Oilsands Allies

Inside a growing trend toward industry collaboration in support of environmental technology and strategy

This article appears in the 2012 Heavy Oil and Oilsands Guidebook

By Peter McKenzie-Brown

Momentum is building in Canada’s heavy oil and oilsands sector towards a new reality where project owners are able to work together to achieve successes they could have alone either as quickly or as completely. Make no mistake, competition in the sector is fierce, but not in all areas of development—companies are finding that in many cases it makes more sense to collaborate than to fight.

“The idea has really caught fire,” says Greg Stringham, vice-president of oilsands and markets with the Canadian Association of Petroleum Producers (CAPP). “This is the first time [industry has] come together in such a collaborative manner.”

Canada’s petroleum industry has long been an alphabet soup of industry associations and other forms of joint ventures. But new developments such as the 2010 creation of both the Oil Sands Tailings Consortium (OSTC) and the Oil Sands Leadership Initiative (OSLI) may represent the beginning of an unstoppable trend.

Beyond the OSTC and OSLI, many technical organizations help contribute to industry innovation, including the Canadian Oil Sands Network for Research and Development (CONRAD) and Petroleum Technology Alliance Canada (PTAC). Indeed, OSLI members support both PTAC and CONRAD. But the newer groups are designed to have a wider scope and faster uptake.

Environmental consortia like OSLI and the OSTC are focused on the idea that the industry should share its resources in those technical areas in which everybody can benefit from shared innovations.

The OSTC includes all the major oilsands mining companies: Canadian Natural Resources Limited, Imperial Oil Limited, Shell Canada, Suncor Energy Inc., Syncrude Canada Ltd., Teck Resouces and Total E&P Canada Ltd. Stringham says that the group “Brings together all of the stakeholders that are involved in tailings through collaboration, breaks down the corporate barriers and enables companies to work together to find solutions” to a difficult environmental problem.

Similarly, OSLI is based on the assertion that the industry should only compete in areas where it makes economic sense to compete.

A collaborative network that includes ConocoPhillips Canada, Nexen Inc., Shell, Statoil Canada, Suncor and Total, OSLI has four main areas of focus: water management, technology breakthroughs, sustainable communities and land stewardship. The ultimate beneficiaries of the approach are local communities and the air, water and land affected by oilsands development and production.

One of the key elements of OSLI is that it is designed to reduce cycle times and paperwork. Companies can share research without first signing joint venture agreements, for example. Also, it reportedly honours each company’s intellectual property but honours rules about non-competitive behaviour.

The Public Relations Factor

It’s important to distinguish these new collaborative organizations from others—which are many—that exist. For example, the In Situ Oil Sands Alliance (IOSA) describes itself as having been formed in 2007 to address “Geopolitical, economic, ecological, infrastructure and social realities” facing in situ oilsands producers. Largely the responsibility rests on CAPP’s shoulders to manage oilsands communications.

By contrast, OSTC executive director Alan Fair says his organization and OSLI do very little in terms of communication with the public. “It is quite important to keep [technical] organizations separate from the ones that have communication as their focus. [Our] purpose is to raise the environmental bar for the industry.”

From his perspective at CAPP, Stringham recognizes the importance of both functions. “We understand how foundational environmental performance is. It isn’t only about perception. It’s also about the performance aspects of the development of the oilsands.”

For its part, in 2010 CAPP launched a program called Responsible Canadian Energy based on transparent communication of performance data from energy production operations across the country. Stringham says that the issue isn’t really about collaboration or competition. The industry needs both.

“In downhole and extraction technologies and everything else that’s involved with taking oil out of the ground, the competition is intense. However in the environment, we don’t compete. By working together we can make sure that everybody is using the latest and the best environmental technologies…Environmental issues are not a competitive concern, but something that needs to be worked on collaboratively.”

For example, as Fair points out, there really aren’t any serious issues around land ownership in the oilsands sector anymore. For the most part, land ownership has already been established; properties don’t often change hands.

“Now the public has an expectation that the companies will work together to meet some of these environmental challenges. From a business perspective, any time you can get a group of companies to work together, you eliminate duplication of effort and the industry as a whole becomes much more efficient.”

This is particularly important for an industry that faces not only a volatile market environment and uncertain global outlook, but also an increasing level of hyper-scrutiny from environmental groups.

Role Reversals

In a very real sense, the industry’s use of these technical consortia is a leveraging of one of the great traditions of the oilsands sector. The leading edge of good oilsands development has always been science, and some of the most significant developments have been the result of collaborative groups.

One of the first important investigators of the oilsands industry, about 100 years ago, was a scientist employed by the Geological Survey of Canada named Sidney Ells. In the 1920s came the Alberta Research Council’s Karl Clark, whose hot water extraction process fundamentally transformed the sector.

The continual presence of provincial funding for basic oilsands research--even during the Great Depression, when Alberta defaulted on its debt--has played a vital role in helping make the industry viable.

After the Geological Survey came the Alberta Research Council, which was followed 50 years later by the Alberta Oil Sands Technology and Research Authority (AOSTRA). AOSTRA used government funding to encourage the industry to invest in the oilsands. According to industry consultant Bob Taylor, it “was the major catalyst in leapfrogging oilsands development forward.” AOSTRA’s main focus was to make in situ resources both technically and economically recoverable. More than $1billion of spending in field pilots resulted, and AOSTRA activity led directly to the definitive proof of steam assisted gravity drainage (SAGD).

Fast forward to the present. One of the present iterations of public investment in the industry is Alberta Innovates -Technology Futures. This Crown corporation trend incorporates the 90-year-old Alberta Research Council and plays an important role in moving technologies along the development path. Another is Alberta Innovates – Energy and Environmental Solutions, another highly respected Crown Corporation led by president Eddy Isaacs. It’s an important source of expertise for the sector, with a tremendous reservoir of expertise and experience – for example, senior advisor Duke du Plessis began research on the oilsands more than 50 years ago.

But as it applies to energy, the Alberta Innovates initiatives are relatively small. This raises the question of whether the province – the owner of the resource – is doing enough to encourage the development of new oilsands technologies. Put another way, in recent years there has been no AOSTRA-like leadership in advancing oilsands related technological innovation in the province.

AOSTRA 2 and NASA II?

Last May, the Premier's Council for Economic Strategy recognized this issue, identifying it in a report titled Shaping Alberta's Future. The group proposed creating the Global Centre for Energy, which would “require collaboration among industry, researchers and government,” the report proclaims, adding that “To ensure Alberta realizes the full potential of its energy resources over the decades to come, it is time to launch another large-scale collaborative effort like AOSTRA and make it a strategic priority for the province.” 

The authors suggested a program that is “a crucible for accelerating innovation to transform environmental and operational performance. Design it to be a catalyst and funder of collaborative research, a meeting place of diverse interests, and a showcase of achievement. Make Alberta internationally respected for pioneering research, with authoritative evidence and industrial-strength solutions.”

Unfortunately, the Premier’s Council on Economic Strategy now reports to the Cabinet Office rather than the Premier's Office, Perhaps this explains why there are no bold initiatives in sight.

Doug James and Bob Taylor--the main forces behind the Energy Futures Network, a think tank--have put forward to both government and industry the notion that the province needs to bring more resources to bear on the oilsands. In a paper titled AOSTRA 2, they make a strong case for a new collaborative industry/government research and development program. “This must be a private-public initiative from the beginning,” they argue, “but it would be best if it were industry led.”

The paper is full of ideas and principles, but the authors’ main concern is that “multiple technologies needed to be developed in parallel, both to share cost and risk and to move more quickly.” They propose an organization that sets the goal but doesn’t predetermine how – a bit like NASA’s approach to landing on the moon.

On the issue of NASA, perhaps it’s best to leave the last word to Preston Manning – head of the Manning Foundation for Building Democracy. In a recent presentation to an OSLI “Big Ideas” forum, Manning proposed the notion of collaboration on a continental scale. “Today, both Canada and the US have a somewhat different security concern – the need to reduce North American dependence on offshore petroleum resources and increase the availability and delivery of North American sources energy. So why not agree on sustainable continental energy security as a mutual goal and establish a similar organization to NASA – NASA II, where NASA stands for the North America Sustainability Agency – to bring large-scale public and private resources and scientific expertise in both our countries to bear on the goal of sustainable continental energy security?”

Tallying the Oil Reserves

How Canada made it to number three in the world

This article appears in the April issue of Oilsands Review

By Peter McKenzie-Brown
The issue of how much recoverable oil is in the ground in Canada has been a matter of political and commercial interest since the first surveys undertaken by the Geological Survey of Canada in the 1870s.

American eyes were opened to the true potential in April 2003 at a hearing of the U.S. Senate’s foreign relations committee. Convened to examine international energy security, the committee learned that Canada was an energy superpower. Alberta’s energy regulator had changed its method of calculating oilsands reserves, with the result that booked reserves in Canada suddenly rose from 5 billion to 180 billion barrels.

Canada suddenly stood in second place worldwide after Saudi Arabia. The Canadian Association of Petroleum Producers (CAPP) has since moved Canada into third place by accepting a calculation of Venezuela’s vast extra-heavy crude oil reserves which puts that country at the head of the pack.

No one knows what happened to the eyes of Canadian senators when they heard the first credible estimate of how much oil was in place in the Athabasca area, at a hearing that took place in 1888. The senators were provided with an estimate from R.G. McConnell of the Geological and Natural Survey of Canada.

McConnell’s calculation came from assumptions based on field and lab work: first, there were at least 1,000 square miles of bitumen-saturated sand in the area; second, the sands were 150 to 225 feet thick; third, and this result came from laboratory tests that involved boiling oilsand samples, that the bitumen content averaged 12 per cent by weight. Therefore there were about 30 million “long tons” of bitumen in place—roughly speaking, 220 million barrels. McConnell’s estimate was short by orders of magnitude; to put it in perspective, Canada now consumes about 200 million barrels every three months.

McConnell’s number was an estimate of resources in place, of course, and not a reserves estimate. At that time the very concept of reserves – hydrocarbons that are economically producible at current prices using current technology – was unknown. No one had any idea how to calculate what percentage of oil in the ground would ever see the inside of a pipeline.

Bedevilled engineers
Petroleum engineering gradually emerged as a profession, and engineers soon figured out how to book reserves from conventional oil and gas reservoirs. However, how to calculate oilsands reserves was an issue that bedevilled engineers and geologists for many decades. This led to some curious anomalies.

For example, when the $235 million, 45,000 barrel per day Great Canadian Oil Sands (now Suncor Energy Inc.) plant went on stream in 1967, it represented a substantial investment for the company and soon became a significant contributor to Canadian oil supply. The Canadian Petroleum Association (CPA-now CAPP) booked 6.3 billion barrels of oilsands reserves in its authoritative Statistical Handbook when the project went on stream, but reduced that number to about 1.5 billion in 1975. And when the 140,000 barrel per day, $2.3 billion Syncrude plant went on stream in 1978, the situation became even more absurd: the association didn’t add any new reserves. It was as though the oil was appearing out of nowhere. By the early 1980s a growing number of in situ projects, including Imperial’s Cold Lake activities, made the situation untenable.

According to Hans Maciej, retired vice president of the CPA, in the early 1980s he asked the group’s reserves committee, “‘Where the hell is [the oil] coming from?’ That was quite the discussion,” he recalls.

The committee eventually agreed that they had a problem, but there further endless questions about how to resolve it. “One thing was very easy,” says Maciej. “We could put whatever Great Canadian Oil Sands produced, let’s say it produced a million barrels that year and just add it to reserves – you know, wipe it out. Well that didn’t go very far. [However], after lengthy discussions we decided that we would credit every producing project, and every project that had approval and was sort of certain to go ahead. There was some judgment involved, but we said we would [book their reserves at] 25 times their annual production.” Maciej adds, “This was a very conservative estimate, [but] just to get things going we finally agreed on 25 years.”

CAPP’s reserves committee relies heavily on data provided by its member companies, and the association laboured mightily to stay on top of the country’s burgeoning oilsands reserves, which with special speed during the last 15 years as Syncrude and Suncor expanded, new mines came on stream and in situ projects multiplied.

However, according to CAPP’s research manager, Steve Rodrigues, it became increasingly difficult to get the necessary data from oilsands producers in the last decade – “not because of concerns about revealing competitive information, but because companies increasingly felt that they were not adding value by generating this information.”

One result was that CAPP’s calculation of oilsands reserves – historically, the Canadian standard – now compared to those being calculated by provincial and federal regulators. The numbers presented to the U.S. Senate’s foreign affairs committee were, after all, government numbers, and they were 24 times greater than CAPP’s.

Throwing in the towel
Where did the regulators get their numbers? In a recent presentation, Neil McCrank, who served as chair of the Alberta Energy and Utilities Board until 2007, offered the background. The “new focus on in situ development created a need for the regulators to find new ways of assessing and monitoring these projects…one of the major contributions made by the [regulator] was to recognize the need to re-categorize the in situ bitumen ‘resource’ to a ‘reserve’ where it was proven on the ‘core and cuttings’ analysis to be commercially viable with current technology.”

Bob Taylor, who was then Alberta’s assistant deputy minister for oil development, stresses that the Department of Energy does not play a role in these discussions. However, he says, the information used to recalculate reserves would have been rigorous and the models used would have been mathematically challenging.

“Every leaseholder is obligated to go out and prove up a resource on the basis of one well per section, or the equivalent of one well per section plus some seismic, so it might be one well every couple of sections with seismic lines connecting them so that you can get the stratigraphy. So what [the regulator] did was to have geologists look at each company’s assets,” while examining proven technologies and likely future demand. Using all this information, they created models that could generate highly credible reserves calculations.

Such was the origin of the proved reserves that caused so much excitement in Washington in 2003. According to the McCrank, the announcement of more than 173 billion barrels of oilsands reserves “was initially criticized, but after a stout defence of its scientific approach… the international oil and gas community accepted these reserves calculations.”

So did CAPP. In 2010 the organization threw in the towel as far as using its own method of calculation was concerned. An organization that has celebrated its independence from government since its earliest predecessor was formed in 1927 began using numbers from both Alberta and federal regulators as the basis for calculating oilsands reserves.

The association’s in situ oilsands reserves suddenly jumped by around 2,000 per cent, while its mineable reserves more than tripled. Canada’s industry had caught up with its regulators, and the results were parabolic.

Of course, reserves estimates will never be unanimous. The most widely accepted global authority on energy numbers, BP’s Statistical Review of World Energy, most recently puts Canadian oil reserves at 33 billion barrels, or tenth place. Venezuela at 175 billion stood in second place, while Saudi Arabia is the top dog at 264 billion.

We’ve come a long way since 1888, but we still have a way to go.

This article is part of a  series which reflects information from the Petroleum History Society’s current Oil Sands Oral History Project, which is recording the stories of oilsands pioneers in their own words. As with its previous oral history projects, transcripts and recordings will reside in Calgary’s Glenbow Archives. Peter McKenzie-Brown is part of the team of researchers/writers behind the project.