Nineteen Straight Dry Holes
My late father’s old Air Force buddy related to me a few years back how he had drilled nineteen straight dry holes before finally bringing in a producer.
Not only am I in awe of the man’s tenacity, I am amazed in the light of current events how he was able to raise the funds necessary to drill his twentieth well, which not only set him on the road to prosperity, along with numerous other wildcatters, helped build the prosperous Alberta economy of today.
Then again these men were of a generation of risk takers. They had willingly put their necks on the line during the war to protect the wellbeing of their families back home and were prepared to do the same once they were safely back home again.
The worthless, penny, oil stock certificates that wallpapered the rumpus room of another of my father’s friends, as well as the walls of the wine cellar of one of Calgary’s premier steak houses, were my first clue as to how this could have come about.
The second was a discovery that it was, and I understand remains the practice of wildcatters to take minority positions in each other’s well in order to spread the risks.
My dad’s buddy never dwelt much on his successes, which in the aggregate had to have outweighed his disappointments by a long shot because for as long as I have known him he has lead a comfortable existence.
In a similar vein Alberta’s economy has been built up over the course of my lifetime based on more oil and gas successes than failures though both have left their mark on a chart of the province’s economic trajectory.
Some of the guys I grew up with have contributed to Alberta’s prosperity through direct involvement in the development of the oil sands even though for much of that industry’s history the price of synthetic crude never covered its cost of production. And those interludes during which oil prices spiked sufficiently to make the effort worthwhile typically were precursors of recessions that soon drove prices back down into unprofitable territory again.
Others of my contemporaries, by a ratio of about 17 to 1, have made money on the periphery of the oil and gas industry and in the process have built a Calgary skyline I no longer recognize after being away from the city for 34 years but for the red observation deck of the Calgary Tower in the following picture, which I used to work directly beneath.
Based on my experience in and on the periphery of the oil industry and my subsequent following of it, I have little truck with those who cite examples like Solyndra and point to fossil fuel costs as evidence they will never be supplanted by renewable energy.
Failures will abound and lean years lay ahead for fossil fuels successors even as those industries suffered through learning curves of their own but we have little option but to press ahead.
The environment wasn’t in play 46 years ago when Great Canadian Oil Sands first started commercial mining operations in the Athabasca tar sands, as they were known at the time, and Hubbert’s predicted worldwide peak oil was still 40 years off.
In his 1956 presentation to the American Petroleum Institute, Hubbert correctly predicted that U.S. oil production would peak between 1965 and 1970 and that was one of the principal drivers for Alberta unconventional oil development, its cost notwithstanding.
Conversely as U.S. production has ticked up in the last three years to roughly what it was back in 1950, the U.S. imperative to import Alberta’s product has waned.
In its 2012 estimate, BP put global oil reserves at 1668.9 billion barrels, up 350 billion barrels from ten years earlier, and the reserve to annual production ratio was set at 52.9 years for an increase of 4.6 years over the previous decade.
Much of this increase however is attributed to expensive oil and oil that is environmentally hazardous to produce like the 173 billion barrels Alberta estimates can be recovered from the oil sands at current prices, using current technology - 75% of total North American reserves - and deep water resources.
The current up tick in U.S. production is based on high-cost unconventional shale and tight oil wells which David Hughes, one of Canada's top energy analysts, pointed out in a recent presentation to the Geological Society of America is rapidly depleted. By his estimation the Bakken and Texas' Eagle Ford plays, which currently produce two-thirds of U.S. tight oil, will have peaked by 2016 or 2017.
And then there is the environment. Researchers point to the fact that only a fraction of the world’s fossil fuels can be burned if the world is to maintain a temperature of no more than 2 degrees above pre-industrial levels, which in and of itself some claim is too high.
Others claim carbon capture and sequestration will allow us to keep burning fossil fuels but I hold to the view of Ryan Lijdsman expressed in his recent Troy Media piece Oil sands do not make economic sense, “Carbon capture has always been more of a political solution than a scientific one. It has never been commercialized, development is more expensive and complex than originally thought, and the power generation needed to compress carbon dioxide leads to increased emissions of other air pollutants such as nitrogen dioxide. . . Carbon capture was at best a stop-gap measure to be used on an interim basis while the world shifted to gas and other technologies. That future is now.”
In a follow up piece I intend to explore the various mechanisms that might help today’s clean energy wildcatters get us to that future.
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