Wednesday, October 15, 2014

Disowning contamination

Reclamation efforts after the frac are now top of mind for executives who don't want to end up owning contamination.

This article appears in the October issue of Oilweek; image from here

By Peter McKenzie-Brown

“I find it hard to believe that it’s often a problem,” according to retired geologist Philip Coleman. “Well fracturing was old news back in 1977. We did thousands of fractures, and this was in Medicine Hat country, so they were all related to shallow gas. We fracked wells. They were only 400 to 600 metres in depth, but below fresh water aquifers. To my knowledge we never, ever created a problem.” He shrugs. “The new wells that we’re involved in are between 1,000 and 1,500 metres in depth. In the scope of the oil industry that’s pretty shallow. In one in a 100,000 it is possible, I suppose, but I am not aware of it happening.”

Indeed, when Coleman started his career hydraulic fracturing was old news indeed. It emerged just after World War Two, and uses high-pressure pumps to inject a mix of water, sand and soluble chemicals into the well. The pressure fractures the formation, the sand holds the fractures open, so the hydrocarbons can freely flow through into the wellbore. But does it damage groundwater used for water wells or even surface water?

“By the mid-1950s hydraulic fracturing had become the best large-area penetrator ever developed in the industry,” according to historian Sandy Gow, who uses older terminology. He describes fracking as “a well-stimulation technique that subjected a formation to sufficient hydraulic pressure from a ‘break down fluid’ to cause parting of the formation [fractures]….These fractures were then extended from the well bore by continued pumping of the fracturing fluid.”

Dave Russum of Deloitte’s petroleum consultancy offers a graphic image of how modern fracking works, but you first have to think of the horizontal well as being like a foot. “Between the heel and the toe of a horizontal well,” he says. “You isolate an interval close to the toe and frack that region. Then you move back towards the heel, isolate another interval and do another frack. This breaks up a lot of rock, making more production available. These new technologies are enabling us to access a whole lot more low-permeability rock than you would ever be able to reach with a vertical well.”

With today’s technology, horizontal legs many kilometres in length can be fracked in many places. While this method produces hydrocarbons that can’t be reached by traditional methods, the technology is challenging. A single well may involve a 40-member crew, 20 or more hydraulic compression systems mounted on huge fracking trucks, enormous volumes of water and several thousand tonnes of sand. On shale formations this typically produces “shale gas;” other rock formations produce “light, tight oil.”
Canada has been a leader in the use of fracking and in its development. In the 1950s, fracking transformed the Pembina Cardium oil discovery from what looked like an average play into an elephant of global proportions. Fracking made the formation that hosted the greatest reserves in Canada producible and exciting. The Pembina field is now typically quoted as having had 8.4 billion barrels of original oil in place, according to Russum, and “by accessing oil from lower-quality rock [through fracking], the field could end up producing perhaps 10 billion barrels.”

For decades, Pembina was the world’s biggest field in aerial extent. In his engaging memoires, the late Arne Nielsen Oil described the difficulty of producing oil from its vast, tight sandstone formation. When the company – it was later renamed Mobil Oil Canada and Nielsen became its president – used hydraulic pumps to force 3,000 pounds of sand in fracking fluid into the zone. Per-well production trebled, from 132 barrels per day. The company had discovered the key to developing this field.

Of course, as the petroleum industry is aware, a lot of salt water can come up as a waste product, whether you use fracking or conventional techniques, and it has to be managed carefully. When it comes to reclamation and remediation, salt contamination presents big challenges.

Banning the practice
Much to the frustration of the American petrochemical sector, which is surging because of shale gas and tight oil, a coterie of environmental groups opposes fracking in particular. Using a report from America’s Department of Energy, they note that of the many chemicals involved, some may be carcinogens which could contaminate the water table.

If fracking water returns to the surface, it needs to be re-injected underground or carried away for treatment. So intense is the opposition to fracking that France and Bulgaria, which have Europe’s largest shale-gas resource potential, have banned the practice.

This reflects global concern about the practice, with studies in virtually all advanced countries with shale gas potential conducting to see whether the practice is safe. Where does this system stand today? Shale gas development has already begun in British Columbia and Alberta. In 2011, in response to a public outcry, Québec announced that, pending a review by a panel of experts, it would no longer authorize fracking. Then New Brunswick and Nova Scotia joined in.

The main concern is whether it will pollute groundwater or even ponds and lakes. Last year, Canada’sown expert panel got into the act. Led by the Council of Canadian Academies, they concluded that “The assessment of environmental impacts is hampered by a lack of information about many key issues, particularly the problem of fluids escaping from incompletely sealed wells. If wells can be sealed, the risk to groundwater is expected to be minimal, although little is known about the mobility and fate of hydraulic fracturing chemicals and wastewater in the subsurface.” According to the report, “The pertinent questions are difficult to answer objectively and scientifically, either because the relevant data have not been obtained; because some relevant data are not publicly available; or because existing data are of variable quality, allow for divergent interpretations, or span a wide range of values with different implications.”

Canada’s panel described a need for well-targeted science “to ensure a better understanding of the environmental impacts of shale gas development. Currently, data about environmental impacts are neither sufficient nor conclusive. Recent technological advances are making shale gas reserves increasingly accessible and their recovery more economically feasible.” Noting the unpredictability of such factors as natural gas prices and government regulations, the members added that “further development of Canadian shale gas resources could potentially span many decades and involve the drilling of tens of thousands of hydraulically fractured horizontal wells.” It was therefore important that government develop the right policies.

“Natural gas leakage from improperly formed, damaged, or deteriorated cement seals is a long-recognized yet unresolved problem that continues to challenge engineers,” the panel added. Leaky wells could “create pathways for contamination of groundwater resources and to increase GHG emissions, and notes that well integrity is a concern for all well types – water wells as much as conventional gas or oil wells. However, the members stressed, “Several factors make the long-term impact related to leakage greater for shale gas development than for conventional oil and gas development. These are the larger number of wells needed for shale gas extraction; the diverse chemicals used in hydraulic fracturing operations; the potential development of shale gas resources in rural and suburban areas that rely on groundwater resources; and possibly the repetitive fracturing process itself.”

When you compare the uncertainty of these risks to the potential of these unconventional resources, the reasons to postpone seem flimsy. To put the matter in context, a recent report from Calgary-based FirstEnergy Capital observed that the Alberta/BC Montney play alone covers 8,200 sections, with perhaps 246 tcf of gas and 8.8 billion barrels of potential recoverable resources. Then the numbers start getting really impressive. This is “a small fraction of the ~4,275 tcf and 268 billion barrels in-place and 449 tcf and 15.6 billion barrels of marketable resources attributed across the entire unconventional Montney trend,” according to the report.

Owning the contamination
So oilfield people like Philip Coleman wonder whether groundwater pollution from fracking ever actually takes place, and the Council of Canadian Academies expert panel calls for more and better science. Deloitte’s Russum notes that whenever a company causes damage, it had better have the insurance coverage or the financial resources to put things right.

A company named Vertex Ltd., based in Sherwood Park AB, offers common ground from another perspective: the reclamation and remediation of land, ponds and groundwater. Vertex provides services that ensure “regulatory compliance and project success from development, through production, ending with abandonment and reclamation,” according to its website. The company’s Calgary-based executive VP, Paul Blenkhorn, says Vertex has 900 staff, about one-third of whom work in land, environment and safety services – the consulting division he manages.

Blenkhorn graduated from the University of Western Ontario, where he took a program called integrated engineering “a combination of civil, mechanical and chemical systems rolled into one. Like the boss, his staff are all “university-college educated people with a good technical backing in their field; everything from PhDs to Masters to undergrad degrees. We really do focus on hiring professionals – [people recognized by] professional organizations.”

According to Blenkhorn, “rec and rem” go hand in hand. “You can’t reclaim something without proving that the contamination has been dealt with and managed – either that it was dealt with and managed or that it was never there.” And, likewise when you’ve cleaned it up you can’t get a site back to “equivalent land use by just re-growing it. We at Vertex really like the two. So, from ground water expertise, to finding the contamination, to cleaning it up, to doing spill response, to then being able to get [the affected land] to regrow – I see them as being quite linked. Yet the technical expertise is quite different and it can be hard to be really good at both. But, when you are, you create an added value by getting a reclamation certificate quicker.”

As far as the industry is concerned, have there been any turning points in terms of land, environment and safety? According to Blenkhorn, attitudes have fundamentally changed. Increasingly, he says, these are “financial decisions for the people downtown sitting in the towers.” Ten years ago, he says, “the president/CEO wasn’t asking ‘What are we doing about the environment?’ in every conversation.” Today, however, that issue is front and centre. And as that continues, “you are putting a financial measurement on the environmental viability of that land. You are creating interest in, then creating systems and procedures to do it smarter, faster, and so on.”

Other provinces are mimicking the program. “Saskatchewan’s program is not as old as Alberta’s, but they’re doing the same thing in their own way – creating a financial metric that says ‘If all you’re creating is liabilities and you’re not creating a gain, a viable balance sheet, we’ve got to protect the people.’ Then the companies go out and really spend more time on having environmental managers that are active in managing” land remediation and reclamation.

Without financing, most properties won’t change changing hands, and that reality is good way to illustrate the increasing importance of government regulation in making sure water pollution and other forms of contamination get cleaned up. In commercial real estate regulations, the financier requires environmental assessments before issuing a loan. Those assessments will generate either a clean bill of health or an understanding of the property’s environmental liability. “What happens in the Canadian real estate system is this: [the financier lends] with the collateral of that loan being the property,” according to Blenkhorn. “If contamination was encountered, the only thing [the lender] can do to recover the loan is to actually take back the property, which means they now own the contamination.”

Anybody with a financial interest in that property, including the financier, could ultimately be responsible for that contamination, so that is not that the end of the story. In this hypothetical case the present owner of a property can “go back to the previous owner with the deepest pockets – anyone who ever owned that property before. [If you were a previous owner,] they can go back to you personally and get you to clean it up.” In the highly competitive energy industry, you don’t want to be putting your money into clean-up when you can be putting it into opportunities instead.

That’s why brass in the towers are asking “‘What are we doing about the environment?’ in every conversation.” They don’t want to own contamination.

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