The financial whirlwind roaring through Alberta and British Columbia from increased oil and gas prices is reaching Ontario's almost forgotten petroleum industry.

"It is a good time to be in the oil and gas business (in Ontario)," says Duncan Hamilton, president of Greentree Gas and Oil Ltd. The London-based company's revenue from oil and gas production has increased more than 53 per cent to $2.3 million in 2005 from $1.5 million in 2002 when prices began their steady climb upward.

Greentree, which operates 90 natural gas wells and 35 oil wells in southwestern Ontario, expects to raise about $10 million in 2006 for exploration and development in Ontario. The company normally spends about $2 million annually, Hamilton says.

For junior oil and gas companies such as Greentree, raising capital has always been difficult in Ontario, Hamilton says. "Investors tell us: 'We weren't aware there was oil and gas in Ontario.' " But Joe Van Overberghe, executive director of the Ontario Petroleum Institute (OPI), says that situation is changing. The steadily increasing price of oil and gas since 2002 has significantly raised the interest in Ontario oil and gas production.

Photo courtesy of Ontario Oil, Gas & Salt Resources Library
A crew works on the Licks No. 1 well in Kent County in 1863, above, one of the rigs that helped make Ontario the birthplace of the North American oil industry. Talisman's Renwick site, below, near Leamington, continues the legacy.

"I've had several inquiries from out of the province about what's happening in Ontario," he says. "We're also hearing there is increased leasing activity in southwestern Ontario."

Public records are not kept in Ontario because leasing arrangements are private contracts between landowners and the leasing organizations, Van Overberghe says. In 2005, there were 105 companies involved in oil and gas exploration, development and production, according to the London-based OPI.

The price of oil is about $60 US a barrel, up from less than $20 in 2002. The price of natural gas has increased even more, to $10.05 per thousand cubic feet (mcf) in December 2005 from $3.96 in December 2002, although the price has since retreated to the $7 range.

No one expects a return to Ontario's heyday in the late 19th and early 20th centuries when it was Canada's largest oil-producing province. But the increased price "puts a lot more money into the pockets" of the producers who stuck it out in Ontario, Van Overberghe says.

Ontario has 1,100 oil wells and 1,200 gas wells producing in commercial quantities. Revenue from oil and gas produced in Ontario generates about $200 million annually to producers, the OPI says.

In production-leading Alberta, revenue in 2004 from oil and gas generated $64.4 billion, including $10 billion in government royalties.

British Columbia generated more than $7.1 billion in revenue, including $2 billion in government royalties, bonuses and fees, according to the Canadian Association of Petroleum Producers (CAPP). Industry revenue in Saskatchewan was $7.3 billion in 2004 and the figure for Manitoba was $200,000, according to CAPP.

Despite its current small size as a producing province, Ontario is the birthplace of the North American oil industry. The continent's first commercial oil was produced in 1858 at Oil Springs, which is southeast of Sarnia. The 135-year-old Oliver Fairbank Oil Properties Ltd. in Lambton is the oldest petroleum company in the world, according to the OPI.

Ontario's dominance of Canada's oil industry began to decline in 1914 when the Dingman Well in Alberta's Turner Valley was discovered. Alberta surged to the fore in Canada with the discovery of the Leduc oil fields in 1947.

In 1915, Ontario produced 214,519 barrels of oil and 15.212 billion cubic feet of gas. Ontario's gas production peaked in 1985 when it produced 20.783 billion cubic feet of gas, while its oil production peaked in 1995 when it produced 1.78 million barrels of oil.

By comparison, Alberta produces 13.2 trillion cubic feet of natural gas per day as well as 600,000 barrels of conventional oil daily.

Total production in Ontario last year was 865,700 barrels of oil and 12.259 billion cubic feet of gas. Every day, Ontario residents and businesses consume about 560,000 barrels of oil and 2.6 billion cubic feet of gas, according to the CPPA.

Ontario's small production of oil and gas - less than one per cent of Canada's total - hasn't deterred one of Canada's largest oil companies, Calgary-based Talisman Energy Inc., from becoming the province's largest oil and gas producer. Talisman has an enterprise value (share value and debt) of $15 billion, with cashflow in 2004 of $2.9 billion.

Talisman, which has operations in North America, the North Sea and southeast Asia, produces 1,750 barrels of oil a day in Ontario and 16.4 million cubic feet of natural gas. The company's worldwide production of oil is 470,000 barrels a day and 1.3 billion cubic feet of gas, according to Talisman spokesman Barry Nelson.

Talisman, which acquired its Ontario production leases when the company was formed in the early 1990s, produces 60 per cent of Ontario's oil and 70 per cent of its natural gas, according to the OPI.

In 2005, Talisman participated in five onshore oil-drilling projects and 20 offshore gas-drilling projects in Lake Erie, Nelson says. The company spends about $15 million annually on exploration in Ontario.

While Ontario is one of Talisman's seven largest gas-production locations in Canada, it is "not a high-growth area for Talisman," Nelson says. "Our strategy is to drill for deep gas in the Alberta Foothills."

Talisman's increased gas production from its wells in New York State in the Appalachian Basin have contributed to the renewed interest in Ontario oil and gas, says Greentree's Hamilton.

"The whole eastern seaboard has been out of phase with Alberta and Texas. But, at current gas prices, the area is quite attractive," he says.

In 1994, when Hamilton joined Greentree, gas prices ranged from $1.80 to $2 per mcf. "Now we're constantly getting $8 to $10 per thousand cubic feet," he says.

Ontario gas producers also receive a premium price for their gas because transportation costs are less. "We get about $1.25 more per mcf than they do in Alberta because we're already at the customer's door," Hamilton says.

Ironically, Ontario's most valuable natural gas resource is the now-depleted underground gas reservoirs at Dawn in the province's southwest, where Union Gas stores up to 150 billion cubic feet of gas. The stored gas is worth more than $1 billion.

The gas reservoirs, about 35 kilometres southeast of Sarnia, were once a source of Ontario natural gas, but are now filled with gas from across Canada and the United States.

The Dawn Market Hub, the largest storage hub in Canada, contains enough gas to provide three million people with gas for five weeks, says Union Gas spokeswoman Andrea Stass.

About seven billion cubic feet of natural gas is traded and moved through the hub every day, she says. The transactions have a value of $47 million.

(Charles Wyatt can be reached at wyatt@businessedge.ca)