Saturday, July 04, 2015

Atlantic Leduc #3

In the early years, a blowout showed that the oil industry had hit the big time

By Peter McKenzie-Brown
To put the extent of the prosperity generated by the discovery of oil in Alberta in 1947, in that agriculture contributed $555 million to the provincial economy – directly and indirectly, through exports. By contrast, petroleum’s contribution was only $35 million. By 1956, the petroleum industry contributed $690 million, compared to $635 million from agriculture.

Especially in the beginning, conflict arose between a gung-ho petroleum industry and an agricultural community concerned about encroachments on its landholdings. Alberta’s farmers became the petroleum industry’s “harshest critics,” said Erik Lizée. “Alberta farmers responded aggressively to the surface rights issue, but were betrayed by a provincial government focused myopically on establishing and nurturing an emergent petroleum industry.” 

“To understand the farmer’s concerns, something must be said of the process of extracting oil and gas,” Lizée said. “It is, first and foremost, a messy affair. Simply to drill an oil well requires the clearing of (often fertile crop) land, the cutting of roads, the transportation of drilling equipment, the digging of the sump pit, and the erection of the derrick, coupled with the arrival of the drilling crew.  The provincial response was the passing of the 1947 Right of Entry Arbitration Act. This legislation was essentially a cynical attempt by the province to provide the petroleum industry with access to surface rights that recalcitrant farmers were unwilling to provide voluntarily, Lizée said. The Act provided for the creation of a Right of Entry Board – a quasi-judicial agency to protect farmers. 

This system had flaws, he added. “For farmers to have been ‘protected’ by the Board, they would have had to refuse any interaction with an oil company representative that could be construed as a contract, and then wait for the oil company to apply to the Right of Entry Board. If…a farmer had reached any kind of ‘understanding’ with an oil operator, the Act would not apply and the only recourse for an individual farmer would be to turn to the courts.” The petroleum industry’s large financial reserves and legal expertise made recourse a waste of resources for farmers, enabling oil and gas companies to “circumvent the minimal protection afforded farmers by the Act.” 

A year after the Right of Entry Act received Royal assent, the agricultural community got a glimpse of how bad things can get. In March 1948, drillers on the Atlantic Leduc #3 well lost mud circulation in the top of the reef, and the well blew wild. Drilling by Frank McMahon’s Atlantic Petroleum Company “had barely punched into the main producing reservoir a mile below the surface when a mighty surge of pressure shot the drilling mud up through the pipe and 150 feet into the air,” wrote historian Earle Gray.

As the ground shook and a high-pitched roar issued from the well, the mud was followed by a great, dirty plume of oil and gas that splattered the snow-covered ground. Drillers pumped several tons of drilling mud down the hole, and after thirty-eight hours the wild flow was sealed off, but not for long. Some 2,800 feet below the surface, the drill pipe had broken off, and through this break the pressure of the reservoir forced oil and gas into shallower formations. As the pressure built up, the oil and gas were forced to the surface through crevices and cracks. Geysers of mud, oil, and gas spouted out of the ground in hundreds of craters over a ten-acre area around the well.

It took six months, two relief wells and the injection of 700,000 barrels of river water to bring the well under control. Cleanup efforts recovered almost 1.4 million barrels of oils in a series of ditches and gathering pools. At one point the well caught fire, and the crew worked frantically for 59 hours to snuff out the blaze. The size of the blowout, and the cleanup operation added to the legend. Soon the developed world knew from newsreels and photo features of the blowout that the words “oil” and “Alberta” were inseparable. 

 The Rebus Affair
“You promised me this drilling would not interfere with farming,” complained John Rebus, whose mother owned the farm on which the blowout took place. “Look at the land. It’s covered with oil. It’s all ruined.” 

Bronislaw and Rose Rebus had acquired the land and mineral rights when they arrived from Poland in 1897 to farm. Under the terms of Bronislaw’s will, his widow owned the land but John – the eldest of his six sons – held title to the property’s mineral rights. This was unknown to Imperial Oil, which – expanding its land holdings around its Leduc discovery – had negotiated a lease for mineral rights on her property with Rose Rebus. 

When he learned about this legal dichotomy, industry entrepreneur Frank McMahon sensed opportunity. He took John Rebus to Calgary to keep him safely away from Imperial Oil and its land agents. According to historian Earle Gray, Rebus “wasn’t keen on leasing the oil rights, all he wanted to do was keep on farming, and he didn’t want an oil company with its big drilling rig, its trucks and heavy equipment messing up his land.” McMahon spent a week in negotiations with Rebus, who accepted $200,000 cash plus a 12.5-percent production royalty for his mineral rights. McMahon then persuaded Imperial to drop its uncertain interest in the lease in return for 100,000 barrels of oil from future production.

For his mineral rights, Rebus eventually received $366,544.17 in royalty payments – a huge sum in those days. The Oil and Gas Conservation Board took over project management for cleaning up his land. After a great deal of remediation, some of the land could be farmed again,   although the scars of Alberta's greatest oilfield disaster are still evident in the bald patches in the fields where the Atlantic Leduc, which is now a historic site, blew wild. 

This incident served as an alert to farmers across the province. After all, most farmers owned surface rights only. Unlike John Rebus, they would not receive royalties for such a disaster.

Entrepreneur Frank McMahon represented prevailing views within Alberta’s expanding energy industry. In 1954 he was head of a group applying for a permit to construct the Westcoast natural gas pipeline, which eventually transported natural gas from Alberta to markets in BC’s lower mainland and the United States. “Our minerals, our water power, our forests, and our oil and gas land must be developed and utilized before we can reap the benefits they hold in store,” he wrote to the US Federal Pipeline Commission in his company’s application. “We have everything to gain from the application of sound common sense in the development of all our natural resources.” When counsel asked whether that statement was true, he said “Yes sir. I can hardly believe I wrote it, it’s so good.”
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