North America's oldest energy industry finding reserves across province

The oldest oil industry in North America is still pumping, 150 years after it began. Operating in the shadow of Alberta, Ontario's petroleum sector continues to find new reserves of oil and gas.

"There is $135 million per year of revenue from ongoing exploration," says Joe Van Overberghe, executive director of the Ontario Petroleum Institute, quoting figures for 2007. "We're looking in Lake Erie and on the north shore. We're pumping off the lake and along the north shore."

There are 1,200 active oil wells in the province, as well as 1,400 natural gas wells, 500 of these offshore. Producers range from large energy companies to local farmers pumping oil from their own fields. The sector is estimated to employ about 16,000.

"The area of Haldimand is basically private wells right now," says Van Overberghe. "There are wells pumping down in Essex and in Kent county. There's even the Region of Halton near the 401. That doesn't include the historical properties through the Petrolia area."

Greentree Gas & Oil (TSXV:GGO) is one company operating in Ontario. It recently announced plans to drill five new wells near Rodney, an hour southwest of London. The Rodney field has, to date, produced more than 10 million barrels of light oil.

"Greentree started in 1995 with the purchase of a small natural gas property south of Tillsonburg, Ont.," says Duncan Hamilton, president of Greentree Gas & Oil. "We produce around 115 barrels of oil equivalent (BOE) per day, which is approximately 80 per cent natural gas.

"We expect to add an additional 80 barrels per day by yearend with our drilling program," he adds. "We have holdings throughout southwestern Ontario, especially in the Simcoe to Tillsonburg region and the Rodney area."

Another company is Torque Energy (TSXV:TQE). Based in London, Torque produces 151 BOE per day from three pools located in southwestern Ontario.

"Torque Energy started in 2001 when two people, John Cowan and Steve Calquhoun, acquired the assets of CanEnerco Ltd. out of receivership," says John Thomson, general manager of Torque Energy. "I was there as an employee of CanEnerco. Through time I stayed with the new company and moved up. Steve Calquhoun moved on to other projects, but John Cowan is still a director.

"The industry here is hugely different than Western Canada," he adds. "It's small-scale, with a lot of individually controlled companies operating. The practices and techniques are quite different. But it's stable, even though it goes through price crashes the same as everything else."

Hamilton says: "Ontario has a fragmented land base with a preponderance of relatively small farms compared to Western Canada. Ontario also has a freehold claim rather than provincial ownership of petroleum rights. It takes time and money to develop a land base as each and every parcel has to be negotiated with the landowner. It is a challenge to get a compromise between the best drill location and a location that is the least disruptive to a farm.

"The regulations in Ontario are fair, in my opinion, but we are faced with new regulations related to freshwater conservation and, most recently, endangered species," he adds. "To be successful here, you need to be on top of the regulations and build a solid history of compliance."

For Hamilton and Thomson, these features are one thing they like about Ontario's industry - that and the fact that the province is home to them. Neither has considered leaving to participate in the oil rush in Alberta.

"I moved from Alberta in 1991," says Thomson. "I had 10 years of experience in the Albertan oil industry, but my wife was from the East Coast and I was from Ontario. Ontario was closer to home than Calgary was, and I wanted to see what the oil industry here was like."

Hamilton says: "I was attracted to the petroleum business after having started out in the mining industry. The key attraction was working five days a week rather than seven days a week in the bush, in remote locations. I was drawn to the Ontario oilpatch because my family was in southwestern Ontario and family ties are important to me. Working here, it's clear to me that there is lots of unrealized potential."

In 2006, Ontario produced 2,100 barrels of oil and 30 million cu. ft. of natural gas per day. This is small compared to Alberta's 1.84 million barrels of oil and 13.2 billion cu. ft. of natural gas in 2006, but it represents more than $150 million per year of production. As oil wells run dry, this is not bad for an industry celebrating its 150th anniversary.

Back in August1858, asphalt producer James Miller Williams set out to dig a water well near a community in southwestern Ontario called Black Creek. He found oil instead and triggered the continent's first oil rush. The community renamed itself Oil Springs. The Oil Museum of Canada, located in town, commemorates this event.

"To visit Oil Springs is to make pilgrimage to the place where the modern petroleum age began," says Robert Tremain, supervisor-curator at Lambton County Museums. "Among other things, you can see the continent's first commercial oil well, Canada's first refinery and the world's longest-producing oil field - still pumping with 1860s technology."

The action moved to nearby Petrolia with the discovery of larger fields there in 1866, but the whole area remained dominant in the North American oil industry for decades. "Lambton County produced 90 per cent of the Dominion's oil needs until the beginning of the 20th century," says Tremain. "Alberta started contributing in 1910 and then took over with the Leduc discovery (in 1947)."

The oil museum is holding a number of events to commemorate the 150th anniversary of the discovery of oil in Oil Springs. It has set up a website (http://2008celebrate.com/) and is launching a book, Ontario's Petroleum Legacy, by Earle Gray, on the history of the industry.

Although rising oil prices have been a boon to the Ontario industry, the challenge has been getting attention next to the heated activity going on in Alberta.

"High oil prices are helping," says Thomson. "Companies are paying off debt a lot quicker, though we're not seeing a swing in share prices because nobody believes the price is going to be there forever. At the same time, it allows you to restructure and go forward."

Hamilton says: "Our revenues are up approximately 150 per cent. With our drilling program, I expect our revenues to be up about 400 per cent by yearend. So far, I haven't seen any increased competition and this is partly due to the province being primarily freehold claims."

Information is not as readily available here as it is in Western Canada, he notes.

"Although there's a lot of money that comes into the wider industry, everybody's looking for the big discoveries," adds Van Overberghe. "It's tough when Bay Street doesn't really know you're here and instead deals directly with Calgary.

"People tend to invest in us outside of boom times because, although we offer smaller discoveries, we offer proven areas, with some quality oil very close to the market," he says. "The logistical part of the industry is very good here."

But Ontario's oil and gas industry still offers a future for its energy companies, and these companies are starting to grow.

"We have a project with United States Steel to develop indigenous gas supplies to fuel their steel plant in Nanticoke," says Hamilton. "Greentree has lots of projects in Ontario, but in the longer term we are also looking at Michigan and the Quebec lowlands."

Whether it's through acquisitions or through the drill bit, "we'd like to get bigger," adds Thomson. "We want to grow the company."

Web Watch: www.ontpet.com

www.greentreegas.on.ca

www.torqueenergy.com http://2008celebrate.com (James Bow can be reached at bow@businessedge.ca)