OPINION: This is What Sets Alberta’s Energy Industry Apart

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

December 23, 2016

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Alberta is a global leader in petroleum engineering innovation. But why?

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

Squeezing and reacting is our strength. Everywhere in the world the oil industry is handed reservoir rock of all types—often garbage, but sometimes gems. In Alberta, we are blessed with average to poor conditions, heavily picked over by decades of exploration and exploitation. And we are sophisticated.
What we have learned is that when squeezed hard by poor rocks, tough surface conditions and remote locations, we react quickly by innovating with efficiency and technology—often quicker than others. We are one of the global leaders in small, aggressive junior and intermediate companies, which are huddled together in Calgary swapping technical secrets, and even people for that matter.

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

Four things have made the Alberta and Western Canada heavy oil industry what it is today: regulation, incubation, proliferation and diversification. First, we as a community—including industry, landowners, local stakeholders and government—participated in building an excellent regulatory framework. It contemplated growth and inclusion, which are still very important today.

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

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

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

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

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

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