New frontiers in offshore exploration and in improved oil recovery (IOR) technology offer the best hope for slowing the decline in Canada’s conventional oil production.
The consensus that Canada’s oilsands production boom will more than offset declines of the nation’s conventional oil production in that country is of little solace to most Canadian oil producers.
Conventional oil production in the Western Canada Sedimentary Basin (WCSB)-the backbone of Canada’s oil production for 50 years-has been in decline since 1997 as reservoirs there have matured. According to the Alberta Energy Research Institute (AERI), the decline in Canada’s conventional oil production has averaged over 6%/year for the past 5 years.
And while big discoveries in Atlantic Canada’s Jeanne d’Arc offshore basin have made a significant contribution to the nation’s conventional oil output since the late 1990s, a subsequent slump in new exploration there doesn’t bode well for sustaining that contribution in the years to come.
The Canadian Association of Petroleum Producers (CAPP) forecasts that conventional oil production in Canada will decline to 726,000 b/d in 2015 from about 1.4 million b/d in 1997 and 1.09 million b/d in 2004. That works out to annual decline rates of about 4-5% over the coming decade.
This is despite sharp increases in drilling activity that are expected to continue this year. Petroleum Services Association of Canada (PSAC) predicts a fourth consecutive year of record drilling activity in Canada this year, projecting a total of 25,295 wells drilled, compared with 24,800 wells drilled in 2005. That breaks out to 20,000 wells drilled in Alberta, 3,400 in Saskatchewan, and 1,600 in British Columbia, with the remainder scattered elsewhere. However, PSAC notes that the bulk of that drilling will target coalbed methane in southeastern and central Alberta.
The biggest potential constraint to this uptick in drilling activity in Canada’s traditional oil producing basins is a shortage of qualified personnel.
“Limited access to skilled personnel is an issue in all aspects of the Western Canadian economy,” notes Regan Davis, president and CEO of Calgary-based Flexpipe Systems Inc., developer of a coiled, continuous, high-pressure pipeline gathering system. “This affects every element of the oil and gas industry, from the ability to generate good ideas for exploration capital, to access to equipment and materials and the capacity to execute field programs, to the availability of accommodations, even to the ability to get a cup of coffee at the local café.”
New technology
Technology advances in IOR offer the best hope of stemming the decline in conventional onshore oil production in Canada, says Petroleum Technology Alliance Canada (PTAC), in a report commissioned by AERI. PTAC is a nonprofit association of producers, suppliers, government, academics, and others focused on facilitating oil and gas technology research and development.
According to CAPP, only 27% of Canada’s total conventional original oil in place (OOIP) of 216 billion bbl is recoverable with current technology and economics.
Boosting that recovery rate, says PTAC, warrants a renewed commitment to R&D in IOR. A 1 percentage point increase in recovery would equal about 600 million bbl of added reserves. This would extend the reserve life of conventional oil in Canada to 10 years from the current 8 years. PTAC contends that a renewed commitment to R&D could boost the recovery rate for conventional oil in Canada ultimately to as much as 41% of OOIP.
PTAC’s technology initiative calls for R&D to overcome challenges in managing produced water, CO2 enhanced oil recovery, and other IOR processes. The goal is add 5 billion bbl of conventional oil to Canada’s reserves by 2015.
Offshore renewal
Although offshore exploration has occurred off eastern Canada for more than 40 years, oil production there didn’t begin there until 1997, when Hibernia oil field came on stream. Hibernia now produces 220,000 b/d.
In addition to Hibernia, discovered in 1979, only two Canadian offshore fields are producing: Terra Nova, which started up in 2002, and White Rose, which started up in November late 2005. Terra Nova produced 119,000 b/d before mechanical problems forced a shutdown May 7. Operator Husky Energy Inc. says White Rose achieved production of 100,000 b/d in May 2006.
Unless development activity is stepped up off Canada, the nation’s offshore oil output is likely to go into decline after 2007, according to CAPP. Those prospects were dealt a serious blow when a group led by Chevron Canada Ltd. suspended work on the Hebron heavy oil field off Newfoundland and Labrador after negotiations over fiscal terms fell through.
Had the project been greenlighted, Hebron, with 414 million bbl of oil, 315 bcf of natural gas, and 30 million bbl of natural gas liquids, would have started up in 2011-12.
The association notes that no exploration wells were drilled off eastern Canada in 2004, only one in 2005, and one or two are slated this year. CAPP estimates that four to six exploratory wells will be drilled off eastern Canada next year.
Of the 2006-07 drilling program, garnering the most interest is the first well to be drilled in the Orphan basin off Newfoundland and Labrador in almost 20 years. A group led by Chevron Canada expects to spud the wildcat this summer. Orphan basin water depths range from 250 m to more than 2,500 m.
Seismic surveying activity is accelerating in the Laurentian subbasin and in the South Whale basin-where drilling 30-40 years ago yielded oil and gas shows but no commercial finds.
British Columbia is another area that’s prospective for offshore oil. The federal government, however, has imposed a ban on drilling off the Pacific coast, despite persistent lobbying by the province.
“Limited access to skilled personnel is an issue in all aspects of the Western Canadian economy. This affects every element of the oil and gas industry, from the ability to generate good ideas for exploration capital, to access to equipment and materials and the capacity to execute field programs, to the availability of accommodations, even to the ability to get a cup of coffee at the local café.”
-Regan Davis, president and CEO, Flexpipe Systems Inc.