Jim Stott
OGJ Online Calgary Correspondent
Gwyn Morgan sees the future of Calgary-based Alberta Energy Co. Ltd. (AEC) as an aggressive competitor among global independents.
Morgan, president and CEO of the company since 1994, has positioned AEC as Canada's largest natural gas producer, North America's largest independent gas storage player, and in the top five of North American independents with an enterprise value of $14 billion (Can.). Production target for 2001 is 365,000 boe/d and the company is producing more than 1.5 bcfd of gas.
It expects major growth in western Canada, the US Rocky Mountain region, and in Ecuador. It is also expanding worldwide with what AEC calls new venture exploration areas in Alaska, Canada's Mackenzie Delta, Azerbaijan, Australia, and the Congo.
"With some good fortune and the world unfolding as we hope, we will have exploration success and create growth platforms elsewhere. That's strategy number one in building up and diversifying our locations," Morgan says.
"The second way of getting a new growth platform is to kick-start with acquisitions. Ecuador and the Rocky Mountain region, where we have made acquisitions, are good examples of that."
AEC has 1 tcf of established gas reserves in the US Rockies, 425,000 acres of undeveloped lands, and a 60% average working interest. In Ecuador, it has 260 million bbl of established oil reserves, 726,000 net acres of exploration lands, and a 73% average working interest. It is also lead partner in a project to build an oil export pipeline.
Morgan says President George W. Bush's plan for an expanded North American energy market is a major economic opportunity for Canada.
He says there must be changes in the tax regime and more access to lands if Canada is to achieve the full potential of that opportunity.
"When I think of continental energy, I say, 'Bring it on!' We have tremendous energy resources. We also have smart, innovative, and industrious oil and gas professionals who can compete at home or anywhere in the world. What we must do is set up the conditions for industry to create supply. That's Canada's fundamental opportunity," Morgan says.
"In strengthening the competitive foundation for Canada's leading independents, opportunities for success emerge, primarily in the area of adding supply through grassroots natural gas exploration and the development of Canada's huge oil sands potential."
Morgan says what he considers an unfair tax regime imposed by Ottawa must be fixed. He says it is a "glaring injustice" that a February 2000 federal budget implemented a gradual reduction in corporate taxes to 21% from 28% by 2005, but did not include the petroleum or mining industries.
"This reduction went to all of the Canadian corporate sector except our industry. We were left on the sidelines, like an unwanted and punished participant, wondering what we did wrong, asking why we were not included, and saying, that's not fair! On top of that, the tax reductions do apply to our foreign income, but not to our Canadian income," Morgan says.
"Foreign investors look at Canada and ask why the federal government is discriminating against a single sector, especially one that they are counting on for new energy supplies. So as we try to capitalize on the massive energy opportunities staring us in the face, and a large, energy-hungry market just to our south, we end up competing with a home-grown disadvantage."
Morgan says another major issue is access to lands.
"It's rather clear that large, new exploration successes will not likely occur where industry has already been exploring for 70 years. It will occur in more remote regions and places that have been inaccessible for one reason or another. These geological structures will be more complex, will require deeper drilling, and will require more science and engineering to free up reserves," Morgan says.
As an example, he gives AEC's recent Ladyfern discovery in a remote area of northeast British Columbia where the company is producing 150 MMcfd of gas and producers collectively are producing 500 MMcfd. The structure, he says, can barely be seen on seismic, but new technology helped identify the prospect and bring it to production.
Morgan says one disturbing trend he sees is a movement to blanket closures of large tracts of land that he describes as "land preservation creep."
"Of course the national parks are environmental preserves and off limits to all resource development. That's fine. But then there's lobbying for a buffer zone around parks. And after that, are requests to have buffer zones around the buffer zones," Morgan says.
"What we need is a careful, reasoned approach to land restrictions, not blanket prohibitions that create no-activity zones and restrict operations in the very places we must get to in order to find new oil and gas."
Morgan adds industry should never forget environmental concerns and must always work to reduce its footprint, create the least amount of disturbance, and apply the soundest reclamation when work is done.
On the need for skilled labor for the effort to expand natural gas supply, he says if industry can get access to lands and get on with the job "we can bring the people resources to the job of developing it."
He says the labor problem could be greater for the Alberta oil sands, with reserves of more than 300 billion bbl.
"Pipelines are a little different and labor depends on timing. If you hit a window, you are more likely to get by (on labor availability) on the pipeline side than on the big oil sands projects."
Morgan is convinced the era of cheap natural gas is over and higher prices will facilitate development. "There is such a tight demand and supply situation for natural gas, there isn't a lot of gas around. I don't think this is a cycle. I think this is a new world for natural gas", he says.