Well Construction Journal - May/June 2015

The official publication of the Canadian Association of Drilling Engineers

MAY / JUNE 2015

PM#40020055

PLUSEAST OF EDEN Setbacks keep the Energy East pipeline in limbo

KEEP CALM AND CARRY ON Experts weigh in on opportunities during a challenging time

Laying LowExploring untapped territory in Quebecs St. Lawrence Lowlands

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TECHNOLOGY EVOLVESAre your drilling fluids

saving you time?

Advanced technology can make a significant difference in the outcome of a bobsled run or a

challenging well. Our powerful, low-corrosion Fusion Brine Fluid System has been uniquely

formulated to help you drill deeper and faster while using fewer bits. We dont just talk speed,

we deliver results. Call 403-266-7383 today see how the Fusion system can save you time.

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www.cadecanada.com may/june 2015 3


DEPARTMENTS

4 PRESIDENTS MESSAGE

6 THE DRAWING BOARD Editors note, members corner, news and notes, technical luncheons

10 STUDENT PROFILES11 HELP WANTED

21 BY THE NUMBERS26 DRILLING DEEPER

FEATURES

12 LAYING LOW The St. Lawrence Lowlands promise untapped territory in Quebec

16 EAST OF EDEN Setbacks and activism leave the Energy East pipeline in limbo

18 THE FRENCH DISCONNECTION Is Quebec a no-go zone for industry?

23 THINKING OUTSIDE THE BOX Its bad out there, but current market conditions can offer opportunities along with the challenges

The mandate of the Canadian Association of Drilling Engineers is to provide high-quality technical meetings and to promote awareness on behalf of the drilling and well servicing industry. With more than 500 members from more than 300 companies, CADE represents a broad spectrum of experience in all areas of operations and technologies. Through CADE, members and the public can learn about the tech-nical challenges and the in-depth experience of our members that continue to drive the industry forward. For drilling and completions specialists, CADE currently offers one of the best networking and knowledge sharing opportunities in the Canadian petroleum industry.

CANADIAN ASSOCIATION OF DRILLING ENGINEERSPO Box 957 STN M

Calgary, AB T2P 2K4Canada

Phone: 877-801-1820www.cadecanada.com

PRESIDENT: Dan SchlosserPAST PRESIDENT: Jeff Arvidson

WELL CONSTRUCTION JOURNAL EDITOR: Christian Gillis

WELL CONSTRUCTION JOURNAL IS PUBLISHED FOR CADE BY VENTURE PUBLISHING INC.

10259 105 StreetEdmonton, AB T5J 1E3Phone: 780-990-0839Fax: 780-425-4921

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PRODUCTION TECHNICIANS: Brent Felzien, Brandon HooverCIRCULATION COORDINATOR: Karen Reilly

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CONTRIBUTING WRITERS: Robin Brunet, Lisa Catterall, Robbie Jeffrey,

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MAY/JUNE 2015

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TECHNOLOGY EVOLVESAre your drilling fluids

saving you time?

Advanced technology can make a significant difference in the outcome of a bobsled run or a

challenging well. Our powerful, low-corrosion Fusion Brine Fluid System has been uniquely

formulated to help you drill deeper and faster while using fewer bits. We dont just talk speed,

we deliver results. Call 403-266-7383 today see how the Fusion system can save you time.

4.NDF-10338.Fusion.Ads.indd 2 2/25/15 11:00 AM000WCJ-Newpark-FP.indd 1 2015-02-25 10:10 AM


12

WCJ_May-June_15_p02-03.indd 3 2015-05-01 8:14 AM

Well Construction Journal 4 may/june 2015

MESSAGEPresidents

Dan Schlosser CADE President

UEBEC OFTEN SEEMS LIKE A TOUGH TERRAIN for our industry to work in. In this issue of Well Construction Journal, we learn why it has been so difficult for the energy indus-

try to tap into the possibility of the St. Lawrence Lowlands, and we consider the moratorium on fracing in the region, which has meant years of stalled growth. With the Fraser Institute singling Quebec out as the worst place for energy invest-ment in Canada, this is a timely topic there and across the country.

We also take the time to consider some of the hold-ups surrounding the Energy East pipeline. As a country, its imperative that we get over the blockages that impede the transportation of western energy heading east. The east requires ad-ditional energy than what it currently produces, so theres a strong need to get around the issues that currently stall that progress. Government, industry and activist groups will need to sit down and discuss their many concerns with the desire to reach a compromise and solution.

In my opinion, there is a lot of misinformation that is preventing good decisions from being made. I suspect that, similar to the moratorium on fracing, many players do not understand the process and may not have consulted knowledge-able experts. I acknowledge the mistrust of the oil and gas industry but relying on activists, who bring their own views to the table, is not the best method to determine the proper way of mov-ing forward. If all players can find a time to sit down and talk frankly, we may find an efficient process for moving ahead instead of remaining stagnated. In my opinion, the safest, most cost effective and greenest way to ship hydrocarbon is by pipeline, and yet there are still challenges that block the pipeline from being reversed and delay the construction of the section that needs to be built.

In the end, those that require energy will need to make way for it to be shipped through the province. In this sense, you cant have your cake and eat it too.

Q

Making Way in Quebec

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Making Way in Quebec

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BOARDThe Drawing

E D I T O R S N O T E

President Dan Schlosser [email protected]

Vice President Ryan Richardson [email protected]

Education Chair Linden Achen [email protected]

Membership Chair Andy Newsome [email protected]

Social Chair Kristy Hysert [email protected]

Treasurer Cecil Conaghan [email protected]

WCJ Editor Christian Gillis [email protected]

Sponsorship Chair Craig Joyce [email protected]

Sponsorship Chair Brooke Needer [email protected]

IT Chairman Matt Stuart [email protected]

Secretary Tammy Todd [email protected]

Communications Oliver Descoteaux [email protected]

CADE Executive Team 2014/2015

E X E C U T I V E T E AM

A Closer Look at Storage NumbersREAKUP HAS COME EARLY, BUT WITH IT AT LEAST some optimism. Oil prices have climbed over the last couple of weeks, despite a recent fall from a high of just above $58. The good news is that a dropping

rig count in the U.S has caused daily oil production to decline. This is the first sign of a turnaround, though media reports continue to try and derail any upward movement. U.S. weekly crude storage numbers continue to rise and some news articles would have you believe that this is due to a glut in world supply. The simple math says, if production is dropping but total storage is going up, then the amount of oil being consumed must be dropping as well. The reason for this is that American refineries are not making as much product, keeping drawdowns low. At some point the refineries will have to start making more product, and when that happens the storage levels will start to drop and the market will turn.

Due to timing restrictions, CADEs bowling tournament was postponed until next fall. We are, however, getting ready for the third-annual CADE Golf Tournament. There will be more information to follow over the next couple of months. Our 2015 technical luncheon presentations are continuing, so watch for registration emails or go to the website to get your tickets.

Please watch for email announcements and check

the website for the start of our fall luncheons and upcoming topics and dates. Please dont hesitate to contact us if you have any ideas for upcoming topics or issues youd like to see presented at the luncheons or in print. We are also looking for topics that tie into our journal focus for each month.

We hope to see more of this over the course of the year, and our next issue will focus on Australia. We hope you will participate and continue to make these events interesting and successful. If you have any issues youd like to see covered, please email me and we will do our best to get the story.

Dont forget, we would like to publish any of your information and announcements on new products, new technologies and senior personnel changes each month. Please forward any announcements to us, as we would be excited to run them in our new feature section.

We appreciate your continued support and look forward to seeing you at the upcoming luncheons.

CHRISTIAN GILLIS, Managing Editor, Canadian Well Construction Journal [email protected] Phone: (403) 265-4973

B


may/june 2015 7 www.cadecanada.com

MEMB E R S C O R N E R

President Dan Schlosser [email protected]

Vice President Ryan Richardson [email protected]

Education Chair Linden Achen [email protected]

Membership Chair Andy Newsome [email protected]

Social Chair Kristy Hysert [email protected]

Treasurer Cecil Conaghan [email protected]

WCJ Editor Christian Gillis [email protected]

Sponsorship Chair Craig Joyce [email protected]

Sponsorship Chair Brooke Needer [email protected]

IT Chairman Matt Stuart [email protected]

Secretary Tammy Todd [email protected]

Communications Oliver Descoteaux [email protected]

WELCOME NEW MEMBERS

AMIN AMRAEIDAVID BERLANDODAVE BLAKEBARB DENHAMADAM DERRYSEYED HOSSEIN EMADIANDAVE GLASSWICKBAILEY KOMARICADITYA MAHADEVANBENSON AJIBOLA OLORUNSUYITOBA OYEWOLERUBEN DARIO PERDOMO VILORIARILEY PRESCOTTBOB MORRELLAGHA TARIQ

WHY BECOME A CADE MEMBER?

As of 2015, the Canadian Association of Drilling Engineers (CADE) has been active for 40 years. With more than 500 members from more than 300 companies, CADE rep-resents a large spectrum of experience in all areas of operations and technologies.

For drilling and completions specialists, CADE currently offers one of the best net-working and knowledge sharing opportu-nities in the Canadian petroleum industry. The skills and knowledge obtained by your participation in CADE will benefit you and your employer, with direct application to your professional career.

CADE offers various means for members to connect and share their insights. Monthly technical luncheons are held with topical in-dustry presentations. Other membership ben-efits include our monthly publication Well Construction Journal and a membership direc-tory, which is the whos who of the Canadian drilling industry.

Our website cadecanada.com is an excellent focal point for industry events, blogs and other news. We are also active on LinkedIn and Twitter.

WHO CAN BECOME A CADE MEMBER?

CADE members can be anyone employed in the drilling and completions industry or anyone who is interested in the industry.

Typical members include drilling and completions engineers, geologists, technical

personnel, sales personnel and students. Student memberships are available to any post-secondary student interested in learn-ing more about drilling and completions.

Please feel free to share information about CADE with all the people in your organization who are interested in the drilling and completions industry.

CADE MEMBERSHIP RENEWALS

CADEs membership year is from Septem-ber to September. During the summer, CADE members will receive an email and link for the renewal process on our website.

Please remember the benefits of being a CADE member include APEGAs profes-sional development hour, staying abreast of technological and industry advances, drill-ing conferences and a great opportunity to network. Thank you for your support.

CADE MEMBERSHIP CHANGES

Log on to cadecanada.com to become a member or to update your contact information.



N EW S A N D N O T E S

Technical luncheon dives deep on well casing design

IN A LONG-AWAITED ANNOUNCEMENT, THE YUKON governments policy on hydraulic fracturing gives the go-ahead for certain regions of the territory as long as there is cooperation with the regions First Nations populations. In the release, the minister of energy, mines and resources says the government is moving forward in a cautious and responsible way.

The new policy will focus on fracing in the Liard Basin, located in the southeast region of the territory and known for being rich in natural gas reserves. The Liard is only two per cent of the Yukons land base, which the government hopes will strike a compromise between resource extraction and environmental protection.

The policy comes as a result of a recommenda-tion from the territorial legislatures committee on fracing. The committee spent six months doing consultations about hydraulic fracturing and in

CADES APRIL LUNCHEON WAS VERY WELL ATTENDED and a great success. Mark Roitt of RPS Energy gave an excellent presentation on the fundamentals and tools of multi-fractured horizontal well casing design. He went into detail on how the process of proper casing design has changed with longer lateral sections in todays style of drilling, also digging into how previous methods of casing design didnt take into consideration some of the factors present in todays wells. The topic was well received, and the crowd had a lot of questions and positive feedback. As usual, the Westin Calgary Hotel provided a great lunch and were gracious hosts.

If you are interested in presenting on a new technology or a technical topic to our member-ship, please contact Allen Bekolay at abekolay@ compassdirectional.com

Yukon government gives go-ahead to fracing in Liard Basin

their final report they made 21 recommendations. The Yukon government says it has accepted all the recommendations put forth by the committee.

BOARDThe Drawing


T E C H N I C A L L U N C H E O N S

Luncheon TicketsMEMBERS: $47.50 (plus GST)NON-MEMBERS: $55 (plus GST)FULL TABLES OF 10: $475 (plus GST)STUDENT: $20 (plus GST)

Save the Date: May 13, 2015Topic: Brine 2.0 - A discussion on extending lateral lengths with brine, and methods for overcoming lubricity limitations.Presenter: Garrett Heath, Newpark Drilling Fluids CADEs next technical luncheon will be given by Garrett Heath of Newpark Drilling Fluids and will consider the application of brines in long reach horizontal wells. Brine-based drilling fluids have increased in popularity as a solids-free or low-solids solution. The use of brine has helped operators realize lower total project costs through improved ROP and extended bit life in hard and compacted formations. We will explore basic fluid properties of base brines including coefficients of friction, water activity and dynamic viscosity, which can be engineered to help achieve longer reach laterals and faster penetration rates. We will also discuss some of the current methods and drilling fluid additives on the market.

Garett Heath is currently the technical supervisor for Newpark Drilling Fluids, where he has worked for six years

GST REGISTRATION #R123175036Visit www.cadecanada.com for all ticket purchases

in various technical positions. Acting as development lead for Fusion, Newparks proprietary brine system, he has de-veloped expertise on brine systems.

Technical luncheon dives deep on well casing design

Yukon government gives go-ahead to fracing in Liard Basin



COTT WOLDUM IS CURRENTLY COMPLETING HIS FINAL YEAR OF mechanical engineering at the University of Calgary. Grow-ing up in Cochrane, engineering was always a natural fit for Woldum. From a young age, he has always been interested in

determining how things worked, and he excelled in math and physics throughout school.

Over the past several years, Woldum has gained exposure to the oil and gas industry in Alberta through a summer term as a field relief operator with Enerplus, followed by a 16-month internship with Apache Canada working in their production and reservoir engineer-ing departments. Woldum is actively involved with the universitys Student Petroleum Engineering student chapter, where he currently holds roles of vice-president of communications and vice-president of finance. Woldum also has a keen interest in finance and is simultane-ously pursuing a degree in economics. This past February he competed with the U of C finance trading team in the Rotman International Trading Competition in Toronto. The team came in 10th out of 50 entrants, beating teams from Columbia, Cornell, and McGill universities, among others.

In the fall, Woldum will start a one-year masters degree in econom-ics. Following this, he hopes to develop a career in the energy industry that employs his skills in both engineering and economics. In his free time, he loves to travel and enjoys golfing, wakeboarding and skiing.

Young TalentHighlighting tomorrows best and brightest

Student PROFILE

Scott Woldum Petroleum Engineering Technology

SAIT

S

Mitchell BaumanPetroleum Engineering Technology

SAIT

ITCHELL BAUMAN WAS BORN AND RAISED IN CALGARY AND is the incoming vice-president of external relations for the Student Petroleum Society at SAIT Polytechnic.

Starting as a contract operator, he has worked in the industry for just over three years as a field operator, most recently spending just under a year at ARC Resources in its Redwater field. After gaining valuable field experience, he chose to return to school and is currently enrolled in SAITs Petroleum Engineering Technology program. He has always been interested in the petroleum industry and believes that continuing his education will open up more possi-bilities in the future.

Through his previous experience, and now in his role for the SPS, he hopes to help other students reach their goals through various events, including industry presentations. Events such as these allow students that have not worked in the industry to network with com-pany representatives and gain a competitive edge when entering the energy sector, he says.

After graduating, Bauman plans to return to the field, mixing his school-based and hands-on experience before moving into an office position.

M



FULL-TIME JOB LOSSES REPLACED WITH PART-TIME OPPORTUNITIES

HELP WANTED: Career Department

DRILLING SLANG

If you want to walk the walk on a drill site, it helps to talk the talk. Here are some terms and phrases often heard out in the field:

BIG HOLE CHARGE: A charge designed to create perforations with a large-diameter entrance hole. Charges are typically used in sand control completions.

DEAN-STARK EXTRACTION: A method of measuring fluid saturation in a core sample by distillation extraction.

GRAVITY OVERRIDE: A phenomenon of multiphase flow in a reser-voir, in which less dense fluid flows on top and a more dense fluid flows at the bottom.

HORIZON: An informal term used to denote a surface or layer of rock that might be represented in seismic data. This term is often

ACCORDING TO STATISTICS CANADA, ALBERTAS JOBLESS RATE inched up to 5.5 per cent in March, with an added 3,400 people reporting that they were looking for work. The total number of jobs that the province lost during the month was actually 18,400 full-time positions, but it made up for that number by coming up with around 20,000 part-time jobs.

The data shows a trend of full-time job losses being masked by the introduction of part-time work. The data also found that there was an increase in opportunities in the natural resources field for the first time in two months.

In March, most of the provinces lost jobs came from the construction, manufacturing and technical industries. And there was a jump in the number of retail positions opening, perhaps explaining the shift towards part-time work. The numbers continue the trend of slow and steady unemploy-ment growth in the first part of 2015 in February, the rate rose from five per cent to 5.2 per cent in Calgary in that time. The national rate remained at 6.8 per cent in March, also thanks in part to a growing number of part-time posi-tions offsetting the loss of full-time jobs.

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used incorrectly, to describe a zone from which hydrocarbons are produced.

JET: A high-velocity fluid stream produced by the nozzles in the bit.

PULSED NEUTRON SPECTROSCOPY MEASUREMENT: A form of mea-surement of gamma rays emitted by a formation.

ROCK TYPES: A set of characteristics that several rocks have in com-mon. The characteristics of interest are usually those pertaining to fluid movement and fluid storage capacity.

SPACE FREQUENCY DOMAIN: A display of seismic data by wave-number versus frequency, rather than location versus time during seismic processing.



REPORTSpecial

The St. Lawrence Lowlands promise untapped territory in Quebec

LowLaying

FAST FACTSThe St. Lawrence Lowlands are sometimes called the manufacturing heart of Canada.

According to CAPP, Eastern Canada currently imports about 800,000 barrels per day, a number that could be offset by oil and gas development in Quebec.



T HE ST. LAWRENCE LOWLANDS ARE A plain stretching along the St. Lawrence River between Qubec City in the east and Brockville, Ontario, in the west. Its total area is 46,000 square kilometres, and al-though 70 per cent of the region is farmland, its the most heavily industrialized landform in Canada, containing most of the countrys man-ufacturing industries. Since 2008, when prom-ising quantities of shale gas were discovered in the region, the Lowlands have held the potential to mark a new stage of exploration in Quebecs sedimentary basins.

LOCATION: St. Lawrence Lowlands, southern Quebec

RESOURCE: Oil, natural gas

SOURCE ROCK: Utica shale

ESTIMATED RECOVERABLE RESERVES: Unknown

PRODUCTION: Low-decline, high rate of return wells drilled by Crescent Point Energy. Continen-tal Resources and Vermilion Energy are prepping development

MAJOR PLAYERS: Petrolympic Ltd.; Junex Inc.; Questerre Energy Corporation; Altai Resources Inc.

Laying

By Robin Brunet



REPORTSpecial

Excitement over the Lowlands was quelled in 2014, when the outgoing Parti Qubcois govern-ment imposed a five-year ban on fracing in the region. But the Lowlands as well as other areas farther up the St. Lawrence River remain tar-gets for several key players, including Petrolympic Ltd., Junex Inc., Questerre Energy Corporation and Altai Resources Inc.

Germain Belzile, lecturer at HEC Montreal and associate researcher at the Montreal Economic In-stitute, says the interest is not misplaced. Que-becs oil reserves are not known to any great de-gree of certainty. Nevertheless, we do know that the Lowlands, combined with the Gulf of Saint Lawrence and Anticosti Island, have the greatest potential.

Belzile goes on to note that according to eval-uations by Ptrolia Inc. and Junex, There are more than 40 billion barrels of oil on Anticosti Island. In the Old Harry oilfield between Quebec and Newfoundland, there are about six billion barrels. The Haldimand and Galt oilfields in the Gasp contain around 0.25 billion barrels. At $100 a barrel, and assuming that just a tenth of these reserves are recover-able, this is a resource worth $400 billion.

About 25 wells have been drilled in the Lowlands since 2008, with the inter-est focused on Ordovician calcareous shales of the Utica Group. Historically, exploration has been conducted in the Lowlands since the 1870s, but the first tests to assess the gas potential of the Ordovician shale were conduct-ed in the early-1970s by Shell Canada (the tests reportedly didnt match the companys expecta-tions.)

Lowlands shale is sporadically exposed at sur-face along the St. Lawrence Rivers north shore and is buried at progressively greater depths eastward. Its relatively rich in organic carbon and generally 100 to 200 metres thick. An un-successful attempt to develop a horizontal well in the shallower Lorraine shales took place in 1992. But in 2004, Junex initiated an evaluation of gas potential of the Ordovician. In partnership with Forest Oil, the vertical well A250-Junex Becan-cour no.8 was drilled and tested using hydraulic fracturing, prompting other players to launch ex-ploration wells.

To date, most operations have been performed in about one third of the shale basin, between

1000 and 2000 metres. With original gas in place (OGIP) estimates ranging from 120 to 160 bcf per section, the deep play is considered promising. Five play types have been described: thermogenic shale gas or liquid-rich shale at shallow to middle depth; overthrusted shale gas; biogenic gas shale; intra-Appalachian sub-basin shale gas; and the oil-rich shale of the Macasty Formation (Anticosti Basin).

HERES HOW THE MAIN PLAYERS BREAK DOWN: Petrolympic owns 100 per cent of 139,920 acres over the Lowlands shallow carbonates platform less than 30 kilometres southwest of Montreal. It also owns 30 per cent of 536,041 acres with joint venture partner Squatex Energy and Resourc-es Inc. and another 12 per cent of 19,768 acres through an agreement with Canbriam Energy Inc. Altai holds 68,483 hectares of the Sorel-Trois Rivires natural gas property, said to have signif-icant potential for hydrocarbon production and storage. As for Junex, it holds 584,338 hectares, and according to Netherland, Sewell and Asso-ciates, net recoverable prospective gas resources

on these licenses would be of 3.7 tcf of natural gas.

In February, Petrolym-pic reported a summary of breakthroughs achieved on its joint venture property with Squatex. Results of a

recent work program on the propertys deepest wells Mass No 1 and Mass No 2 compelled Petrolympic to state that it had cracked the code of the petroleum systems in the Lower St. Law-rence.

Results from Mass No 2 included the discov-ery of heavy oil. The oil was first noticed when the well reached the depth of 3,412 feet, and influxes of natural gas were also recorded over several intervals.

Petrolympic and Squatex are drilling several kilometres south of Mass No 2 in the hopes of expanding the propertys potential. The plays are all conventional with no massive hydraulic fracing required, and Petrolympic expects to drill a production well in the near future.

Questerre Energys appraisal of a shale gas discovery in the region began in 2008 with ex-cellent early results, according to president and CEO Michael Binnion. Following a successful ver-tical test well program in 2008 and 2009, Ques-terre and its partner, Talisman Energy Inc. began

Quebec is sitting on one of the biggest gas discoveries in North

America, and its close to the biggest markets. Michael Binnion

FAST FACTS Utica Shale was deposited within the Appalachian Basin and was shaped by the Appalachian Mountain front that now borders the southeast side of the St. Lawrence Lowlands.

NRCAN reports that shale gas exploration has reached unprecedented levels in Quebec.



a pilot horizontal well program in 2010. A subsequent independent assessment pegs the prospective resources recoverable for Questerres net interest at between 1.46 tcf and 15.45 tcf with a best estimate of 4.43 tcf.

Given Quebecs lack of drilling in-frastructure and current low oil prices, companies with acreage along the St. Lawrence with the exception of Petrolympic - have halted further drilling that may determine whether Utica gas can be profitably extracted.

A further setback came last December, when Quebecs advisory office of envi-ronmental hearings (Bureau daudiences publiques sur lenvironnement, or BAPE), wrote that exploration and production of gas in the Lowlands would not be advan-tageous for Quebec because of the magni-tude of the potential costs and externali-ties, compared to royalties that would be collected by Quebec, in a press release. Other concerns also remain, including plans of social acceptability, legislation and a lack of knowledge, particularly with respect to water resources.

BAPEs scrutiny of the Lowlands dates

back to 2009, when citizens and envi-ronmental groups expressed growing op-position to exploration and entrusted it to study sustainable development of the shale gas industry. It found that produc-tion activity in the Lowlands could pol-lute the air, increase greenhouse gas emis-sions by up to 23 per cent and damage the

landscape. It add-ed that industry and government must work to re-store public trust in order to gain

widespread acceptance of fracing. BAPEs findings coincide with the Que-

bec Liberal governments recent review of the entire oil and gas sector, with the aim of tabling hydrocarbon legislation by the end of this year.

Binnion says Questerre, agrees with BAPEs point that social acceptance for fracing is not there and that public con-fidence must be built. And we agree that we need a new hydrocarbon law. But he adds that BAPE isnt the best judge of potential economic benefits to the province: Quebec is sitting on one of the biggest gas discoveries in North America, and its close to the biggest markets.

For his part, Belzile prefers including the Lowlands in a larger geographical appraisal of the St. Lawrence region ex-tending all the way to Newfoundland to discuss Quebecs total oil and gas poten-tial. The potential of the Lowlands is still very much unknown, and its question-able whether the region will ever be de-veloped because, the fracing controversy aside, Quebec is considered a risky po-litical environment in which to invest, he says.

Belzile is somewhat more optimistic about exploration on Anticosti Island, where exploration has supposedly found evidence of oil worth billions of dollars that could be extracted through fracing. Ironically, the very same government that suspended fracking the Parti Que-becois offered Petrolia and Corridor Resources Inc. $115 million for explora-tion work on the Island, and the Liber-als are investing $100 million to drill 15 stratigraphic wells and three exploration wells on Anticosti using fracking. Green groups oppose exploration, but havent gained much traction because the Islands few inhabitants hope the activity will lead to employment for them, he says.

The economist adds that the estimated six billion barrels of oil in the Old Harry oilfield between Quebec and Newfound-land is a largely theoretical opportunity as not much drilling has been done, and although the Haldimand and Galt oilfields in the Gasp contain around a quarter- billion barrels that are easily recoverable, its not much volume.

Still, Belzile says a resource worth a cumulative $400 billion is nothing to sneeze at. Its just that so many ques-tions remain: what course of action will the Liberals take? Will oil prices rebound enough for players to further explore? And will there ever be social acceptability of fracing?

Quebec has substantial energy needs, but it also has a very powerful green movement. Combine this with a toxic po-litical atmosphere, and its anyones guess whether the potential of the Lowlands and neighbouring regions will ever be fully realized.

To date, most operations have been performed in about one third of

the shale basin, between 1000 and 2000 metres.



W

East of Eden Setbacks and activism leave the Energy East pipeline in limbo

HEN IT COMES TO THE ADVANTAGES behind the Energy East pipeline, its about more than just finding a market for Alberta oil, says Michael

Binnion, the president of Calgary-based Questerre Energy. There are some national interests at stake here, he says. Those, and Quebecs strategic interests, I dont think have been an important enough part of this debate.

Canada is the fifth-largest oil producer in the world, yet still imports foreign crude to refineries in Quebec and New Brunswick. Bin-nion, who is also the president of the Quebec Oil and Gas Association (QOGA), says this situation is bad for both oil companies and

Canadian citizens, especially if Western Canadian crude has to be sold at a signifi-cant discount from world prices because of a lack of market access.

In the absence of pipelines, we sell our crude at a discount, Binnion says. Its just insane; it makes no sense.

Canada is a net exporter of crude oil, and the crude oil refined in Quebec and Atlantic Canada with the exception of a small percentage of the Newfoundland oil processed at Come By Chance is im-ported from South America, Africa and the North Sea.

The different oil benchmarks create another disadvantage for Canadian crude.

REPORTDevelopment

Edmonton Par is priced in Cushing, Okla., along with West Texas Intermediate (WTI). Both took a hit because of the abundant supply of oil on the North American market. Brent has replaced WTI as the global crude price benchmark and eastern refineries must pay a premium to import Brent oil, even though it is an inferior grade of crude. The Keystone XL pipeline would have paid Canadian producers a better price because it would give them access to the heavy-crude refineries on the Gulf Coast that can handle oilsands crude. The lesson of [Keystone] is Canada should not rely on one market, Binnion says.

He says the United States is reaping the


www.cadecanada.com

By Ryan Van Horne

benefits of about $20 billion per year that could go to Canada, if it created another market for that oil. This would help the West and Quebec primarily, but also the country as a whole. Canadian refineries buying Canadian crude strengthens the economy because money stays in Canada and provides tax revenue, which helps pay for schools and hospitals.

In early-April, TransCanada Corp. pushed back the earliest date oil could begin flowing through the $12 billion Energy East pipeline to 2020. This new in-service date is two years farther down the road because TransCanada is abandoning plans to build a terminal in Cacouna, Que., over environmental concerns. Beluga whales live in the St. Lawrence Estuary near Cacouna and a recommendation to change the whales status to an endangered species played a factor in the extension.

Our goal has been to strike a balance between TransCanadas com-mitment to minimize environmental impacts and the imperative to build modern infrastructure to safely transport the energy Canadians need and consume every day, TransCanada president and CEO Russ Girling said in an April 2015 press release.

While Quebec would welcome increased Canadian crude supply to invigorate its refining industry, the province is concerned about the supply of natural gas if the east-flowing pipeline is switched from gas to oil. TransCanada has been promising that their proposal will en-sure Quebec has access to the gas supplies that it needs, Binnion says.

In the spring of 2014, a new Liberal government took over from a Parti Qubcois regime, and though there were already positive signs from the previous government, the new one, says Binnion, is trying to be more open to business and has raised hopes a little bit.

Warren Mabee, associate director of the Queens Institute for Energy and Environmental Policy, is intrigued by the Energy East proposal. Im not a knee-jerk environmentalist, he says. He realizes renewables are only part of the mix and so he focuses on ways to make fossil fuel consumption more efficient and to reduce environ-mental risk. He thinks the pipeline proposal could be safer than the current method of shipping it by rail or through older pipelines.

It remains unclear how much Western Canadian crude will be refined in Quebec the more the better but if it turns out to just be a host to ship oil to export markets then its less likely to garner support in Quebec, Mabee says.

Eastern Canada is not as comfortable with this infrastructure as Western Canada, he says. Its not NIMBYism or knee-jerk eastern elitism, he adds, its just that people are less likely to be accepting of the risks unless theres a big influx of jobs or tax revenues.

He says its important to look at the project through a Canadian lens because so much of the money distributed to the provinces comes through Ottawa. Its not a relationship that is always fully transparent, so its easy for provinces to overlook it, says Mabee, who agrees with Binnion that the new Quebec government is more open to the project because theyre more likely to think of the federation.

I dont think they will give a project like this a carte blanche, though, he says. They would have to have the right economic arguments put before them.

Mabee praised TransCanada for the way its approaching opponents

and hurdles. TransCanada is doing the best job they can to show that theyre listening to these concerns and to try to develop real partnerships along the way, he says. That is kind of a prerequisite to get that social licence. Theyve learned a lot from their Keystone experience.

Bob Schulz, a professor of strategic management at the Haskayne School of Business at the University of Calgary, says construction of the pipeline would be the easiest part of the process. Getting the green light will take up most of the time before completion and will present the most challenges.

There are some 120 First Nations band lands on the way to the East and all those contracts for gas would have to be done, Schulz says. If all the agreements were in place, it might take two years to build.

Energy East is the largest and most complex energy infrastruc-ture project in Canadian history. I think it really is one of these defining moments in Canadian policy, Mabee says. If I had to put money on it. I would say that eventually this pipeline will be built. Hes not sure where the terminus will be, or when it will be completed, but it could take as long as 10 years.

The discussion that needs to take place cant be rushed, he says. If the proponent or the respective government decide to rush, there is much greater chance the whole thing will fall apart.

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The French Disconnection Is Quebec a no-go zone for industry?

F THERES ONE PROVINCE THAT OIL AND GAS companies wish to do business in, its apparently not Quebec.

In its most recent annual Global Petroleum Survey, the Fraser Institute placed Quebec in last place in almost every category when it came to be-ing a favourable province for conducting business in the oil and gas sector.

The Fraser Institutes senior director of natural resource studies, Kenneth P. Green, says Quebecs most unattractive qualities boil down to uncertain-ty: about regulation enforcement, new regulations

being created by the province in the middle of investment periods and the cost of regulatory compliance. The survey began in 2007 and covered 54 jurisdictions, with this recent iteration featuring responses from 710 people working with 563 com-panies. The surveys were completed anonymously by oil and gas senior management and executives across Canada.

Many companies are not happy with the prov-inces fiscal terms, like licenses, production terms and taxation, and this is a major factor contributing to Quebecs poor results. It marked the fifth straight

REPORTInvestment


www.cadecanada.com may/june 2015 19 www.cadecanada.com

year that Quebecs score has declined in the Institutes survey. Investment is a gamble with oil, you are putting money in well before you get money back, says Green, who point-ed out that the uncertainty of whether or not the provincial government would remain stern on pol-icies was another key factor in why Quebec scored so low. On the side that you hope to control is the certainty of government policies, as you are ensured that things wont change while you are working. Green notes that the oil and gas sector has always, and will continue to play a massive role in the Canadian economy. The use and sale of oil and gas is really a foundation of the Canadian economy. Historically, this is what built Canada and it is what we continue to thrive on, he says. There are no miraculous giant new economies waiting to take over for this economic productivity.

We think its important that governments get the policies right when it comes to man-aging and protecting the environment while also allowing for the economic benefits that accrue from developing our economic re-sources that flow to Canadians, says Green.

Although Ptrolia president and CEO Alexandre Gagnon was not surprised by the surveys results, he says its not all doom and gloom in his province. The good thing is that we are working. This year and last year have both been busy. We are looking forward to developing other projects even if we do not have the gas explorations or shale projects, he says. Ptrolia is 10 per cent owned by the provincial government.

Gagnon says the province of Quebec, along with oil and gas companies, has had a bad experience with shale gas projects, which has likely added to the dismal reputation the

province currently maintains in the survey. Specifical-ly, the provincial g o v e r n m e n t s handling of vari-

ous contentious projects has created a void between potential business partners and the east coast jurisdiction.

One improvement Gagnon would like to see is a simplified process for obtaining per-mission to work. We need to move forward in government regulations with a single win-dow, like you see in Alberta or B.C., he says. Just one office to deal with all permits and stuff like that. This needs to be put in place.

And he notes that the government is

By Samus Smyth

being created by the province in the middle of investment periods and the cost of regulatory compliance. The survey began in 2007 and covered 54 jurisdictions, with this recent iteration featuring responses from 710 people working with 563 com-panies. The surveys were completed anonymously by oil and gas senior management and executives across Canada.

Many companies are not happy with the prov-inces fiscal terms, like licenses, production terms and taxation, and this is a major factor contributing to Quebecs poor results. It marked the fifth straight

We think we could change the financial situation of this province. It is a big challenge and its an

opportunity. Alexandre Gagnon

learning from its past errors: I think the negativity is based on past perceptions and now things are changing and we are on the right track to develop this industry, he says.

A recent road map provided by the Quebec government, which lays out a new hydrocar-bon law, is another step that has Gagnon and his team optimistic about the industry in his home province. And a new provincial gov-ernment at the helm has made it clear that they are eager to develop gas resources, most recently exemplified by the finance minister Carlos Leitaos March budget, which allows for Ptrolia to complete an assessment of the oil and gas potential of Gaspsie.

On the provincial governments official website, it says the province is prepared to commit itself to the development of the hydrocarbon option by proceeding step by step in an entirely transparent manner. That means taking immediate action to create suitable conditions before it contemplates hydrocarbon exploitation, and ensuring that the right conditions exist to promote Quebecs economic development and the development of its regions. The government recognizing that it can play a more productive role in development, along with exploration work on le dAntico-sti, has Gagnon eager to prove the naysayers wrong about his home. All our permits are in Quebec. Our team is based in Quebec City; we are looking to develop this not just for us, but for the province of Quebec, he says. We think we could change the financial situation of this province. It is a big challenge and its an opportunity.

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NUMBERSBy the

Stats at a Glance

Canadian Rig Counts April 16, 2015

Drilling Down Total Utilization

Alberta 49 478 527 9%

B.C. 25 57 82 31%

Manitoba 0 15 15

New Brunswick 0 0 0

Newfoundland 0 0 0

Northwest Territories 0 0 0

Quebec 0 1 0

Saskatchewan 5 126 131 4%

Totals 79 678 757 10%Source: Alberta Department of Energy

Top 5 Most Active OperatorsApril 16, 2015

Active Rigs

Progress Energy Canada Ltd. 10

Encana Corporation 7

Seven Generations Energy Ltd. 7

Royal Dutch Shell plc 7

Peyto Exploration and Development Corp.

6

Source: CAODC

Top 5 Most Active Drillers in Western CanadaApril 16, 2015

Active Total

Precision Drilling Corp. 19 175

Akita Drilling Ltd. 13 35

Ensign Energy Services Inc. 10 85

Nabors Industries Ltd. 7 57

CanElson Drilling Inc. 7 29Source: FirstEnergy Capital

Alberta Rig Activity

Rig Count: Fleet utilization:

February 2015 554 38%

February 2014 571 71%

2014 Total 567 44%

2013 Total 600 39%Source: Alberta Department of Energy



Alberta Land SalesMarch 2015

March 2015 March 2014 YTD 2015 YTD 2014

Oil and Natural Gas

Land Sales $36.5 million $85.9 million $100.2 million $133.5 million

Price Per Hectare $193.52 $818.49 $198.34 $464.87

Oil Sands

Land Sales $21.1 million $536,048 $21.7 million $1.82 million

Price Per Hectare $1027.65 $232.66 $476.14 $190.89Source: Alberta Department of Energy

NUMBERSBy the

Alberta Spudded Wells (estimates)February 2015

Number of Wells Spudded

2015 2014 2013

January 830 1540 1616

February 507 1613 1823

March 765 1078

April 296 337

May 295 268

June 292 452

July 633 647

August 508 794

September 564 720

October 490 741

November 579 692

December 333 539Source: Alberta Department of Energy

Alberta Completed WellsFebruary 2015

Number of Wells Completed

2013 2014 2015

January 381 442 451

February 640 626 388

March 812 812

April 701 574

May 434 305

June 272 379

July 373 367

August 474 389

September 458 628

October 753 342

November 671 613

December 530 551Source: Alberta Department of Energy

Alberta Well Licences Approval issued by the Alberta Energy RegulatorFebruary 2015

Licenced Wells Drilling Type Total Licences

Natural Gas Horizontal 203

Vertical/Direct 47

Coal Bed Methane Horizontal

Vertical/Direct

Crude Oil Horizontal 188

Vertical/Direct 32

Bitumen Horizontal 45

Vertical/Direct 163

Evaluation 575

TOTAL: 1253Source: Alberta Energy Regulator



A

Thinking Outside the Box Its bad out there, but current market conditions can offer opportunities along with the challenges

By Lisa Catterall

MID THE MURK OF 2015s FINANCIAL uncertainty, one thing is clear: this recovery will take time.

But we also know economic cycles are just that cyclical. The nature of oil and gas prices is such that they will fluctuate over time. So what is it about the market in 2015 that has changed the oil and gas industry?

W. Randy Hawkings, president and CEO of CanElson Drilling and chairman of the CAODC, has survived more than one downturn in the past. With more than 22 years of experience as a drilling engineer, and more than a decade working as a drilling contractor, Hawkings has learned to ride the waves of the economy. He says that while

this year has brought up a number of challenges not seen in the last decade, these same concerns are not entirely new.

This feels the same as 1986 to me, says Hawkings, When I look at 1986, it took a long time for prices to recover. And I think, in 2009, we were back up at $70/barrel within 10 months [after the fall in prices]. Today Im not sure we see that happening. Whats different compared to 09, is that Im seeing more evidence of people being a little more cautious rather than running their debt up.

ATB Financials Economic Outlook for 2015 notes that company cutbacks have become more common and the decrease in capital expenditures has also led to reductions in employment. Though

REPORTEconomics



REPORTEconomics

unpleasant, the Economic Outlook notes that this behavior is an entirely normal pattern for a labour market that has faced energy price shocks numerous times in the past. Expecting further stress on the job market through the summer of 2015, ATB cautions against giving up entirely on the economy. This is a very normal part of Albertas cyclical economy, Todd Hirsch, chief economist at ATB Financial, said in March. This is not going to be one of the worst downturns weve ever seen.

Access to capital has become a major concern for many service companies, meaning slow growth and a reluctance to borrow money to continue expansion. Instead, theyre looking for ways to cut back and reduce the costs of drilling. There are some with very good balance sheets who are drilling ahead, who are saying, hey, weve got an opportunity to drill ahead with much lower prices. But those companies are the exception, says Hawkings.

In the current economy, companies are faced with cutting back operations or using equity or debt to finance their moves. Many smaller com-panies dont have debt available them to continue to grow, and many are seek-ing to avoid the option of borrowing by reducing the number of operations they are involved in. But this doesnt mean that job cuts are the only option.

For drilling engineers, its an opportunity to have a closer look at how things are done, and look for new, innovative ways to start rethinking and readjust our baseline thinking, Hawkings says.

Now is the time to question everything, find ways to increase efficiencies and drill economically at $50/barrel, he adds. How do you all-around optimize the process from a cost perspective? When everybodys busy, and everybodys running hard you may not look at things quite the same as when you have $50/barrel oil. Now, you have to adapt to the new reality.

OVER THE LAST 50 YEARS, OIL PRICES HAVE RANGED from less than $20/barrel to more than $140/barrel, and in that same time, the Albertan economy has moved from boom to bust and back again. Decreased overtime hours and more efficient work habits have reduced drilling costs, and these measures are often overlooked when oil prices are

high. Now, in the face of economic turmoil and slowdown, is time for innovation. The guys who will have work are the guys who work hard and think outside the box. They may have to redefine

the box, it may not be as simple as just thinking outside of it, says Hawkings.

With institutions like ATB Financial calling for oil price stabilization and an eventual recovery by year-end, companies will be smart to avoid hasty cutbacks.

However, industry experts like Hawkings and ARC Financials Peter Tertzakian are not calling for a smooth or quick recovery. In February, Tertzakian said he expected a seesaw recovery, characterized by ups and downs of varying size.

Hawkings says the best advice he can offer to drilling engineers is that lowered activity and changing job prospects still offer valuable opportunities. If you get an opportunity to go out in the field, instead of sitting in the office, Id take it in a minute. For those kids that have always been in an office, they need to take that as an opportunity because they get the hands-on experience to actually see where the rubber meets the road, he says, That will prove invaluable down the road, when youre actually back in the office putting together programs and thinking about how its done.

The guys who will have work are the guys who work hard and think outside the box. They may have to redefine the box, it may not be as simple as just

thinking outside of it. W. Randy Hawkings


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By Robbie Jeffrey

Should I Stay or Should I Go? The oil and gas sector is laying off employees in droves, despite its own warnings

HOULD WE PANIC YET? IN THE FIRST FEW months of 2015, job losses in the oil and gas sector have been consistent. According to Enforms Petroleum

Human Resources Council (PHRC), 7,000 jobs will disappear this year. And according the ministry of Jobs, Skills, Training and Labour, 64 per cent of large-group layoffs in the first quarter of 2015 were tied to the oil patch. All this paints a grim picture for oil-dependent Alberta: employment fell by 14,000 jobs in February alone and u n e m p l o y m e n t increased to 5.3 per cent, up nearly one full per cent from January.

Needless to say, oil and gas compa-nies arent searching for skilled labour with the same fervour as this time last year. A recent report from the PHRC claimed that 55 per cent of companies within the industry plan to decrease their workforce only 13 per cent plan to increase their staff numbers. The Canadian Association of Petroleum Produc-ers (CAPP) predicts 19,300 indirect job losses due to a reduction in active drilling wells and fleet utilization, and a 33 per cent decline in short-term capital spending.

But Carol Howes, director of PHRC, and Claudine Vidallo, project manager for labour market information, see the layoffs less as the end times and more as a recalibration within the industry. Our perception is that companies are trying a number of different and innovative ways to hold on to staff, says Howes. Vidallo points out that many companies are still retaining their workforce or hiring employees for ongoing and new

projects. Cenovus Energys Christina Lake and Foster Creek projects, for example, have a remarkably low break-even cost of US$40-$45 per barrel, and the company plans to soldier on through its expansion.

Yet Christina Lake and Foster Creek (and a willowy 13 per cent of companies) do not an industry make. Which is a shame, because the argument to retain labour is persuasive: in 1986, after the price of crude oil plummeted, flocks of the industrys hard-won talent left,

slowing research and development down to a crawl. Companies dont want to increase the skills gap, says Howes. Theres an effort to try to

maintain that level of expertise within the company, because theyve had experience with previous downturns where theyve lost that. Vidallo adds that todays downturn, concentrated as it is within oil and gas, means that laid-off employees might simply pack their bags and head for greener pastures.

And dont forget about the elephant in the room a looming retirement cliff. A 2013 PHRC study found that 45,000 of the indus-trys 200,000 employees will be eligible to retire throughout the next decade. Consid-ering retirement turnover alone, Canada will need more workers to meet the needs of the oil and gas industry, Howes told the Calgary Herald in March.

So if this is just a recalibration, what will a full-blown downturn look like? The oil and gas sector has learned the hard way that em-ployee retention pays off. Now it just needs to take its own advice.

S

In 1986, after the price of crude oil plummeted, flocks of the industrys

hard-won talent left, slowing research and development down to a crawl.

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Support CADE by sponsoring our technical lunches, our website and the Well Construction Journal.

Thank You to Our SponsorsThe support of CADE sponsors plays an integral part in our associations success.

Platinum SponsorsNewpark Drilling Fluids

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Well Construction Journal - May/June 2015

Documents

drilling fluids

canadian petroleum industry

members corner

fusion system

servicing industry

energy east pipeline

official publication

pluseast of eden setbacks