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?”

Fighting Words: Oil Sands Antagonists Square Off

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Big Business and environmental activists square off over the oil sands. Has the truth been caught in the crossfire? This article appears in the November issue of Alberta Venture.

By Peter McKenzie-Brown

It has been a year in which Alberta’s oil sands have gotten attention for all the wrong reasons, itsl environmental record under attack from seemingly every possible direction. In addition to the usual rabble of environmental organizations and activists, the oil sands have been the subject of consumer campaigns from communities and corporations south of the border, each claiming to be greener than the next. Worse still, there’s no reason to believe the war of words will die down anytime soon between non-government organizations and crusading retailers on one side and their targets in industry and government on the other.

Early last summer, the small city of Bellingham, Washington, passed a resolution saying the city would boycott fuels derived from Alberta bitumen. As it ended, Walgreen – a large American retailer – did the same. These were just the latest of many efforts over a number of years to stop or slow down oil sand development by boycotting fuels that come from the oil sands. Although these campaigns got a lot of press, they were small potatoes in the big scheme of things.

For example, the US Congress has already passed a law banning some government agencies from directly promoting energy projects that will emit greater greenhouse-gas emissions over their entire life cycle than conventional oil. US legislation from 2007 prevents some federal agencies from entering into fuel contracts that encourage unconventional energy development. And California regulations require fuel suppliers to reduce the emissions from the fuel they sell – and to account for those emissions right back to the original source of production, including emissions in Alberta.

Returning to the small potatoes, a particularly robust attack recently came from Lush Cosmetics – a UK-based franchise which, according to its website, “offers over 300 luxurious, ethical and indulgent bath and beauty products made by hand with fresh, organic ingredients.” In July, the company’s North American operations took on the oil sands.

According to Bruce Anderson, an Ottawa-based senior associate with Harris/Decima Research and a senior advisor to NATIONAL Public Relations, this was part of the company’s effort “to present its own brand credentials to the marketplace.” Lush has embraced a series of environmental issues – for example, they also ran a short campaign on sealing. “What is remarkable about (these campaigns) is that they are less about the specific issue than about Lush as a brand.”

Prepared by an American advertising firm, the company’s website video describes the oil sands as “the largest and most destructive project on Planet Earth” – a “toxic sacrifice zone the size of England.” “The tar sands suck water, suck money, suck energy,” it continues. “The tar sands poison water, poison wildlife, poison forests. The tar sands destroy coastal cities. The tar sands destroy Canada’s rep(utation). The tar sands kill native people. The tar sands kill old people. The tar sands kill young people.” The culprits, the video explains, include big oil, big banks and the politicians in bed with them. The company’s preferred solution is to “Shut the f*cker down.”

Not surprisingly, this incendiary attack attracted the attention of representatives from government and industry. In a statement, Canadian Association of Petroleum Producers (CAPP) president Dave Collyer said “activities like this protest blur the lines between fact and fiction and add nothing to the serious dialogue occurring among reasonable people seeking solutions to our energy challenges.”

Alberta cabinet minister Iris Evans called the company’s North American head office in Vancouver to straighten out CEO Mark Wolverton on the facts of the matter. The soap company then put out a news release saying that “Minister Evans acknowledged that today’s industry has the technology to pull oil from the tar sands without creating toxic tailings ponds yet continues to issue permits for development that include new tailing pond projects.”

The Lush Cosmetics campaign illustrates the action/reaction nature of the public relations battles that the oilsands tend to provoke, but it also underscores the dilemma the industry is facing. “The oilsands campaigners are looking for situations in which corporations are facing some kind of reputation risk,” according to Bruce Anderson. “What I have found is that companies want to lighten their environmental footprints, like consumers do, and they do regard their reputations carefully. But at the same time they need to make information-based and practical decisions.”

The emotional and divisive battles over the oil sands reflect, in part, fundamental changes in our society. New technologies have made inexpensive media campaigns not just possible but powerful, and people are more receptive to green messages. The general decline in public regard for the first and second sectors of society – business and government – has been well documented. And the third sector, which includes the ENGOs leading the charge, is growing rapidly. To a large extent this is because of the proliferation and growth of ENGOs – not-for-profit environmental enterprises which have grown in number and financial strength over the last 20 years. And the third sector includes the environmental non-government organizations (ENGOs) which, at their best, represent knowledgeable, concerned citizens who are passionate about such issues as pollution and the environmental impact of industrial development; it is growing rapidly. Combined, these ingredients make up a recipe for conflict.

Who are the players, then? On one side there is government and industry, who argue that oil sands development contributes to energy security, economic growth and the trade balance, and that the stewardship of the environment is effectively being looked after by provincial and federal regulatory bodies. Somewhere in the middle are critics like the Pembina Institute and the Alberta Wilderness Association, which have focused mandates and take credible steps to improve oil sands development. At the other end of the spectrum are organizations like Natural Resources Defence Council, the Sierra Club and Greenpeace, which want fundamental social and environmental change.

And despite the preponderance of plaid and patchouli oil among their more militant members, these activist organizations aren’t necessarily short on resources. Jerry Bellikka, director of media relations for the premier’s office, argues that many anti-oil sands organizations work with significant budgets. “They are often well funded. (Some ENGOs) have told us that when they do one of their campaigns they get lots of donations. Whether it’s accurate or not, we don’t know; they don’t give us access to that sort of information directly. But what we do know is that these are very well-funded campaigns. Greenpeace is an excellent example.”

Last year Greenpeace had total worldwide income of about US$267 million, and directed about US$35 million to off-oil climate and energy campaigns. To illustrate the rapid growth of ENGOs, it is worth noting that global income for Greenpeace in 1993 was only US$34 million. Like other third sector organizations, ENGOs are rapidly proliferating in number.

Not all ENGOs are created equal, though. For example, Corporate Ethics International gained a great deal of media attention within Canada by creating a misleading website video and making a miniscule advertising buy – a few billboards in four American cities followed by even less advertising in Britain. Their message was that prospective tourists should punish Alberta for developing the oil sands by not visiting the province. News stories, talk shows and editorials agonized over the story, which proved to be riddled with inaccuracies.

In contrast, Greenpeace has used published reports, boots on the ground and a flair for the dramatic to become a distinctive protest voice in the province. The organization conducts at least one high-profile public relations event each year. Most recently it involved unfurling from the Calgary tower a banner with the message: “Separate Oil and State.” According to Jerry Bellikka, a spokesman for the premier’s office, “we in the provincial government are not really sure what their motivations are. It’s another silly stunt from an organization known for silly stunts.”

Greenpeace activist Mike Hudema begs to differ. “We hung the banner in Calgary because that’s where the industry is headquartered. Our message is that the relationship between the industry and government is too close. Industry shouldn’t be allowed to regulate itself. Companies are allowed to have endless (environmental) exceedences without being punished.”

Surprisingly, says Simon Dyer, the director of the Pembina Institute’s oil sands program, the warring statistics around oil sands development are mostly “accurate. Some will speak to the fact that oil sands operators are investing billions of dollars trying to deal with tailings waste (true), while others will say that successful reclamation of these toxic lakes…has never been demonstrated (also true).” Dyer represents the middle ground among the critics, and he’s concerned that PR has taken over the debate.

“As long as this is framed as a public relations battle the debate is going to continue to deteriorate,” he says. “Mudslinging is going to continue from both sides. Reputationally, Alberta and Canada and the oil sands are going to receive scrutiny and the issues are going to continue to grow.” The Pembina Institute’s position is that “There are issues around oil sands development that need to be addressed. The best way to allay criticism is to engage the critics, find the root of the problems that are causing those concerns, and demonstrate through actions how those are being addressed.”

“Right now,” Dyer says, “the public relations machine is ramping up on both sides of the debate, and those of us who are actually interested in ensuring that oil sands development is conducted in a responsible way are finding that our voices aren’t being heard. (The protagonists should) demonstrate that you are willing to solve the problems associated with oil sands development with action.”

Environmental specialist Carolyn Campbell with the Alberta Wilderness Association tells a similar tale. “Our approach is to work through public awareness, discussion and persuasion, but we don’t hesitate to use legal recourse where that’s necessary,” she says. “We are very dissatisfied with some of the environment-related actions going on in this province. I think the government needs to look at itself to see why stunt-oriented organizations are focusing on Alberta. Other paths (to environmental change) have not been effective.”

There are a lot of “pressing issues” around the oil sands, she says. “The province made a cumulative-effects commitment in the late 1990s focused on the Wood Buffalo municipality area,” she says. The idea was “to set up multi-stakeholder groups to manage the effects of oil sands development, to set thresholds and limits that the fairly fragile boreal ecosystem in northeast Alberta can sustain…. We don’t feel that’s been honoured. The pace of leasing and project approvals has completely swamped the recommendations of that cumulative effects group.” The Pembina Institute’s Dyer agrees. “I think the Alberta government is getting bad advice by the people who are telling them just to spend more money on public relations. The oil sands do not have a PR problem (but) a problem around management and cumulative environmental effects.”

The ENGO third sector has been vocal and articulate. What about the other two sectors, business and government?

Given the size of the prize, business and government are wagering relatively little on public relations, but that is changing. CAPP launched a $10-million campaign in the spring. Earlier this year the Oil Sands Leadership Initiative (OSLI) – a consortium of Suncor Energy Inc., ConocoPhillips Canada, Nexen Inc., Statoil Canada and Total E&P Canada – formally invoked a mandate to improve the oil sands industry’s reputation by “demonstrating and communicating environmental and social and economic performance and technological advancements.” This year, OSLI’s budget is $10 million.

These initiatives are the exception, however. Except for highly-focused campaigns directed at public consultation sessions and other constituencies when they are applying for development licenses, the sectors with the most to gain have done little PR. Resource developers, energy companies, construction firms, trade councils and other parts of the industrial sector that identify with the oil sands have largely remained silent. So controversial have the oil sands become that producers forbid rank-and-file employees to talk to media about the business, even when they are technical experts.

That lack of engagement provoked a stinging rebuke from retired EnCana CEO Gwynn Morgan, highly respected as a progressive voice of industry. In a Globe and Mail column in September titled “leaders must counter bogus oilsands spin” Morgan, based on his years as a CEO, concludes that corporations need to ensure that what they say stands up as truthful in the face of intense scrutiny, while ignoring the critics’ innuendo and distortions.

“But,” Morgan wrote, “I also learned that you don’t win games back on your heels playing defense. Industry leaders need to do more than sitting behind the blue line trying to block shots. They need to take their oilsands story and skate hard up the ice.” And if industry remains reluctant to move the plate into the other end of his own, the provincial government is doing what it can to record the puck in the meantime. One sign: the Alberta government’s recent $268,000 advertising campaign, which included two series of newspaper ads – one for the dailies, the other for community papers. Of course, that is only part of the province’s effort. “In a way silly stunts (like those of Greenpeace) work in our favour,” says provincial spokesperson Jerry Bellikka, “since traditional media respond to that kind of thing with calls to reliable sources like us.”

Bellikka describes two prongs of Alberta’s response to the attacks on bitumen development. “We have developed a campaign aimed at Albertans themselves, many of whom have worked in the energy industry and we want them to (help us) tell it like it is.” That’s the newspaper advertising campaign.

In addition, he says, “Where there is an outright misrepresentation, we attack it directly. When they say the oil sands are destroying an area the size of England, we say ‘No, (the amount of land being directly affected is) smaller than London. In fact, it’s 0.016% of the boreal forest in Alberta.’ It’s true that oil sands production is the fastest-growing source of CO2 in Canada, but the air around oil sands plants is much cleaner than, for example, the air in Ontario’s Golden Horseshoe.”

For its part, the industry sounds like it’s ready to stop playing defence. The industry is the other. According to CAPP vice president of communications Janet Annesley, “We have spent a long time being framed as villains by environmental organizations, and we have been trying to prove them wrong. That was not an effective approach. We have to show Canadians our business. We have to show them the kinds of people who work in our companies and the solutions we find to problems in a difficult business. We need to exit the discussion about who is right and focus on doing good work.”

Harris/Decima’s Anderson agrees. “Most customers and consumers these days – at least in in the world I live in – understand that energy has some environmental impact somewhere. For them, the only wrong answers about the environment are intransigence and indifference on the matter of environmental impact. You need to show them how you are mitigating the problems.”

Annesley describes the off-oil NGOs as being driven by an agenda, but says she doesn’t fully understand what that agenda is. “They really seem to think that Big Oil is the only thing standing between society and a renewable energy future. That doesn’t make any sense, but they do seem to believe it.”

She continues, “We fundamentally beg to differ. The solutions are not available today. We know that energy demand is increasing, that energy resources are declining and that much of the conventional energy available is in countries that are very difficult to do business with. We know that energy supplies must diversify. We know that energy development is under greater scrutiny than ever before. And we know that the industry has to meet the planet’s growing energy needs in ways that are increasingly environmentally accountable. That is the rock and the hard place in which we sit.”

Given its precarious position, Roger Gibbins, the president and CEO of the Canada West Foundation, thinks a little humility would serve the industry well. “The oil sands proponents will to some degree always be on the defensive on the environmental front,” he says. “The oil sands industry has a lot of negative images to deal with. The industry has to acknowledge that its work has had an adverse environmental impact in the past, and begin there. I think that if the industry is a bit repentant, and admits it hasn’t done the best job in the past, it will be in a better place to win people’s minds and hearts. Just arguing with environmentalists doesn’t have that effect.”

That’s a message that seems to be finding an audience. In September, Marcel Coutu, the CEO of Canadian oil Sands and the chairman of the board at Syncrude, reached out to the grandfather of Canada’s environmental movement, David Suzuki, and asked him to broker a truce between the two sides. “Instead of having this polarized discussion about (non-governmental organizations) thinking we’re this, and industry thinking we’re that,” Coutu told the Edmonton Journal, “why don’t we get together and find out what the common ground is, and agree to what is best practice and go forward that way, instead of wasting so many resources on both sides, with the media in the middle trying to communicate messages?”

Suzuki scoffed at the offer, though, declining the invitation to play go-between. Which side will take the next step remains to be seen.

Perception, Reality and Transparency

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Industry is working to improve its communications, but more importantly its actual performance

This article appears in the October issue of Oilsands Review

by Peter McKenzie-Brown and Deborah Jaremko

The oilsands industry is under near-constant attack from environmental groups and other non-governmental organizations (NGOs) bent on putting an end to “the most destructive energy project on earth.” The phrase “stop the tar sands,” and the moniker “dirty oil” are well known, and not taken lightly. The Alberta government and various industry organizations are taking on the challenge of battling negative perception with the facts about existing development, but also with something even more powerful — commitment to do better, and to prove it.

The “Big Lie” and the Age of the Internet
As Adolf Hitler was dictating his book Mein Kampf in 1925, he coined the term “the Big Lie.” A propaganda technique, the Big Lie refers to a falsehood so “colossal” that no one would believe that someone “could have the impudence to distort the truth so infamously.” Hitler used the technique to good effect through his years of tyranny. However, in established democracies things are different. Government, media, academia and business are all held to account, and among those organizations anything like the use of the Big Lie encounters widespread derision.

“Government tends to be constrained by fact,” says Alberta government spokesman Jerry Bellikka, with withering irony. “We are held to account for what we say. If we were to knowingly put out misinformation, academics, environmentalists, opposition politicians, the public and traditional media would hold us to account. When the premier is talking about emission reductions in the oilsands, if he does not say ‘per barrel,’ he is called on it right away.”

But in emergent web-based media, accountability is self-imposed. Most of the influential NGOs use reasoned arguments and collaborate with government and industry as they advocate for their causes; the Pembina Institute comes to mind. However, some major environmental groups use those media without much regard for facts. Therein we may find the 21st Century version of the Big Lie.

“[Some] people are making pretty outrageous claims,” says Bellikka. “What they want is a reaction. It’s one thing to have a discussion based on fact and current data. It’s another thing to put out inflammatory material, not much of which is accurate...it’s to get a reaction and that’s what these campaigns are designed to do. They are based on emotions, on wild accusations. Yet these same groups call governments the propaganda machines.”

The message presented by anti-oilsands groups in various forms — from feature-length documentaries and short YouTube videos to online games and protest actions — is one of environmental and social degradation that has been called as much as “Armageddon.”

“We want to lift the lid on the horrors of oil exploration taking place in a country that has a reputation for being the cleanest in the world,” says Michael Marx, executive director of Corporate Ethics International, the group behind the recent ReThink Alberta campaign. The initiative, spread through the web and via billboards in four U.S. cities as well as London, England, encourages potential tourists to Alberta to reconsider their travel investment until the tar sands industry is no more. “Tar sands mining in Alberta has not only caused irreparable damage to the environment but the health of local communities which have seen a dramatic rise in rare cancers linked to the same compounds found in tar sands operations.”

The dramatic proliferation in the number of groups like Corporate Ethics International, and the growth in public and private grants and contracts flowing to them, have enabled NGOs to become powerful political forces. In a sense, they are now filling a credibility vacuum that has been developing for 20 years. Poll after poll has shown declining confidence in such institutions as government, business and traditional media. This has created great demand for independent information and analysis, which NGOs can easily deliver through web-based communications.

“They do not work with small budgets. They are often well-funded,” notes Bellikka. “[Some NGOs] have told us that when they do one of their campaigns they get lots of donations. Whether [that is] accurate or not, we don’t know; they don’t give us access to that sort of information directly. But, what we do know is that these are very well-funded campaigns. Greenpeace is an excellent example.” Last year Greenpeace had total worldwide income of about €200 million ($272 million), and directed about €28 million ($38 million) of that to off-oil climate and energy campaigns.

From Defence to Proactive Discussion and Education
Although often characterized by highly exaggerated and even inaccurate claims, it is more than big budgets and social media wizardry that grants off-oilsands groups a position in public perception. The truth is that the concerns are not entirely unfounded — oilsands development undeniably does negatively impact the environment. It is communicating the actual extent of this impact that has been the challenging burden of industry and government, but now that mission is being taken a step further.

“We have spent a long time being framed as villains by environmental organizations, and we have been trying to prove them wrong. That was not an effective approach,” says Janet Annesley, vice-president of communications for the Canadian Association of Petroleum Producers (CAPP). “We have to show Canadians our business. We have to show them the kinds of people who work in our companies and the solutions we find to problems in a difficult business. We need to exit the discussion about who is right and focus on doing good work.”

She says that according to CAPP polls, 74 per cent of Canadians say that the industry should be developing the oilsands. “Our strategy should be to say, ‘Yes, Mr. and Mrs. Canadian. You are right. And that is exactly what the industry is doing today.’ The advertising campaign we launched last June is simply following that plan.”

Annesley describes the off-oil NGOs as being driven by an agenda, but shares some consternation about what that agenda is. “They really seem to think that Big Oil is the only thing standing between society and a renewable energy future. That doesn’t make any sense, but they do seem to believe it.”

She continues, “We fundamentally beg to differ. The solutions are not available today. We know that energy demand is increasing, that energy resources are declining and that much of the conventional energy available is in countries that are very difficult to do business with. We know that energy supplies must diversify. We know that energy development is under greater scrutiny than ever before. And we know that the industry has to meet the planet’s growing energy needs in ways that are increasingly environmentally accountable. That is the rock and the hard place in which we sit.”

The industry is widely understood to offer economic benefits to Canadians, she says, and “we are widely understood to be reliable suppliers of energy. However, we are not widely understood to be providing environmental solutions. That’s where we need to focus. We need to be talking about the issues of economic benefits; energy security and environmental care in a balanced way, but that conversation shouldn’t begin with someone dangling from the top of the Calgary Tower [a recent Greenpeace action].”

Roger Gibbins, president and chief executive officer of the Canada West Foundation, sums up the problem nicely. “The oilsands proponents will to some degree always be on the defensive on the environmental front,” he says. “The oilsands industry has a lot of negative images to deal with. The industry has to acknowledge that its work has had an adverse environmental impact in the past, and begin there. I think that if the industry is a bit repentant, and admits it hasn’t done the best job in the past, it will be in a better place to win people’s minds and hearts. Just arguing with environmentalists doesn’t have that effect.”

CAPP’s Responsible Canadian Energy program
In announcing the winners of its Steward of Excellence awards this spring, CAPP launched a new program dubbed Responsible Canadian Energy, which is designed to be a platform from which the industry, unified, can demonstrate and communicate its commitment to responsible resource development.

“The way the world sees us is defined by our performance. The linkages between stewardship and the reputation of the energy sector have never been clearer,” says CAPP president David Collyer. “This is not at all about communicating our way out of a problem. It never has been and it won’t be in the future. We certainly need to focus on communications to improve awareness and understanding, but it is essential that this be underpinned by ongoing improvement. In a world that is always moving and changing, we can’t stand still. We have to do better, and we will.”

Collyer continues that, “For some, the oilsands is the economic saviour of a recession-weary country. For others, oilsands development symbolizes a world that has grown far too dependent on fossil fuels. In reality, the oilsands is neither. The truth, as they say, is somewhere in between. CAPP and its members fully recognize that the reputation of this increasingly important industry is determined by two things: performance and communication. We also know that both must be delivered consistently and authentically over time.”
CAPP says a performance report based on the Responsible Canadian Energy initiative will be issued this fall, with 2010 serving as the baseline year as producers “refine and advance” the program. The report will include data on environmental and social performance, and will be followed by a white paper in December 2010 based on an energy dialogue series in Canada and the United States.

The Oil Sands Leadership Initiative
One of the worst-kept secrets in the oilsands industry is under wraps no longer — that is, the Oil Sands Leadership Initiative (OSLI), a consortium of five major players with a self-described “laser focus” on improvements in environmental performance.

With a $10-million budget for 2010 (expected to double or triple in the coming years), Suncor, ConocoPhillips, Nexen, Statoil and Total have a mind to change the bitumen game.

Gordon Lambert, Suncor’s vice-president of sustainability, explains that OSLI has been up and running for about a year and a half, with 2010 as its first official operational year. He says that the group’s genesis was a recognition of the need to accelerate the pace of environmental performance measurement and improvement, while understanding that in order for continued success in this particular space, the needs of the whole outweigh the needs of each individual company.

“We compete in some areas of the business. We don’t compete in reducing our environmental footprint,” says Lambert. “We felt we could make more progress by working collectively than by working individually. The more ideas you get on the table, the better the chance of success.”

The OSLI charter outlines working groups designed to address water management, carbon management and energy efficiency, land stewardship, sustainable communities, technology breakthroughs and other focus areas as agreed on by its steering committee.

One of the first initiatives that OSLI is working on is a $2.5-million feasibility study into a potential new water distribution plan for the Athabasca oilsands region. Dubbed the Regional Water Solutions Study, Lambert says the idea is to work out whether it is environmentally and economically viable for oilsands producers in the area to reuse water left in mining tailings as steam generation source water for local in situ projects. The notion is not as “blue-sky” as it may sound — Suncor itself already uses its tailings water from mining operations to supply its Firebag steam assisted gravity drainage project. However, Lambert says applying it on a regional scale would require a broad consensus — the subject of the feasibility study.

Another key OSLI initiative is OSTECH, a “technology identification structure based on a web portal.” The group says that through this portal, inventors, entrepreneurs and the general public will be able to submit projects and ideas that can be further developed within OSLI. Lambert says it will be a one-window system for the member companies to share in evaluation of the new technology ideas that are presented to them, reducing duplication of due-diligence efforts.

“Innovation and the oilsands go hand in hand. It has always been that way,” he says. “New ideas are coming forward all the time.”

A key part of OSLI’s mandate is transparency around advancing its performance improvement efforts, which is one of the reasons it did not publicly herald its initial creation.

“We’ve been cautious of waiting to communicate on results and action versus intent,” says Lambert. “In 2011, you will see us stepping out more visibly.”

The Desirable Barrel

Why conventional heavy oil is a sizzling commodity in Alberta and Saskatchewan

By Peter McKenzie-Brown

As an oil producer, Saskatchewan seems to have it all. The Bakken light oil trend is a play of frenzied activity. So is Cenovus Energy’s carbon injection oil operation at Weyburn (the world’s largest carbon capture and storage facility). But the province’s meat and potatoes – conventional heavy oil production in the Lloydminster and Kindersley areas – are hidden behind these high-profile developments.

The province’s first 2010 land sale tells the story, but it’s only clear if you dig deeply into the numbers.

Out of nearly $40 million in bonus bids, about $26 million went for land in the Weyburn-Estevan – a reflection of the importance of Bakken and Weyburn. Dig a bit deeper into the numbers, though, and you will find that the highest price paid for a single parcel was $2.1 million for a 1,552-hectare exploration licence in the Lloydminster area. One operator, Baytex Energy, paid $6,512 per hectare for a 16-hectare parcel near Maidstone, also in the Lloydminster area – by far the highest bid per hectare.

Between them, the two heavy oil producing regions in Saskatchewan brought in nearly $10 million in bids – not bad for the Cinderella sister of light oil. The message is clear. The resource has been on production since 1946, but despite its longevity is an increasingly valuable asset. This reality applies to conventional heavy in Alberta as much as it does to production in Saskatchewan. In today’s market the commodity is sizzling. Although there was a blip due to low oil prices a year ago, today’s barrel of conventional heavy is almost as profitable as ever before.

Major changes in transportation to the US and modifications to US refineries have made the Canadian commodity extremely desirable. As a result, the differential paid for Canadian light compared to Canadian heavy is holding firm near historic lows. The differential has averaged about C$8 per barrel for the last year. To put that in perspective, as recently as late 2008 conventional heavy sold briefly for 45% less than Edmonton Par. That wasn’t a profitable environment.

By contrast, the market today is a bit like a winery selling this year’s plonk for 14% less than a vintage wine. Like plonk compared to fine wine, heavy oil is intrinsically less valuable than Edmonton Par, the Canadian standard for light oil. In most refineries, after all, heavy feedstock results in less high-value-added gasoline and more low-value-added asphalt.

But the big US refining complexes are changing that. “It’s a matter of adding vessels to the refinery,” according to Steven Paget; he is vice president for energy infrastructure at First Energy Capital. “Those longer-chain hydrocarbons need more work to break up, but new pipelines from Canada are accessing the refineries at Wood River (Illinois) and Cushing (Oklahoma).” Those refining complexes have the capacity to break heavy oil into lighter feedstock. “Therefore the (narrow) differential becomes minimal or close to equivalent to actual operating cost.”

The good news is that the two heavy oil provinces have a lot of plonk left to sell. According to the Canadian Association of Petroleum Producers (see chart), between them the two provinces have more than a billion barrels of established reserves left to produce. More importantly, each has estimated heavy oil in place many times the volume of reserves.

CAPP estimates that initial volumes of heavy oil in place (this includes both conventional and non-conventional heavy) were about 15 billion barrels in Alberta, and 20 billion barrels in Saskatchewan. Established reserves will thus continue to grow, just as new in-place volumes will continue to be found.

The Background
To understand the economics of conventional heavy, cast your eyes back to the industry’s beginnings.

There are three historical reasons for the growing strength of conventional heavy oil. First, since the 1980s operating costs for conventional heavy production have been in relative decline because of improving technology, higher prices and a better understanding of the reservoirs. Second, policies established since 1990 have lowered royalties for the stuff. Third, the volumes of heavy oil in the Alberta/Saskatchewan heavy oil belt are simply huge. Although the reservoirs tend to be thin, the output is large, and production lasts for many years.

Defined as oil below 20° API which can flow from its reservoirs like lighter oils, conventional heavy oil goes back a long way in Western Canada’s economy. The heavy oil belt is a series of thin sand reservoirs straddling the border of the two provinces. The oil is lighter in density (11-18° API) and of much lower viscosity than the bitumen in the oil sands deposits.

The buckle of the heavy oil belt is Lloydminster, the border town. The first conventional heavy discovery occurred in 1938, and modest development began when Husky Oil (now Husky Energy) moved into the area after World War II. Husky began producing heavy oil from local fields in 1946, and by the 1960s was easily the biggest regional producer. In 1963 the company undertook another in a series of expansions to the refinery (to 12,000 barrels per day). To take advantage of expanding markets for Canadian oil, it also began delivering heavy oil to national and export markets. These developments made conventional heavy more than a marginal resource. Within five years, area production had increased five-fold to 11,000 barrels per day. However, production volumes remained small until the 1990s.

The first of two important developments was the completion of two upgraders – the Co-op facility in Regina and Husky’s in Lloydminster. These upgraders, which were subsidized by government to reduce risk during a period of lousy oil prices, created a large local market for heavy oil. In the early 1990s, production from the heavy oil belt had risen to 300,000 barrels per day – one third of that production being upgraded and refined for local markets. Today Husky produces about 75,000 barrels per day of heavy oil – more than 10% of Canada’s total.

More importantly, in 1993 the Alberta government redefined conventional heavy as “third tier” oil, with highly favourable royalty rates. Once Saskatchewan’s New Democrats were removed from power, new governments in that province matched and then exceeded the Alberta initiative – after all, heavy oil is Saskatchewan’s single most important long-term hydrocarbon resource, so the province had good reason to kick-start development. Indeed, in a modification to the royalty system in 2002, Saskatchewan defined “fourth-tier” heavy oil, with very low initial royalties. All these new tier royalties were great kick-starters. However, as the CAPP data show in the chart below, conventional heavy oil production is now in decline despite growing reserves.

OPEC or Infrastructure?
Especially in a market of declining production, the question of whether differentials will remain narrow is critical. And on this score there is debate. Is the differential likely to narrow or to widen?

According to AJM Petroleum Consulting operations vice president Ralph Glass, the basic reason differentials are so low “is an increased demand for the heavier crude oils from US refineries. Over the last few years there has been a movement by US refineries to enhance their ability to handle the heavier crudes. With the downturn in US demand, OPEC cut their volumes. (The volumes cut were the heavier crudes and done to maximize returns from light crudes which receive higher prices). As a consequence, the US refineries found themselves short of heavier crudes to process, and are now paying a premium for Canadian heavier crudes to reduce the shortfall in their systems.”

He suggests that the demand for heavy oil to fill for new pipelines to the US – TransCanada’s Keystone pipeline into Patoka, Illinois and Enbridge’s Alberta Clipper line to Superior Wisconsin – may narrow the differential even more in the short term. However, the return of competition from OPEC will widen the differential, thus making heavy oil production less profitable.

First Energy’s Steven Paget has a more sanguine view. “The reason the differential has gone down is that we have more transportation infrastructure out of western Canada,” he says. “This allows nearly 90,000 barrels per day of crude to access the Gulf Coast refining complex.” Demand for fill for new lines will increase demand over the short term (narrowing the differential), but the more important factor in his eyes is that those new pipelines will provide increased access to markets, making conventional heavy more competitive in US markets. “The narrow margin is likely to continue.”

Ralph Glass takes the more cautious view. In 2011 and 2012, he says, the industry will experience “widening on implied concerns of heavy OPEC production coming online and increased Canadian heavy production.” If he’s right, and if production continues to decline, expect the sector’s salad days to wilt.