‘The Envy of North America’
When it comes to the oil industry in Canada, Alberta has quite obviously received the lion’s share of the attention; but its Alberta’s provincial neighbour to the east that is garnering its fair share of notoriety as a leader in oil, energy and minerals production.
With an estimated 45.6 billion barrels of conventional oil in place, Saskatchewan ranks as Canada’s second largest oil producer and there are only four American states producing more oil on an annual basis. Production in 2011 was just less than 158 million barrels with sales totalling about $12.7 billion for the provincial economy, with about $1.7 billion of that paid to the province in the form of royalties and bonus bids. Additionally, Saskatchewan ranks as the third-largest producer of natural gas in Canada and its potash industry is legendary worldwide. Recently Premier Brad Wall announced what he calls game-changing carbon capture technology.
The Conference Board of Canada has been quoted as saying “Saskatchewan is the envy of North America” with estimated economic growth coming in at No. 2 in Canada this year and forecasted to be the highest next year. With that type of positive outlook, we decided to get some first-hand insight as to what has catapulted the province to such lofty levels and so, who better than the man in government responsible for the resources sector, Tim McMillan.
McMillan is the Minister Responsible for Energy and Resources, Tourism Saskatchewan, Trade and SaskEnergy. Despite an extremely packed schedule covering multiple portfolios, McMillan took time to speak with The Canadian Business Journal about the continued growth by his province in the energy and resources sector.
“It’s one of the most important sectors here in Saskatchewan.” McMillan says. “Obviously agriculture has been a mainstay in our economy since the province was founded, but for the last 50 years we’ve seen increasing importance on mineral, potash and oil and gas exploration.”
Substantial growth has been observed in each of those sub sectors, especially in the past five or six years. The diverse sector ranges from potash to uranium, gold and base metals.
“On the oil and gas side we broke a record this past year on oil production,” McMillan continues. “We’re No. 2 in Canada behind Alberta and No. 6 in North America. In all those cases we’ve had some very good investments and growth in the last few years.”
Kings of Potash
Potash has of course been one of the main contributors to the Saskatchewan economy for many years, and it’s by far the acknowledged international leader in production with a number of companies experiencing tremendous success, not the least of whom has been Potash Corp., the world’s largest producer and the third largest producer of nitrogen and phosphate. Those three primary crop nutrients are used in the production of fertilizer. The company was founded in 1975 and has a current market valuation of just under $37 billion. McMillan says this industry will remain a robust and growing part of the Saskatchewan economy for the foreseeable future.
“The investments in the potash industry are very much long term,” he confirms. “This past year Mosaic celebrated their 50th anniversary of their first mine K1 and they expect to have another 50 years of operations at that mine. We’ve had a couple phases of major build-outs but we haven’t had a new mine developed in our province in about 40 years.”
During the past several years there has been a high degree of green-field expansions, expanding Saskatchewan’s capacity tenfold.
“This past year we broke ground with K+S, a German company building the first new potash mine in our province in 40 years as well as at BHP which has been developing their project at Jansen Lake,” McMillan reveals. In fact, they’ve already invested a couple billion dollars in the province to move the project forward. At this stage they are in the process of sinking their shafts. The BHP board has yet to give final approval but given the amount of investment allotted to date, it seems like a safe bet to assume it will proceed as planned.
Production at the oil and gas wells has intensified significantly during the past several years. Why now? Why, if there’s been this massive potential there all along, hasn’t it been better utilized before now? McMillan believes the answer to the question can be attributed to a couple of primary factors.
“I think historically Saskatchewan has shot itself in the foot,” he candidly remarks. “There have been political decisions made in the past essentially nationalizing our oil industry and had left quite a sour taste with investors. In the last few years we have worked very hard to speak and build confidence with investors that we believe in long term stable royalties that drive long-term investments. We want to be a province that welcomes these types of investments. On the regulatory side we feel we have a very important role to ensure that everything is done in an environmentally sustainable and safe way but also that we don’t have inefficient processes.”
The offshoot is that Saskatchewan is becoming a place where people want to do business. Historically it seemed to be a place people tended to avoid – a sentiment McMillan agrees with.
Technology has had a major impact on most all business sectors, and the oil industry is no different. The Bakken is an oil field that has been known about for 60 years but as late as 2005 only a few hundred barrels of oil a day was being extracted. Today that number is up to about 70,000 per day, driven primarily in rapid advancements in technology. The Bakken formation occupies 320,000 square kilometres of the subsurface of the Williston Basin, underlying parts of Montana and North Dakota in the United States as well as Saskatchewan. About two-thirds of the entire formation lies underneath U.S. soil. The Energy and Environmental Research Centre estimates the Bakken formation was deposited about 360 million years ago – give or take a couple million years.
Just recently the U.S. Geological Survey announced there could be twice the amount of oil in the Bakken formation than was originally thought, which would equate to about 7 billion barrels of recoverable oil (theoretically recoverable). With the formation straddling that central continental area, both Canada and the U.S. would benefit to an even larger degree. North Dakota definitely has the largest portion of the three, but each has a significant stake in claim.
Some of the very new technological advancements that were utilized at the Bakken formation are now bringing the Viking formation to an entirely new production plateau as well. The Birdbear and Lower Shaunavon are examples of other expansive oil pools where new technology is resulting in much faster extraction.
“We have oil sands that tie into the Alberta border,” McMillan notes. “In the last year we’ve seen a million dollar investment purchasing land permits to do work in northern Saskatchewan.”
A good sign for Saskatchewan is that most of the misdeeds enacted by previous governments and their shoddy treatment of potential and real investors looking to conduct business in the province has been left in the past and the focus is now on moving ahead in unison. One such company that was in Saskatchewan – but then left due to stonewalling – was K+S of Germany. McMillan believes Saskatchewan has gotten past that sordid part of the province’s history.
“K+S spent a substantial amount of money on a potash mine in the early 1970s right before the then NDP government went and passed the Potash Nationalization Act and took their mine from them,” McMillan says. “At the groundbreaking a year ago their CEO, who had come over from Germany, talked about the history of their company and he was very blunt and to the point saying ‘we were here before’ and he talked about how they’d just built the mine when the NDP nationalized the industry and how his company was mad for a long, long time.”
It took about 40 years before K+S made a return to Saskatchewan, finally confident that enough had changed that they wouldn’t be shortchanged on their efforts, and costly ones at that.
“They now feel this is the best place in the world to develop a potash mine and they’re comfortable that we have an investment climate for long-term investment,” McMillan remarks. “Having a company like them that experience that period of Saskatchewan history who will now come back to our province and make a $4 billion investment, I feel we need to be diligent but that work has paid off.”
U.S. Energy Self Sufficiency
American President Barack Obama has on numerous occasions stressed that he wants his country to be energy self-sufficient within a decade. The world’s largest economy currently uses about 20 million barrels of oil each day, with three million barrels coming from Canada. It’s expected the amount of oil heading south of the border and elsewhere would ramp up exponentially if the Keystone XL pipeline is given U.S. regulatory approval, which has been bogged down in political gamesmanship.
McMillan says it’s hard to get a read on just what the final outcome will be.
“Talking to industry experts and people intimately engaged in this file in the U.S., I think the feeling is that by early to mid summer they’ll be a definitive approval or disapproval,” he says. “I think people are cautiously optimistic. Our government has been very proactive. Our premier (Brad Wall) has been in Washington on several occasions. He’s also been to Philadelphia speaking at a carbon sequestration conference about how Saskatchewan has taken a leadership role in Climate Change efforts especially around the carbon sequestration file. We are disadvantaged by having these great resources but needing access out. On the Keystone XL it does seem very politically motivated. We currently have over 70 active commercial pipelines crossing our border. We have one that comes in to Saskatchewan from North Dakota’s Bakken. It crosses into Canada, over to Manitoba, down into Wisconsin to Enbridge’s hub there and then back into Sarnia, Ont. Oil sometimes crosses the border three times before it gets refined.”
The case continues to be made about how integrated the system already is between Canada and the U.S. TransCanada is aggressively looking at taking some oil east utilizing formerly used gas pipelines and potentially putting in more access out to the east coast and places such as New Brunswick. There’s also been much debate about taking oil to the far west with emerging economies in Asia. It’s a way for Canada to diversify away from selling all its oil to one large trading partner in the U.S. and would also promote the ability to charge world market prices – as opposed to the cut-rate deals we have been forced to pay the Americans for far too long.
In terms of helping promote exploration and advance the economic well being of the energy and resources sector in Saskatchewan, McMillan says the federal government has been a valued supporter.
“We are – in Saskatchewan – Canada’s only producer of uranium and produce 17 per cent of the world’s supply,” McMillan offers. “When Cigar Lake comes on it’s going to increase that dramatically; and where we see nuclear power plants being built in the world today, it’s in India and China. Up until as late as a year ago we had no ability for our uranium to be sold into those markets. In past years there had been very little leadership from the federal government to get agreements in place. This government, with the leadership of the prime minister and the natural resources minister, have secured agreements that will ensure our uranium will be used in appropriate nuclear power facilities.”
Additionally, there’s now a joint venture in place between the federal government and Saskatchewan called the non-resident ownership provision (NROP) that is a Cold War era exclusion that states every uranium mine must be at least 51 per cent owned by Canadian interests. Areva SA is a French company and the second largest uranium producer in the world behind only Cameco. Areva was here in Canada before the provision was enacted and owns mines today with more than a 50 per cent interest. But they’re prohibited from developing new mines because they aren’t Canadian controlled. Rio Tinto spent hundreds of millions of dollars two years ago to purchase a property in northern Saskatchewan and unless revisions are made, will be unable to bring that mine into production. Needless to say there has been, and will continue to be, intense lobbying for modifications to NROP.
Carbon Capture Technology
Premier Wall says Saskatchewan has game-changing carbon capture technology. Moving forward with this initiative would involve the Boundary Dam power station and facets could be operational as early as next year.
“This relies heavily on coal-fired power plants for our electricity needs,” McMillan begins. “We also have power plants that are in need of refurbishment. Boundary Dam 3 is one that currently is under reconstruction and it will be refitted with carbon capture technology. It’s one of the first projects in the world that will have it. We’re very fortunate that our coal reserves are very close to where we have oil fields.”
About a decade ago Saskatchewan started injecting CO2 down into oil formations to enhance oil recovery and it’s a process that has been very successful, rejuvenating mature oil fields and taking production levels far higher than were able to be accomplished through means of regular mainstream technology. The Boundary Dam 3 retrofitting with the carbon capture unit will make it more cost effective for enhanced oil recovery. McMillan says the project is on time and on budget – music to the ears of anyone keeping tabs on expenditures. He expects that the carbon will be ready for full utilization by next year.
With Saskatchewan relying heavily on coal-fired plants, it runs directly in opposition to the federal government’s ideas of looking to alternate power sources with lower pollution output.
“The federal government’s carbon regulations on coal-fired power plants is something we work back and forth with them on. One of the main drivers as to why we’ve been so proactive on the Boundary Dam 3 carbon capture facility. We are looking to find solutions that are cost effective. We have a 300-year supply of coal in our province. We don’t want to – and don’t plan to – turn our back on utilizing coal for power production. We’ve made substantial investments to make sure that we can continue to utilize that as a power source.”
In December, Saskatchewan made its Mars technology system go live. Before that, if you wanted to stake a claim in Saskatchewan you’d do the regular geological work and then fly out in a helicopter – or reach the remote site in some other such way – and stake a claim and come back and input the information to the Energy and Resources field office with a typical turnaround time of a couple of months or more where it would be determined if there was any overlap of the claim. Now claims can be staked digitally online. The turnaround time is now five days. McMillan says there has been a five-fold increase since the new system came online in December compared to what was seen previously. Needless to say, it’s been very well received by industry.
By Angus Gillespie