BLM Oil Shale

From: Alberta Oil

BY DARREN CAMPBELL

Dan Allan is bullish when asked about the impact unconventional oil and gas will have on the Canadian and North American supply picture. “I don’t see any indication that the train is going to stop,” says the chairman of the Canadian Society for Unconventional Resources (CSUR). “Unconventional will become conventional and it will be the dominant force for the foreseeable future.”

Recent production statistics bear out Allan’s bold statement. In the Canadian Association of Petroleum Producers’ (CAPP) 2011 crude oil forecast, it estimates conventional crude production in Canada – production coming essentially from non-oil sands and the offshore – has increased from 900,000 barrels per day in 2010 to one million barrels per day in 2011 after years of declining production. The reversal in fortunes is mainly due to sector players using “unconventional” technology − horizontal drilling, hydraulic fracturing and enhanced oil recovery methods − to extract more oil from western plays bearing names like the Bakken, the Viking and the Cardium.

The story is the same on the natural gas side, where horizontal drilling and fraccing have unlocked large stores of the cleanest burning fossil fuel. North America has gone from a continent looking to import natural gas to one that now has a surplus. Prices for the commodity have sunk below the US$4 mark as shale gas from the United States floods markets. Canadian shale basins have also been getting plenty of attention with the likes of Encana Corp. and Talisman Energy investing in the Montney and Horn River basins in northeastern British Columbia and the Duvernay in Alberta.

The prize is a huge one. In a resource assessment report released last summer, the National Energy Board pegged the marketable natural gas in the Horn River basin alone at 78 trillion cubic feet (tcf). The U.S. Energy Information Administration estimates there is 862 tcf of technically recoverable shale gas reserves in place in the lower 48. Meanwhile, on the oil side, some estimates say there are 77 billion barrels of already discovered oil still stuck in the ground in Western Canada.

But industry’s grand plans to develop these resources via unconventional means could be waylaid by one big roadblock: public opposition. There are concerns that fraccing contaminates drinking water and that the large volumes of water needed to pull off unconventional drilling programs can stress local supplies. These issues and others have led to frequent dustups between the public and the oil and gas industry, in part because industry’s been too hasty to do its work. “If anything is pushed too quickly or rushed, it’s never a good thing,” Allan says. “You’ve got give people time to get comfortable.”

Allan’s perspective is colored by his 35-year career in the oil patch. He got his first glimpse of the unconventional sector’s potential during a 14-year stint with Dome Petroleum in Colorado, where the company was drilling for coalbed methane – another unconventional resource characterized by gas trapped in coal seams.

Allan caught the unconventional bug. When he returned to Canada in the 1990s, he founded CanScot Resources Ltd, as well as Rockyview Energy. He held senior management positions with those two juniors, as well as APF Energy Trust, which snapped up CanScot in 2003. All of the companies were focused on coalbed methane development. Allan has since founded another junior, Calgary-based Cumberland Oil and Gas Ltd., this time concentrating on light oil and shallow gas. But he remains intimately involved in the unconventional sector through his work with CSUR.

The moniker is a new one for the organization. Since its inception in 2002, it’s been known as the Canadian Society for Unconventional Gas – based on the fact that in Western Canada, unconventional exploration methods were being used almost solely to extract stranded gas reserves from tight rocks. But with companies now using these methods to extract oil as well as gas, Allan says the decision was made to change the name. “We are now covering the whole spectrum of both commodities,” Allan says.

The future of those commodities may very well rest on its proponents convincing the public that exploring for unconventional oil and gas can be done safely and won’t harm the environment. That means being up front about what it is doing and how it will do it – something Allan admits the industry hasn’t been adept at. “The industry in the past, we kind of felt we were able to do our own thing and let the government regulate us,” Allan says. “But that started changing due to worldwide events and the entire industry has been held to a higher standard. The old rules aren’t applicable anymore. We have to do a better job. There’s more sensitivity to spills and groundwater protection. This is a natural evolution occurring and I think the industry was slow to react to that.”

Considering how important unconventional oil and gas could be to Canada’s petroleum future, being slow to react might be costly. Industry appears to be wising up, though. In September, CAPP introduced new guiding principles for hydraulic fracturing to guide water management and improved water and fluids reporting practices. And Allan says CSUR is continuing its efforts to educate the public about the unconventional sector, including setting up an eastern chapter, a region where shale gas exploration has sometimes encountered stiff opposition, particularly in Quebec.

“We find it’s a lot easier to be proactive when you have a collective force behind you,” Allan says. “When one company goes into the limelight, it can have a lot more resistance. We’ve got to get areas in North America and overseas comfortable with what we are doing. We’re something new that they don’t understand. We have to earn their trust.”