A report commissioned to help spark interest in spreading out oil and gas drilling activity in Alberta throughout the year is drawing flak from an environmental group, which fears four-season access into remote areas will put sensitive terrain and wildlife at risk.
The industry-sponsored report, prepared by Calgary-based Ziff Energy Group, calls for a re-thinking of traditional drilling cycles by offering financial incentives for wells spudded after spring breakup and before winter freezeup, and expanding road systems into energy-rich remote regions.
By spreading out activity, the industry hopes to address concerns over the costs and feasibility of retaining a skilled workforce and equipment over peak drilling periods.
“It’s just really an effort to try and take some of the significant seasonal run-up in activity that’s associated with the first three months and spread it out a little bit – if it’s at all possible,” says Don Herring, president of the Canadian Association of Geophysical Contractors (CAGC), one of the study’s co-sponsors.
“Certainly, if you were challenged as an oil company to look at your record of wells, and it turned out that some could be drilled in the summer, it’s possible you could do it at a lower cost . . . this could reduce on average the number of rigs that would be running in the winter, increase it in the summer, and that would be a bit better for retaining rig crews.”
But Alberta Federation of Naturalists executive director Glen Semenchuk calls the report untenable and abhorrent. Semenchuk says drilling activity and seismic would interfere with nesting activity of migratory birds, protected under federal legislation. “And I don’t think these guys are going to want to go out and flag every nest and have a buffer around it,” he says.
In addition, he says, the sensitivity of terrain in northern Alberta precludes any additional activity outside the winter months.
But industry representatives say the idea is still worth studying. David Pryce, vice-president, operations for the Canadian Association of Petro- leum Producers (CAPP), says some of the recommendations in the Ziff report are practical and are already being put into practice in neighbouring British Columbia.
“The benefit for us is to look for ways to manage the costs for industry – if we can level the load, then the expectation is that the competition for the rigs or other services would be down a bit so the costs would track down as well,” says Pryce.
“It also helps grow a service sector where you have a career, rather than a three-month job . . . a crew that works together year-round, as opposed to every three months with a different mix each year. There’s a huge learning curve to get efficient.”
Last month, B.C. Energy Minister Richard Neufeld told reporters in Calgary that the province plans to increase its drilling activity 20 per cent over the next two years, a move expected to produce a $250-million annual increase in royalties.
The government is also planning to pump $10 million a year toward new road infrastructure for its northeastern regions, including a cost-sharing plan with industry for a $38-million upgrade of the Sierra-Yoyo-Desan Road northeast of Fort Nelson to help shift some winter-focused activity to the summer months.
The Ziff report – which was also sponsored by the Canadian Association of Oilwell Drilling Contractors (CAODC), CAPP, the Petroleum Services Association of Canada (PSAC), and the Alberta and B.C. governments – notes that the large asset base needed to support three months of peak activity during the winter leads to inefficient use of equipment and results in higher costs. The utilization rate of equipment during the winter approaches 90 per cent, while the annual utilization rate is 53 per cent.
The report makes a number of recommendations including:
* Educate oil and gas leaders that current drilling cycles lead to idle equipment for long periods, oscillating labour requirements and a higher incidence of worker injuries.
* Offer fiscal incentives such as royalties and tax reductions to companies to drill in accessible areas during the summer months, and to jointly fund road systems into these regions. B.C. recently introduced a summer drilling royalty credit for wells spudded between April 1 and Nov. 20, and is providing up to $10 million annually in royalty credits to support road infrastructure development.
* Inter-industry road construction with costs shared between forestry, fishing and hunting and other recreational users in a “user-pay” system to reduce the financial burden on the exploration sector. By providing initial access to remote regions, the report says the costs to industry would be reduced, potentially spurring incremental activity over the entire season.
* Use road assessment studies to determine the technical rationale behind the length of the road ban period.This could potentially allow for the early lifting of road bans in some cases.
* Experiment with new technologies to reduce the disturbance of natural areas, such as using wooden mats across lease sites, a practice tried by EnCana in B.C.
Bill Gwozd, Ziff Energy Group’s VP of gas services, says the study encompassed all sectors of the industry. “We looked at the historical reasons for the drilling cycle, why it exists today, and how the industry has evolved and modernized. Based on our study, the current cycle may need to be adjusted to optimize industry operations.”
The CAGC’s Herring says the impetus for the study was to pique the interest of companies to re-examine longstanding practices, with an eye to saving money and stabilizing their labour demands. The environment would be one of many issues that would have to be examined, he said.
“You can’t just say, ‘We think you should move stuff out of the first quarter into the second quarter, because in Alberta there are issues of road bans and what the transportation authorities expect to protect their infrastructure – as well as it rains in the spring, and you can’t move a lot of equipment during the rainy season.”
But the AFN’s Semenchuk says implementing the report’s recommendations would fly in the face of what he terms recent acceptance by the Alberta government and industry of the cumulative effects of development on the environment.
“We’ve been working with the oil companies and forestry companies to leave less of a footprint, and they’ve sort of accepted that they’ll have to, because of this cumulative effects problem,” he says.
“This is going to leave even a larger footprint. There’s a big push to get all the conventional oil and gas out of this province as quickly and as easily as they can, because I think they see the public is going to start demanding more care and attention as to what’s happening to their public lands.”
Alberta Energy spokesman Gordon Vincent told Business Edge that a decision on implementing the report’s recommendations has not yet been made. He adds the department will continue to analyse the study over the next several weeks and consult with the report’s co-sponsors.
“Issues such as environmental concerns would be carefully considered before making final decisions on implementing recommendations,” he says.
CAPP’s David Pryce says the report is simply an “idea-generating” study to help raise awareness among industry players of potential options.
“It should be clear that we wouldn’t look to do anything that would be contrary to or jeopardizing the appropriate environmental management requirements,” he says.
“And we wouldn’t be pursuing anything that would relax any environmental controls – if they’re warranted controls. If there’s any sort of constraints from an environmental perspective, we would honour them, but if there were ones that were considered (arbitrary), we’d look at the basis for that, and look to sharpen the regulatory controls.”
