country out. We’ve got to take control of our own destiny. We’ve got to think long term,” Rees says. To visit places where the oil and gas action happens is to be remin-ded that the financial institutions which own most energy company shares are not the only legitimate interests affected by the industry.

By Sydney Sharpe

Top tier talent is changing the direction of the Canadian Association of Petroleum Producers, the voice of companies responsible for more than nine-tenths of the nation’s oil and gas output. CAPP is responding to the 21st century culture of instant communication, rumor portrayed as reality by political attacks and challenging economics by trying not simply to survive but to thrive.

The new approach starts with a confession. “We acknowledged… that we don’t have the trust of Canadians, and that Canadians don’t think we’re doing a good enough job of protecting the environment while developing the oil sands,” CAPP president David Collyer wrote in an Edmonton Journal editorial last winter. It was one of many such admissions made freely and circulated widely as new leaders took over the association.

Equipped with decades of industry expertise, most recently as the former president of Shell Canada, Collyer is passionate about going beyond preaching to the choir. “The external world has changed. Energy has gotten tremendous criticism and is called dirty oil,” Collyer says.

Hard green factions leading attacks on the industry have more on their agenda than environmental improvements to its operations. “This is more appropriately an off-oil campaign. We need to get our message out and up our game significantly,” Collyer says.

“There are lots of tough issues out there. My vision is that Canada and the producing provinces will either put in place or reinforce policies that represent an appropriate balance between energy, the environment and the economy – the 3-E. We want to develop resources responsibly. This industry is critical to our overall economy and it makes a strong contribution to energy security in Canada and North America. I want CAPP to be seen as a constructive and balanced voice in that conversation and process.”

To convey that continental perspective, CAPP hired American career diplomat Tom Huffaker as CAPP’s vice-president of policy and environment. As former United States consul general for Alberta, Saskatchewan and the Northwest Territories, he understands both the American mindset and U.S. dependence on Canada’s energy exports. As an economist who served in the U.S. embassies in Moscow, Yugoslavia and India,

Huffaker brings global expertise to the delicate balance of the 3-E world.

Since the U.S. depends on Canada as its biggest supplier of oil imports – 1.9 million barrels a day last winter – Huffaker seems particularly well placed to catch attention in Washington’s corridors of power. Americans are debating climate change legislation that could affect their imports from the oil sands.

He believes American faith in know-how and progress are the key buttons to push by making sure influential Washington leaders understand realities of the Canadian industry that its critics leave out of their campaigns. “A whole suite of new technologies in oil sands development will change production and the carbon footprint,” he says.

Wages are sticky, agree Darren Engels and Steven Paget, financial analysts at FirstEnergy Capital Corp. “That’s the toughest part,” Paget adds after the pair unveil a forecast that shows costs of finding and developing oil and gas will fall by 25 to 35 per cent this year.

“What does improve is productivity,” Paget says. In lean times the industry sheds novices and seasonal or temporary jobs that are often filled by recruits with limited qualifications during activity peaks. “You slim down to experienced welders and rig hands, for instance. You need increased productivity. So you pay the same dollars. You need people who know a good weld from a bad one just by sight.”

Most savings are forecast to come out of business items such as drilling lease prices, steel and equipment expenses, contractor profits, asset acquisition and corporate takeover costs, and management bonuses and incentive compensation. Employer groups such as the Petroleum Services Association of Canada are holding private seminars for their members on paring down payroll costs as painlessly as possible. The seminars include human resources professionals, lawyers and officials of government income support schemes, such as work sharing and assistance for training programs.

In an industry where few workers belong to unions, compensation is notoriously confidential and slow to change. “We can’t tell yet if wage rate reductions are spreading,” Engels says.

A rare published industry benchmark, wage recommendations posted by the Canadian Association of Oilwell Drilling Contractors, at worst went down by less than half the forecast overall industry cost reduction this year. The changes confirmed that cuts are lowest for the most experienced personnel.

Hourly pay for leasehands, as entry-level rig laborers, dropped 12 per cent to $23 an hour from $26. For drillers or foremen, the cut was eight per cent to $38.50 from $42. In the upper rig ranks, pay rates still include $2 premiums adopted previously for crewmen who complete formal training to earn the new official occupational title of rig technician.

By Bill Sass

What a difference a year makes in the economic geography of peaks, valleys, cycles and seasons – everything but stability. Until mid-2008, Alberta industry and public attention focused on a search for ways to recruit, train and retain skilled workers for more than $100 billion in energy development plans led by oil sands projects.

Schemes abounded to poach workers from the Maritimes, hire foreign help and fill trade schools with apprentices. It was beyond a peak. It was the Mount Everest of eagerly anticipated booms, with all sectors making plans to cope with infrastructure needs, manpower shortages, social problems and rising costs.

Few official statistics have caught up with the sudden reversal caused by the simultaneous global credit crisis and energy price drop last fall. But one reliable economic barometer is maintained by Don Herring, president of the Canadian Association of Oilwell Drilling Contractors.

Herring uses 2006 figures as a yardstick for the Alberta industry. He says 2007 was an anomaly because it was a jumble of confused commodity prices and uncertainties raised by a provincial royalty review.

Operators ran 700 rigs in the first quarter of 2006. The number dropped by a bit more than half to 327 in the second quarter. Translated into labor requirements of about 25 workers per rig, Herring says, “That would have been, in terms of employees, 9,300 fewer needed in the second quarter.” Seasonal cycles are accepted on rigs. They rush to work on frozen ground in winter. They pause when spring thaw turns well sites and access roads into muddy morasses.

So far in 2009, drilling is down to a skeleton crew that was smaller, even at the peak of the seasonal cycle, than the 8,175 workers who were required during the annual spring slowdown in 2006. “This winter we only had 8,000 people working in the first quarter, on average, and we’re now down to 2,000 on average in April and May,” Herring estimates. In May, CAODC reported only 70, or about eight per cent, of 861 available rigs were in operation.

This year rig workers ran afoul of free-falling energy markets. Prices for natural gas, the top drilling target, fell until the expense of finding and extracting the stuff was more than it was worth.

“If only we could control the commodity prices,” Herring says. “But we can’t. And if this was just an issue of commodity prices, we’re kind of used to that. What we’re not used to is the whole credit meltdown, the banking failures, the mistakes that took place in the U.S. and Europe. That hit us between the eyes.”

The sector is worried about maintaining the skilled workforce it has nurtured over a number of years, he says. He’s concerned that history will repeat itself. “We had this in spades in the ’80s. The workforce was devastated. We lost a generation of workers.”

CAODC worked long and hard on recruiting and retaining a new generation of skilled workers in competition with sectors that have similar talent requirements like forestry and mining. A rig technician program upgraded drilling work into a formally recognized trade. “We’re the only place in the world that has one,” Herring points out. “We thought this was a reasonable approach to demonstrate to workers that there is a career path on the drilling rigs and that if you are a member of a trade, there are certain personal benefits that accrue – you’re more likely to get financing for a mortgage or a car. That was our effort to try to be competitive.”

By Gordon Jaremko

Gary Clark keeps the house promise, says Bruce Dixon. “Everyone puts on 20 pounds,” Clark assures newcomers.

“Guaranteed,” puffs Dixon, working up a sweat on an exercise machine. “This is my first night in here. There’s a reason for that. I’m not very strong – let’s put it that way.”

Dixon does not admit to being short on courage or physical stamina. At age 51, he has broken out of a career rut in retailing in his native Ottawa Valley, remade himself into a pipefitter and joined a crew erecting steel structures on a windswept Alberta hilltop. His confession of weakness is about failing to resist the temptation to overeat that Clark delivers every day as the dining hall manager in a 388-bed work camp run by Horizon North Logistics Inc. at Hardisty, 200 kilometers southeast of Edmonton.

“And please,” Dixon adds, panting and chuckling. “If you have any influence with the management, ask them to move the desserts so they aren’t the first thing you see when you go into the dining hall. Tell them to make it so you at least have to walk across the room to get into that stuff.”

Work camp cuisine melts the resistance of even the most hardened veterans. “I was amazed,” says Gordon Rees, a 55-year-old electrician from Newfoundland whose role in Alberta industry goes back to working on construction of the Syncrude oil sands plant starting in 1976. “In my first 18 days here at Hardisty last November, I put on 20 pounds. When I went home, I tried to pull on a pair of my jeans and they didn’t fit. I’m still working on taking that weight off.”

Groceries pour into the camp in truckloads twice a week, with the bill for each order running to $15,000 to $18,000, reports chef Dwight Constable. Egg consumption, a barometer of appetites, is measured in multiple 25-dozen cases per week. A big share goes into baking habit-forming buns, cookies, squares, pastries, pies and cakes at a rate of 3,000 items a day.

The kitchen staff is as professional at its crafts as the diners are at their industrial construction trades which often pay six-figure incomes. Constable, a commercial food preparer since 1982, owned a restaurant before switching to work camp catering. Cook B.J. Kindt, with 38 years of experience, has a reference library of recipes. “You follow some books. You also use imagination,” he says, “After so many years, you don’t even need to measure. You just know.”

The food masters make a prime contribution, but far from the only one, to a quality environment that startles a roving reporter dropping in unannounced for a sample overnight stay. The location is an “open camp,” renting out rooms to business travelers if any extras are available. The rate approaches $200 but includes the food and the exercise room to wear it off.

Bob Reid came out of retirement from a 33-year career with TransCanada PipeLines Ltd. to become president of the Aboriginal Pipeline Group. This coalition of Northwest Territories native communities owns one-third of the proposed Mackenzie Valley Pipeline, which is about half of the $16-billion Mackenzie Gas Project that also includes new Arctic production installations.

Alberta Oil: What is the state of the northern pipeline project?
Bob Reid: This is the year natural gas from the Mackenzie Delta was originally scheduled to flow when the regulatory applications were filed in 2004. Don’t hold your breath.

AO: Why the holdup?
BR: There are a number of reasons. One stands out – the Joint Review Panel [representing federal, aboriginal and territorial agencies concerned with socio-economic and environmental issues]. The seven-member JRP’s performance has been dismal and very disappointing to our pipeline group’s aboriginal shareholders. By last December the National Energy Board had adjourned its hearings [on technical, economic and safety matters] for three years, waiting for the JRP’s report. At the JRP they are staying silent about what’s taking so long. It’s taking them two years just to write their report. Usually this would take two to four months.

AO: Does the dawdling jeopardize the Mackenzie project?
BR: We’re not in competition with the Alaska pipeline project. But it might precede us. Then it becomes far cheaper to expand an existing pipeline than to build a new one. You could expand a completed Alaska line to carry one to 1.2 billion cubic feet of gas per day [the Mackenzie route’s planned initial capacity] for 60 per cent of the cost to build the Mackenzie pipeline. If the Alaska project goes first, the Mackenzie pipeline will be put on the shelf for a very long time.

AO: Are there other risks?
BR: The Aboriginal Pipeline Group is a business deal. It’s been negotiated by aboriginal people for aboriginal people. APG will have to borrow 100 per cent of its $2.6-billion share in construction costs. This is no problem. The project has an investment-grade credit rating if it goes ahead. But the period prior to receiving regulatory approval, before the pipeline can be loan security, is risky. TransCanada gave APG a loan to fulfil monthly cash calls during this period. The total has reached $140 million. TransCanada writes it off if the pipeline is not approved. APG doesn’t have to pay a cent. That’s a loan you could not negotiate in the commercial market. The JRP has totally dropped the ball. This delay might be taken as a symbol that the North is not ready for this project.

AO: Is gas industry evolution overtaking the Mackenzie pipeline?
BR: I still believe this project will happen. It has to be economic to move forward. Governments can facilitate it. My largest concern is that the emerging shale gas resources of northeastern British Columbia are as large as the deposits on the North Slope of Alaska – and a lot closer to pipelines and markets. It’s conceivable we missed the window of opportunity.

A quarter-century ago, Nisku was a bleak scene. Four-fifths of the companies in the jumbo industrial cluster south of Edmonton were tied to western Canadian oil and gas. Only three were exporters. The 1980 National Energy Program’s price controls, export limits and taxes left the business park gasping for breath.

If Nisku had continued on its 1970s and ’80s course, it would have boomed in good times and busted in the bad. A drop in the oil price of the magnitude experienced since last July would have delivered a stunning blow, and Nisku would have nearly died again.

But the area changed course. Remarkably, Alberta’s International Region – the official name for the district that includes Nisku, neighboring Leduc business park and the seven municipalities surrounding the Edmonton International Airport – is a good news story in a time when reporting the bad is the height of fashion. None of the good stuff makes it into print or onto broadcast airwaves even when visiting journalists encounter success stories, griped a participant in one of the legendary business breakfasts put on monthly by the Leduc-Nisku Economic Development Authority (EDA).

Always bustling and busy, these events embody a collaborative and forward-thinking approach that has transformed the region into one of Alberta’s most dynamic economic centers. And now as headlines regularly report on job losses and stock market declines, there are companies in Nisku that are apologizing on their websites for their continued inability to fulfil their back orders.

So what happened?

In a nutshell, Nisku and the surrounding region has matured and its focus has expanded and diversified, says Pat Klak, the EDA’s ever-vibrant director, who has been with the organization since 1992 and has been its boss since 2001. Just under one-fifth of the region’s more than 3,000 businesses are now directly tied to oil and gas. About 80 per cent are exporters.

The EDA has worked tirelessly to turn the industrial community around. Aside from the breakfasts – which are always well-attended by the regional politicians, business leaders and other interested parties – the organization is constantly involved in projects and overseas missions.

The region goes out of its way to attract investment, connect the right people with the right business opportunities, find out what local businesses need and learn how to get it to them. Innovative marketing is done, such as virtual trade shows for local businesses and through 2,300 volunteer ambassadors who promote the region internationally.

Klak’s energy is a force behind the region’s emergence as an economic powerhouse. Her enthusiasm for driving development through collaboration, co-operation and innovations hasn’t waned at all since her inauguration as director eight years ago.

Claude Béchard, Quebec Minister of Natural Resources and Wildlife, turns west when he looks for a Canadian path back to prosperity. “Energy will pull us out,” he predicts.

“Absolutely,” Béchard declared in an Alberta Oil interview. “I think it’s the key – the solution – to get out of this economic situation. We all know these projects will get back on track. We are the sources of the energy of the United States.”

Alberta and Quebec are natural allies at all levels, he suggests. “We will be one of the greatest sources of economic development in Canada.”

On the grand scale of export growth, Hydro-Quebec’s Romaine River hydroelectric project is a French-Canadian counterpart to mammoth oil sands schemes. The $6.5-billion plan calls for generating 1,550 megawatts by building four dams. Like bitumen mega-mines, the power scheme is big enough to alter the landscape and arouse international environmental opposition. The Romaine project’s new reservoirs would flood 280 square kilometers of northeastern Quebec forest, an area twice the size of all Fort McMurray oil sands tailings ponds combined.

On a moderate scale of innovative fossil fuel production, Béchard points out that Quebec and Alberta connections are poised to grow. Calgary firms are embarking on drilling for natural gas, using rock fracturing technology imported from Texas, in geological shale beds south of the St. Lawrence River between Montreal and Quebec City.

He has no qualms about appearing to climb into economic bed with the energy source that green factions brand as “dirty oil.” He poses for photographs to send back home from a delegation he leads at an annual winter oil sands buy-sell forum in Edmonton, smiling for the cameras despite Quebec voters’ reputation as the country’s most united in their willingness to halt fossil fuel projects deemed liable to increase carbon emissions.

“People have to know what’s happening here. We all have some things like that – some perceptions we have to fight,” Béchard says while taking a break from helping Quebec manufacturers and service contractors court oil sands developers. “The people of Quebec know Alberta is committing $2 billion to become more clean and green [with carbon capture and storage projects]. We invite people to go into Quebec and explain that. And environmental issues are part of where we could be helpful, for instance in water management and treatment. There’s nobody better than our businesses who are working here to make Alberta greener.”

Besides technical expertise, Quebec innovations on display in Edmonton include an organizational style made to order for lean times. The approach creates strength in numbers and cuts costs without resorting to disruptive mergers or takeovers. Clusters of firms band together, without changing their ownership or identities, into co-operatives that resemble staunchly independent western farmers’ combinations for marketing, supply procurement and credit.

Compared to sending separate agents to events like trade fairs, assembling a structure of shared services such as sales, promotion, administration and contract bidding does more than save money, says Donald Morin, a founder and president of Coop Multi Metal. “You gain power to bid and be able to be competitive.”

by Patrycja Romanowska

At a late winter lecture to a classroom full of business students, Alberta energy analyst and author Peter Tertzakian touched on a question that industry leaders, politicians, eco-crusaders and even regular folks are increasingly grappling with. What is the socially optimum energy mix?

If that sounds like economist-speak, it is. A socially optimum allocation would be the amount of energy that would reflect its costs – both of production, which are obvious, and of its byproducts or externalities, which are not so obvious.

Pollution is the most regularly cited “negative externality” but its costs are hard to quantify. The same people who argue that industry does not pay the full costs of that production – environmental degradation being a huge part of that – generally resent having a value put on a sunset, even though factory smoke obscuring it would deprive nearby residents of that exact value.

It is hard to explain to people that things that are priceless can become things that are valueless if they are not quantified. But getting these types of messages across are the problems natural resource economists face at dinner parties. These are not things that are contemplated by people as they drive to work spewing exhaust into the faces of cyclists.

They may not be contemplating this nasty reality, but both the driver and the cyclist involved are making choices that influence the social energy mix and its proximity to the optimum.

The question becomes who has the most profound influence? Is it the driver, churning along in his SUV, his fuel use determined by his desire for the comfort of enjoying a constant temperature and leg room plus the status of having the nicest vehicle in the parking lot? Is it the cyclist, depending on his plastic helmet to stay alive and his bicycle, built with various petroleum byproducts, to transport him from point A to point B along roads that remind us, with their tarry summer smell, of the materials from which they are made?

Perhaps most of the blame for this dilemma can be laid at the feet of the economist, who, when absent from dinner parties, is constructing policies based on incomplete models and inaccurate predictions (what predictions are truly accurate?) which determine what fuel should be favored over another – if, of course, permitted by the political climate.

It is a complex thought experiment to try to resolve the interesting issue of who exactly is responsible for how we consume and produce energy.

This is the type of issue that Tertzakian tells me he explores in his newest book, Energy Obesity, which is scheduled for publication this summer. His 2006 book, A Thousand Barrels a Second, flew off the shelves by the modest standards of energy economics literature. It provided some of the foundation for what the economist is talking about now.

However, from the author’s description of Energy Obesity’s premise, the new book definitely takes a step back from his initial dramatic conclusion that we are headed into a shock that will make our current energy mix and consumption levels unsustainable.

That initial warning seemed reasonable when energy prices were skyrocketing at a dizzying pace and in seeming defiance of well-understood laws of supply and demand. Now it is less so.

So then, says Tertzakian, maybe it won’t be a price shock or a geopolitical reality that will force us to change our consumption patterns. Maybe we just need to be proactive about it and start thinking about an optimal social energy mix by balancing its three main dimensions: continuing prosperity, energy security and sustainability.

The need for a change is driven by a discomforting fact. We are energy obese, he says, setting up a string of metaphors he uses to get his point across. Our diet is the energy mix we consume and our appetite is our level of consumption. Both are integral to our health.

by Mary Clark Sheppard

My father died at age 78 in 1966. He was then still acting as a technical consultant to Great Canadian Oil Sands and its partner, Sun Oil Co. At the time of his death, GCOS, the first oil sands plant, was in the process of being built, although it was another nine months before production began in September 1967. This represented tangible evidence of, and testimony to, his life’s work, and I like to think he died a happy man.

In the early 1990s, there were two plants operating in a moderate way, but as the millennium approached, they began to expand rapidly. When friends asked me what I thought my father would make of it all, were he alive, I answered simply that he would be astonished, even though he had predicted that when the industry got going, it would be a big affair. When people ask the question now, alas the answer isn’t quite the same. To explain, I offer a picture of the man and the events in his life which drove him along the paths he took.

Karl Clark had a great love of the outdoors and the wildlife it supported, particularly birds. It began when as a schoolboy in Toronto, he spent two months every summer in the Muskoka country where his father and uncle had built cottages side by side on Lake of Bays, located on the southern boundary of Algonquin Park. Both men were teachers, his uncle at Woodstock College in Ontario, where he taught industrial arts, and Karl’s father at McMaster University, then located in Toronto, where he was a professor of modern languages. In their formative years, the young cousins learned the arts of camp craft, how to survive in the bush and how to handle a canoe.

During his undergraduate days at university, Karl worked each summer for the Ontario Forestry Department as a fire ranger in Algonquin Park. The skills he learned as a youth were essential in this work because the only way of progressing between the lookout towers was by canoe, paddling and portaging through the forest. His special interest in birds was initially nurtured by a school friend, Hoyes Lloyd, who later became one of the chief ornithologists in the federal government service. I visited Hoyes in Ottawa and he told me that when they were older it was my father who, in turn, gave him lessons in camp craft and especially how to throw a canoe up onto his shoulders. Even when he was 60 years old, my father was still able to manage this feat.

After completing his PhD in physical chemistry and being rejected by the armed service, my father joined the Geological Survey of Canada. His assignment was to examine road-making materials such as gravels in Ontario and Quebec and later on in the Prairies. His transport was a Model T. Ford, and he still had to make camp. It was on a field trip in Manitoba that he began to wonder if the prairie dirt roads might be improved by adding oil to the mix, as gravel had yet to be located, and that the Athabasca sands might be the source of the oil.

Back in Ottawa, where he had been transferred to the Federal Mines Branch in 1919, he began “playing around” in a laboratory with small samples of bituminous sand, trying to discover a way to untie the bonds that held the oil and sand together. He had some success, and in 1920 it led to an invitation to join the University of Alberta as research professor. The appointment was made in anticipation of a provincial research body that the government was planning to establish on campus. His brief was to find a way of making the bituminous sands on the Athabasca River an asset for the province. A year later, the Scientific and Industrial Research Council of Alberta came into being, and was in 1929 renamed the Research Council of Alberta. This was the name I knew as I grew up.

by Gordon Jaremko

Industry is caught in a crossfire. On one side, hard green factions fire off almost daily grievances, calling Alberta the nest of dirty oil. On the other, society demands energy supplies and jobs. There is a way forward.

Federal Court Justice Danièle Tremblay-Lamer charted the course in an environmental law ruling a year ago. It let Imperial Oil Ltd. go ahead, after a short break for a technical correction, on the Kearl project, a Fort McMurray bitumen mega-mine planned to grow by stages into a 300,000-barrels-per-day colossus.

Seen in hindsight, this is no small case. Kearl, formerly just one entry in a long lineup of projects, is now a star, leaving stalled rivals behind by spending $500 million or more a year and sustaining 1,200 jobs in its current planning stage alone.

Groups that sued to stop Kearl – the Pembina Institute Prairie Acid Rain Coalition, Sierra Club of Canada and Toxics Watch Society of Alberta – obscured the court’s message. The protesters declared victory because they scored a procedural point, and the publicity barrage drowned out most of what the decision said.

Environment Canada suspended a water permit while the federal and provincial joint review panel that approved Kearl fixed a writing flaw which the court found in its report. A legally acceptable explanation was inserted to tell how Kearl fits into national greenhouse gas emissions policies. The permit was restored.

Other parts of the ruling support the panel’s approval of tailings pond cleanup plans and endangered species protection, and give guidance to industry and environmentalists alike. The judge is no novice in the field. Tremblay-Lamer was legal counsel to the National Energy Board in 1984-89.

The Kearl case turned on interpreting a global green commandment known as the precautionary principle. Originally invented by the law of the sea treaties, the canon says all concerned “must anticipate, prevent and attack the causes of environmental degradation. Where there are threats of serious or irreversible damage, lack of full scientific certainty should not be used as a reason for postponing measures to prevent environmental degradation,” says a summary by the Supreme Court of Canada.

Tremblay-Lamer says Canada practices the green ideal, yet also keeps industry alive by using a companion idea called adaptive management. This approach, which was developed by Canadian ecologist Crawford Stanley Holling and has an international following, “counters the potentially paralyzing effects of the precautionary principle,” the judge wrote in the Kearl ruling.” Adaptive management permits projects with uncertain, yet potentially adverse environmental impacts to proceed based on flexible management strategies capable of adjusting to new information.”

Kearl is allowed, for instance, to try a new tailings pond cleanup technology. Protester demands to stick to old methods are rejected. “This would stifle innovation in the field which could potentially result in future benefits to the environment,” the judge warns.

The verdict is clear common sense. Creativity, instead of green or business belligerence, is the Canadian route to clean energy.

Pat’s energy-sector experience spans over 38 years. His background includes process engineering, information technology and corporate planning positions with Hudson’s Bay Oil & Gas and Home Oil. Following Home Oil’s acquisition by IPL, he served as Director, Planning for Interhome Energy Inc., and was responsible for the start-up of Enbridge’s technology and consulting business unit, and its international division and expansion into the natural gas business.

Pat is a Director of EnCana Corporation and Enerflex Systems Ltd. and is a member of the North American Review Board of American Air Liquide Holdings, Inc.

Pat is an active industry and community volunteer. He is a member of the Business Advisory Council for the University of Alberta’s Faculty of Business, a member of the National Petroleum Council and a director of the American Petroleum Institute. He also serves on the Calgary Business Hall of Fame selections committee.

In 2007, he was named the Canadian Energy Person of the Year by The Energy Council of Canada.

Pat holds a Bachelor of Science degree from the University of Alberta and a Master of Science degree from the University of British Columbia, both in Chemical Engineering.

Gerry was the founding President of the Canadian Association of Petroleum Producers (CAPP), and Executive Director of the Independent Petroleum Association of Canada (IPAC). His extensive experience includes roles as assistant Deputy Minister with the Government of Alberta’s Energy Department, and senior positions with the Alberta Treasury department and the Canadian Energy Research Institute. He started his career in Toronto as an economist with Ontario Hydro.

Gerry was born in Edmonton and received a Bachelor of Arts, Honours (Economics) from the University of Alberta in 1974, and a Master of Arts (Economics) from the University of Western Ontario in 1975. He has completed the Wharton Business School’s Advanced Management Program at the University of Pennsylvania and Institute of Corporate Directors Corporate Governance College, Directors Education Program May 2005, Institute-certified Director, ICD.D, July 2005.

Gerry is Chairman of the Canadian Association of Petroleum Producers (CAPP) Board of Governors, Co-Chair of the federal government’s Energy Sector Sustainability Table, and a member of the University of Alberta’s Board of Governors. He is also past Chairman of the Board of the Public Policy Forum (2006-2007), past Chairman of the Canadian Chamber of Commerce (2003-2004) and past Chairman of the Alberta STARS (Shock Trauma Air Rescue Society) Foundation (1996-2002). In addition, he is a member of the Alberta Economic Development Authority.

The former Syncrude president, whose efforts were critical in making significant advances in oil sands productivity and environmental performance, also has experience in the electricity sector, another area where carbon capture and storage could reduce emissions substantially.

Jim leadership at Syncrude, where he was president for 10 years and operations chief for 18 years, also saw significant advances in building stakeholder relationships, especially with First Nations.

He serves on the boards of EPCOR, Finning International, Clark Builders and the Alberta Research Council. As a former chairman and director of the Mining Association of Canada, he championed an initiative designed to help improve the mining industry’s environmental and social performance.

In 1999, he was presented with the Centennial Award, the highest honour bestowed by the Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA). He is also a recipient of the Canadian Institute of Mining, Metallurgy & Petroleum (CIM) Past President’s Awards and the CIM Fellowship Award. Jim was a founding member of CIM’s Rocky Mountain Branch.

Jim earned a Bachelor of Engineering Degree in Mining in 1973 from the Technical University of Nova Scotia (now Dalhousie) and is a graduate of the Advanced Management Program at Harvard Graduate School of Business.

Jim has received three honorary doctorate degrees: one in Engineering from the Technical University of Nova Scotia, one in science from the University of Alberta and one in law from the University of Prince Edward Island. He is a fellow of the Canadian Academy of Engineering.

Other groups to enjoy his insight include the Alberta Chamber of Resources, the University of Alberta School of Mining and Petroleum Engineering, the Technical University of Nova Scotia, Keyano College and the Northern Lights Regional Hospital Foundation.

Jim Carter is chairman of the Alberta Carbon Capture and Storage Development Council and a former Syncrude president. His efforts were critical in making significant advances in oil sands productivity and environmental performance. Read More

“My greatest claim to fame is helping to provide prosperity for the people of the province in an environmentally responsible way. I spent the largest part of my career tackling one of the biggest challenges in the land – developing Canada’s resources, including the oil sands, with an eye to minimizing the impact on the environment. That mindset guides me as I chair the Alberta carbon capture council, which is looking at ways to capture and store CO2 from large point sources in geological formations in Alberta.”

Q: What is the single most pressing environmental issue in the energy business right now?
A: The single most pressing issue in the energy business today with respect to the environment is making sure that all stake holders have all the facts. Everyone needs to understand and appreciate what is being done to reduce the environmental footprint of the industry, what the technology limitations are and how resources are being dedicated to improving environmental performance. Work to reduce the environmental footprint includes land reclamation techniques, reduced water use, reduced air emissions and reduced co2 emissions.

Q: What are some of the most significant advances you have participated in to address this issue?
A: I was involved in land reclamation at Syncrude, including the re-establishment of a bison herd which now grazes on reclaimed land. I also take great pride in helping to create satisfying landscapes that occupy areas that were formerly mined out. One little known aspect of our work was the planting of 5 million trees.

I was also involved in developing and implementing new technology that reduced the amount of energy consumed per barrel of oil produced, thereby lowering both the cost and the carbon footprint.

We also implemented technologies that reduced sulphur dioxide emissions into the atmosphere and techniques that reduced the amount of water consumed per barrel of oil produced, which was done by increasing the recycling of water.

I was also involved in helping to make final products that were more environmentally friendly. For example, we made more attractive feed stocks for our refinery customers so they could meet emerging environmental requirements.

Q: What is your vision of the future of energy and your contribution to it?
A: My vision of the energy future is that Alberta will reach its full potential with respect to developing its vast energy resources (oil sands, natural gas, coal, conventional oil, etc.) in an environmentally responsible way. I will do what I can to support this effort and to create value and opportunity for all Albertans.

Q: What is your latest accomplishment in making Alberta energy cleaner?
A: I would have to say chairing the Alberta Carbon Capture Council over the last year and arriving at a report that charts the way forward for this technology. In the process, we helped further cement Alberta’s leadership on this technology.

David B. Layzell, Executive Director,
ISEEE, University of Calgary

Q: How can Alberta’s energy industry best address its current environmental challenges?
A: 1. Invest in new technology development to reduce the environmental footprint (greenhouse gases, water, land area, toxins) associated with fossil energy production and use. 2. Begin piloting and ultimately implementing at large scale some of the existing technologies that are already available and promise solutions. 3. Integrate renewable energy technologies into fossil energy systems 4. Focus on energy efficiency and conservation technologies and management strategies.

Q: What is your organization specifically undertaking to address the issues of environmental stewardship in the next five years?
A: ISEEE (Institute or Sustainable Energy, Environment and Economy) is focused on research and student training in areas such as: 1. Carbon-efficient fossil fuel recovery and processing technologies 2. Carbon capture and Storage technologies, (including the engineering, geoscience and social science dimensions) 3. Renewable energy technologies (especially integration with fossil fuel processing (such as biomass integration into fossil energy systems) 4. Technologies for cleaning up tailings ponds, and site reclamation; 5. Technical, economic, environmental, risk and policy assessment of cleaner energy alternatives; 6. Critical assessment of next generation energy systems to address environmental, energy security and related priorities

Q: What is Alberta’s greatest opportunity going into the next five years?
A: Greening the fossil fuel sector. Alberta has most to gain and the most to lose in this area. The Oil sands have become the poster child for “dirty oil”. We need to develop and implement the tools needed to fix this problem (as well as the environmental problems with coal and natural gas production / use that have have been somewhat protected from the public eye in recent months), and then sell them to the rest of the world.

Q: What is your vision for the future of the energy industry?
A: A lot more renewables and alternative (e.g. nuclear) energy sources, (and focus on energy efficiency/conservation), but fossil fuels will still account for a significant part of the world’s energy needs in 20-40 years. By 2050, I believe will only have a vibrant fossil fuel sector if it has virtually zero emissions, not only in its recovery and upgrading, but in the use of the energy. The fossil fuel sector in 40 years will look nothing like it does today.

Q: Is there an individual or project in Alberta that you believe will be significantly influential for the environmental direction of the energy industry within the next five years?
A: The issue is policy- international policy – so the individual is probably Obama. We need a price on carbon (tax, Cap & trade), not only in Alberta, but across North America and ideally around the world. This price needs to rise with time, and drive innovation. I think Carbon Capture and Storage will be important, especially in Alberta. However, governments should not be in the business of picking technology winners, but simply set the measures of success plus the boundary conditions and let the marketplace reward the winners.

by Dean Watt

For years, pipeline operators in Alberta and other provinces have had to address recurrent arguments made by landowners seeking annual compensation for surface rights, citing ongoing impacts of buried pipelines. Operators have argued against these awards on grounds that the losses suffered by landowners are only temporary.

While the Alberta Surface Rights Board previously acknowledged that the law did not prohibit the granting of annual compensation for pipelines, the agency repeatedly decided not to give it. But recent board decisions awarding annual compensation to landowners suggest that it is becoming more open to the idea that such compensation may be appropriate in pipeline cases. Pipeline operators have filed appeals of these board decisions in the law courts.

Under Alberta law, a company with a pipeline license has a statutory right to acquire an interest in the lands under which the line is to be located. The operator can acquire this interest by entering into an agreement with the landowner or by obtaining an order from the Alberta Surface Rights Board. Accordingly, compensation amounts are set either in the agreement or by board order.

Operators have traditionally compensated landowners for construction disturbance in the right of way and associated temporary work areas by paying them a lump sum prior to the pipeline’s installation. Pipeline surface rights agreements have not traditionally included annual compensation for landowners, though agreements entered into with respect to the Nova pipeline provided an exception. Further, the board has not traditionally awarded annual compensation. More recently, some landowners have attempted to negotiate agreements including a term that would require annual compensation if and when Alberta law directs annual payments be made. Operators have been reluctant to agree.

In contrast, landowners are entitled to up-front and annual compensation for wells and other surface facilities located on their lands. The basis for this distinction has been that, while the presence of surface facilities creates an ongoing loss of land use, underground pipelines result in only temporary loss of use. Farmers are still able to grow crops over the pipeline and the land productivity has been thought to return a few years after the pipeline is buried. However, landowners have continually asserted that they suffer ongoing losses attributable to the existence of underground pipelines. These losses relate to a range of impacts including reduced crop productivity above the pipeline, inability to grow trees or deep-seed crops and ongoing inconvenience and potential hazards presented by the use of machinery or vehicles in the vicinity of the pipeline.

by Gordon Jaremko

Alberta’s energy minister is no novice at riding out rough patches. “This is about number five,” Mel Knight says when he looks back on an oil and gas career he began as a roughneck on a Grande Prairie drilling rig in 1964.

Energy prices have been worse, especially for natural gas in the early 1970s, Knight recalls in an Alberta Oil interview. “On a good day it was two bits a thousand cubic feet – and that
would be a really good day. We were paying 25 cents just to process gas. We had to shut in wells.”
The Bank of Canada’s inflation calculator shows the 1971 natural gas price was $1.33 in today’s money. Falling back that far would be a devastating plunge to 75 per cent below market lows that have been blamed for the 2008-09 erosion of profits, drilling, employment and provincial royalty revenues.

Knight calls the 2009 lean spell exceptional even by Alberta’s rough-’n’- tumble economic standards. “This is a particularly tough one,” he says. “This certainly is a trying time.”

He blames the simultaneous contractions by global banks, stock exchanges and energy markets. The multiple slumps gutted both production revenues and firms’ ability to raise money by selling shares or using credit. “It’s created a situation unprecedented in the time I’ve watched this business,” Knight says.

He has too much experience to echo optimists who forecast a quick recovery within a year. His immediate expectations are modest: “In 18 months or so we’ll probably see things turn around and stabilize a little bit.”

But he keeps his faith in long-range future prospects. “There’s lots of legs left in Alberta industry,” he says.

His conviction sustained his 30-year career as an oilfield technology contractor whose firm had up to 50 employees before he retired from industry and took up politics. His confidence stands out as an official prophecy at the core of a provincial strategy titled Launching Alberta’s Energy Future that his department labored over writing for months. The 51-page document was too complicated to make a publicity splash when Knight and Premier Ed Stelmach unveiled it last fall. The strategy takes a contrarian long-range view that urges “looking beyond today’s market lather,” while admitting that seeing past the worsening economic low is a stretch.

“For Alberta in the coming 30 years, no other activities will have the scale or impact of energy development,” the strategy document predicts. “Agriculture and other sectors are important to Alberta and diversification is good for us, but energy’s impact is pervasive. It is, and will be, our province’s dominant economic engine.”

Knight insists, “It’s just a realistic statement. That’s where Alberta’s strength is.” The strategy credits about half of all economic activity in the province to oil and gas, citing research done at the University of Calgary.

Interview by Gordon Jaremko

Alberta Oil: Why do you say you still can’t predict the oil price after four decades in the industry?
Bob Dunbar: When I worked on strategic planning at Petro-Canada in the late 1980s, we used to talk to world experts to form our impression of the business environment. We were not able to do a very good job at forecasting prices. We do get people prepared to come out with views. I believe we will see some recovery. But experience tells me that if I’m planning projects, I want to make sure I look at a full range of possibilities.

AO: Is Paul Volcker, chief of President Barack Obama’s economic recovery advice team, right that mathematical models for economic or financial forecasting fail because they can’t predict people?
BD: I’m from a technical background as an engineer. But I have skepticism about technical models. I hear, for instance, the global circulation models for carbon dioxide emissions. I have a lot of skepticism about those because the complexity of the atmosphere is so great and our ability to model that is so limited. In my field, people develop the same kinds of models for particular oil reservoirs and still have difficulty forecasting their performance. Our ability to model technical things is very limited. How can we model human behavior that’s even more complicated?

AO: Is the current oil crash teaching industry and the financial community that same lesson all over again?
BD: One lesson is that we have to recognize the uncertainty that exists about the future economic environment. If somebody asks me what is the likelihood of either of my two oil sands scenarios [prolonged slump or moderate recovery] happening, I have to give them equal probability. It took a long time to recover from setbacks in the late 1970s and early- to mid-’80s.

AO: How will that lesson affect industry behavior?
BD: In the first years of the oil sands, the industry made investments in very uncertain economic environments. Cost is the key driver. If revenue is only all about the oil price, it’s beyond the industry’s control. We will see people make investments. The first plant, Great Canadian Oil Sands [now Suncor], had very poor economics for a decade before it turned around for the better. The Project Millennium expansion was announced at a time of low prices. Suncor had great courage to go ahead. We will see some decisions made like that.

AO: Can projects be adapted to survive unpredictable lean times – the way, for instance, Imperial Oil turned Cold Lake from a dead megaproject into a live operation in the 1980s by figuring out how to build it in small pieces?
BD: That’s always been something the oil industry has had to deal with. I’m not sure if a seismic shift is coming. The industry may be better now at dealing with uncertainty. There has been much experience. In the oil sands, SAGD is certainly amenable to the phased approach. But for integrated mining and upgrading projects, the issues are more difficult. Maybe Fort Hills can be scaled down to only a mine. Maybe Suncor’s Voyageur project can be done in capacity increments. The industry will be looking at creative solutions.

Charlie Fischer gave credit where it was due when he retired at the end of 2008 after 36 years of career successes. In stepping down as president of Nexen Inc., he acknowledged an elder fellow son of Saskatchewan, Daryl ‘Doc’ Seaman, who died in January at age 86.

Fischer spent six formative years in 1982-88 as a corporate planner and vice-president of Seaman’s Bow Valley Industries. “The Doc was a terrific person to work with. I learned an awful lot there,” Fischer recalls.

He was well-groomed for the Canadian oil and gas peerage. His mentors also included industry household names Gerald Maier and Richard Haskayne. Seaman instilled in Fischer wide horizons that became a Nexen hallmark in operations from the northern Alberta oil sands to the North Sea and Yemen.

“He had a wonderful sense of the broader environment and timing,” Fischer says in describing the example set by Seaman. “If something was worth doing, he always found a way. His style was that if it’s the right thing to do, you find a way to get it done.”

Seaman was renowned among Alberta big-business insiders as a master of an art that Fischer predicts will be in high demand over the next year or two of financial crisis – coping with adversity. Fans lined up at a book launch at the Calgary Petroleum Club last fall to meet the master survivor and have him sign copies of a new authorized biography. Titled Staying in the Game: The Remarkable Story of Doc Seaman, the book was commissioned by Seaman’s Dox Investments, written by Calgary author Sydney Sharpe and published by Dundurn Press in Toronto.

Fischer retired at age 58, saying, “Why not?” In nearly eight years at Nexen’s helm, “I accomplished the things I set out to do.” He found ways to build a rock solid firm, braced against hard times by long-range decisions that were sometimes criticized by financial analysts and stock brokers who favored fast production projects, profit increases and share price gains.

Fischer’s legacy to new Nexen president Marvin Romanow is $1.8 billion on hand in cash and a strictly controlled portfolio of long-term debt that bears interest rates below seven per cent. The firm is flush with growth prospects secured by completion of the first stage in the Long Lake oil sands project, production of the jumbo Buzzard oilfield in the North Sea, a start on output in Nigeria, and extensive drilling rights in the hot Horn River shale natural gas development region of northeastern British Columbia.

The industry is entering a period when it pays off to have learned from a master like Seaman, how to prepare for economic changes and how to time business moves properly, Fischer says. “We’ve been in an environment for roughly the past 10 years when commodity [oil and gas] prices have steadily risen. When commodity prices start to fall is when you find out who made good decisions and who didn’t.”

By Sydney Sharpe

When Linda Cook pushed through the corporate glass ceiling in the summer of 2003, the sun seemed to shine on women’s possibilities. Yet within a year she was gone as Shell Canada’s first female chief executive officer. The parent company, Royal Dutch Shell, wanted her as director of gas and power.

The good omen is that she’s considered a contender for the top international company job. The bad omen is that no woman has taken her place as a chief executive officer of a major oil and gas company in Canada.

The influential posts in oil and gas are a tough climb for females, despite some successes. After 15 years of male leaders, a woman took the chair on the board of directors of the Canadian Association of Petroleum Producers. As one of the country’s most respected energy engineers, Kathy Sendall reached the top in March 2006. The post lasts just one year, but Petro-Canada’s senior vice-president for North American natural gas had gone where no woman had walked before. With her solid industry credentials, Sendall is also touted as a strong candidate for CEO status.

Arguably, an even more monumental event occurred in May 2007. Bonnie DuPont rose to lead the Calgary Petroleum Club. In 1984, the former all-male club banned the female federal energy minister at the time, Pat Carney, from walking through the front door. A generation later, DuPont, Enbridge Inc.’s group vice-president of corporate resources, proudly grasped the wheel and steered the club’s board of directors into the 21st century.

These were pivotal achievements. But the vehicle for broader breakthroughs seems to have stalled far short of gender parity.

Has the will to promote female leaders fizzled? Or, as their private and public lives compete and often collide, have women simply run out of gas?

The answer might lie in next-year country as women set sail for university engineering faculties, leaving in their wake the rickety old ship of shibboleths and stereotypes. More women than ever before are entering the science-based disciplines that open the door to petroleum careers.

The University of Calgary’s Schulich School of Engineering has the highest proportion of female engineering students in Canada. “We’ve steadily increased to 24 per cent and we’re proud of that,” says Dean Elizabeth Cannon. “We nurture that in the school and in the community. One of my passions is to attract women to the profession. Within Calgary, at least 50 per cent of our graduates end up in the oil sector. We are heavy suppliers of that industry.”

Cannon points to the progress nationally from the 1990s, when less than 10 per cent of engineering students were women. By 2001, the figure doubled. Within the last few years, however, the trend has gone into reverse and there has been a gradual decline to the current 17.3 per cent.

“This national decline has lots of people worried because that is the base from which we draw these wonderful women like Kathy Sendall,” says Cannon. “Yet some of the sub-disciplines within the faculty have more, like chemical engineering with 40 per cent women.”

To attract interested young women, the Schulich School of Engineering recently launched a networking site, Cybermentor.ca. It gives prospective science and engineering students the chance to discuss the profession online with each other and with female scientists.

by Gordon Jaremko

Out in the scenic central Alberta countryside, an encounter with envoys from Calgary has left Penny Archibald feeling born again. “It was amazing how it worked,” she says. “I’ve never seen anything work so well.”

The visitors were not missionaries. She is not describing a religion or church. She is a convert to a community relations breakthrough invented in downtown office towers of the Canadian oil capital.
The approach, devised by the province’s Energy Resources Conservation Board, shows signs of spreading. But it will never make headlines or inspire television programs and movies. It spoils conflict stories and conspiracy theories about industrial exploitation disrupting landscapes and lives. Archibald is talking about a formula for making peace between the petroleum industry and communities.

There is no doubt which side of the fence Archibald comes from. She lives on a farm. She is a Red Deer county councilor. The oil industry is a newcomer by comparison. Her family has roots in rural Alberta dating back to 1886 and the earliest beginnings of homesteading a generation before the province was carved out of the 19th-century Northwest Territories.

Archibald’s eye-opening encounter was with senior ERCB agents who guided company leaders in their experimental effort to fit industry into her community. The trial run was one of four extended experiments in social and economic engineering by a program called the “Land Challenge Initiative” that touched down in a variety of Alberta regions.

The effort grew out of an awakening in Calgary. The ERCB and industry alike realized that people like Archibald are not going to go away. They also realize that these people know how to fight back if they feel mistreated. The land challenge technique goes beyond standard disclosure, consultation and enforcement practice by building trust and relationships.

Archibald’s district, midway between Edmonton and Calgary, sits squarely in the path of an aggressive form of fossil fuel production embedded with potential for confrontation. The activity took the province by storm when the energy economics cycle peaked in the first few years of the 21st century and will grow as demand and prices make comebacks after the current lull. Enter unconventional natural gas, initially as intensive drilling into methane-infused coal seams carpeting much of central Alberta.

About 10,000 coalbed methane wells, drilled in less than five years, were only the first generation of unconventional gas. Next comes even more vigorous work on shale, with industry blasting flow channels into dense rock layers that resemble giant hockey pucks with potent “fraccing” injections of fluid that fracture the geology.

by Bill Sass

Poet Robert Frost observed, “Good fences make good neighbors.” But experience teaches Alberta, Saskatchewan and northern resource companies that when the neighbors are aboriginal communities, replacing fences with gates and bridges is more desirable and profitable.

After devoting the 1990s to devising the economically realistic provincial royalty regime that enticed industry back into the oil sands following a 20-year development drought, the Alberta Chamber of Resources turned in 2000 to build business relations with native nations. The result is a landmark “best practices” guide which taps 87 corporate sponsors for knowledge that often was considered proprietary trade secrets.

Chamber executive director Brad Anderson calls the ACR Aboriginal Programs Project, “one of the most profound pieces of research and documentation we’ve ever done. I think it’s the first time anywhere in the world that companies have been so bold as to share their best practices with other companies. That was a giant step.”

Industry is plainly hungry for knowledge and improvement.

A digital version of the native relations guide – www.acr-aboriginal project.org – reliably draws nearly 20,000 visits per month.

“Word got out,” Anderson said. “We didn’t promote this in any way, except by word-of-mouth.”
Over four years, a team of researchers compiled specific and anecdotal information on how to successfully work with aboriginal communities, business, groups and individuals.

The report takes a pragmatic view of why getting along with native communities is important to the resource industry. In a nutshell, self-interest can be a powerful motivator.
“It is a compelling fact that most resource companies in Western and Northern Canada are involved with aboriginal issues. The areas they need to access in order to develop resources are often adjacent to aboriginal communities or on aboriginal traditional lands.

“This makes a strong business case to build positive and mutually beneficial relationships with aboriginal communities.” In short, Anderson says, if you don’t get along with the neighbors, the neighborhood will always be uncomfortable.

In native relations, the neighborhood is big and costs of conflict are high. These realities were recently highlighted by the Whitesands oil sands project, which is doing field trials of a new production technology billed as a breakthrough in reducing expenses and environmental disruption. Sponsor Petrobank Energy and Resources Ltd. blamed a year-long delay in obtaining approval for new wells on complaints by the Fort McMurray branch of the Metis Nation and the Beaver Lake Cree Nation near Cold Lake. Both aboriginal communities are more than 100 kilometers away from Whitesands, and the Energy Resources Conservation Board ruled they have no right to make demands on the oil sands project because they are not directly or adversely affected. But the agency only made the decision in favor of Petrobank after pausing to conduct a formal regulatory procedure.

Anderson says, “We can’t really succeed in developing our resources unless we have the people who live around the resources in with us.” But he adds that an ad hoc approach of reinventing the native relations wheel every time the issue comes up is neither efficient nor economical.

by Bill Sass

For statistics on the labor union movement in Canada and the world click here.

For information Days not worked in strikes and lockouts click here.

Once upon a time not so long ago in Alberta, unions held sway on construction sites. Building trade unions owned about 80 per cent of the Alberta labor market in the early 1980s. Today, reports Statistics Canada, they represent only about one-tenth to 15 per cent of the province’s construction and resource work force.

Interview

Listen to AO associate editor interviewing Dr. Joseph Doucet from the University of Alberta School of Business about what the financial crisis means for Alberta’s labor shortage.
Download the audio file (mp3)

Total union representation in all fields is about 22 per cent of 1.67 million Albertans who earn paychecks – and the lion’s share of the organized workers are teachers or health-care professionals. Alberta is the least unionized province in Canada.

Over the course of the past three decades, alternative labor pools for employers have emerged to serve the evolving needs of industry. The trend is especially strong in the resource sector, which recruits thousands of skilled and semi-skilled workers to build the mega-plants that pump out oil from northern Alberta.

One such alternative is the Merit Contractors Association. Its president, Stephen Kushner, says: “We’ve been around since 1986. We are all about providing human resources and services to construction companies whether they’re residential, institutional, commercial or industrial.”

Merit Contractors is not altruistic – just realistic. Rather than conservative ideals such as open-shop visions of labor free trade, this voice of employers says it serves practical needs. “We help companies attract and retain the best quality workers they can. We can help companies be good at that level,” Kushner says. “It’s about being the best employer so that your workers have a tremendous amount of loyalty and respect and feel good about coming to work every day.”

While he accepts traditional unions’ claims that they provide quality workers, he adds that confrontational tactics they sometimes employ have lost their old attraction to many in the modern work force. “There’s been a dramatic move away from unionization by workers in the construction industry. We see that trend continuing. The traditional building trade union model is not serving the vast majority of construction workers very well,” Kushner says.

“We’re seeing a huge number of people comfortable working in a non-union environment – the kind of environment that we’ve been working with our companies to create, a very positive place.”

When the Merit Contractors Association was created, the provincial economy was very different. “The economy in 1986 was in a poor state in Alberta,” Kushner recalls. The ’80s provincial labor scene – wounded like industry by negative federal energy policy, crippling interest rates and slumping oil and gas prices – was a desert of massive unemployment in construction. Wages spiraled downward for years. “Nobody was providing benefits or retirement programs for their employees. It was just not a very healthy state.”

Fifteen contractors got together and decided to take a different approach.

The firms agreed to ensure that all their employees were covered by benefit plans; they believed it was one small thing they could do to improve human resource practices in the industry. “From there, the association has grown from these 15 companies to over 1,300 in Alberta that employ 50,000 people in the construction industry,” says Kushner.

Workers at Merit companies get multiple benefits, ranging from retirement programs to free tuition for all member company apprentices to employee discounts for auto and life insurance, car rentals and job-site essentials from Mark’s Work Wearhouse, Kushner reports.

He also acknowledges contributions to the changed 21st century employment scene by another alternative trade labor source that is making impressive inroads into Alberta work sites: the Christian Labour Association of Canada (CLAC).

The new era of big oil’s attempt to repair its public image and its connection to communities where it operates is marked by several innovative approaches.

One of these is a new spin on a town hall meeting. This fall ConocoPhillips continued its Conversation on Energy series with a session in Fort McMurray. To read the full story click here.

Watch ConocoPhillips president Kevin Meyer’s introductory speech.

Watch: A question about water.

Watch: A question about land.

Watch: A question about alternative fuels.

Above is a video series taken from the Conversation on Energy in Fort McMurray on October 9, 2008. The panel was composed of ConocoPhillips President Kevin Meyers and operations manager Kelly Hansen, Vern Janvier, Chief of the Chipewyan Prairie Dene First Nation, Mary Giles, Owner of North Start Ford Lincoln and Tonia Enger, Officer in Charge of the Wood Buffalo RCMP Detachment. It was moderated by Ross Jacobs of Community Futures Wood Buffalo.

Questions were dominated by concerns about the local environment, quality of life issues and general energy concerns. Above are some specific questions answered by various panelists.