Heavy machinery operates in the pit at the Shell Albian Sands located in Alberta's oil sands north of Fort McMurray, Alberta .Kevin Van Paassen/The Globe and Mail
Conventional oil production in Alberta is exploding, posting growth numbers not seen since the 1960s, as companies across the province use modern technology to revive pools of crude once thought inaccessible.
The Energy Resources Conservation Board (ERCB) said energy companies extracted 556,000 barrels of oil a day in 2012 from conventional zones, up 14 per cent from 2011. It expects output to grow by 7 per cent in 2013.
The conventional oil renaissance is happening as bitumen production from the oil sands continues to roar ahead, climbing 10 per cent last year to 1.92 million barrels a day, a production rate set to double within 10 years.
The strong growth in Alberta oil production shows the industry's prowess in tapping reserves from conventional fields and the oil sands alike. But fast-rising output also risks adding to a problem already hampering many in the oil patch, as abundant crude exports run into chronic transportation bottlenecks and weigh on prices for Alberta companies, largely heavy oil producers, compared with North American and global benchmarks.
"We're in the midst of a massive increase in North American crude oil supply. That's generally good news, however the lack of sufficient pipeline capacity is causing significant regional price disparities," Al Monaco, Enbridge Inc.'s chief executive officer, said on a first-quarter conference call Wednesday.
"We're all concerned about the short-term and longer-term effects this could have on energy development," Mr. Monaco said.
Enbridge and other pipeline companies have plans for a number of new projects to accommodate more of Alberta's oil exports. But several, such as Enbridge's Northern Gateway and TransCanada Corp.'s Keystone XL, face uncertainty amid political battles in places such as British Columbia and criticism by environmental groups.
Alberta's conventional oil boom is largely the result of horizontal drilling coupled with multistage hydraulic fracturing (or "fracking") techniques that allow companies to tap formations once viewed out of reach or unprofitable. In addition to rising production, conventional crude reserves grew 9.5 per cent last year, the ERCB said.
The growth in conventional oil production gives small and mid-sized outfits a chance to attract attention – and capital – after years of losing ground to major oil sands projects. The ERCB, however, expects conventional crude production will begin to decline in 2014, meaning the boom could end unless another technological revolution kicks in.
Scott Saxberg, president and CEO of Crescent Point Energy Corp., is among those who believe the industry's good fortunes will continue.
"We're just at the front end of the technology change," he said. "In the next five to 10 years, we're going to see even more advancements in that technology and the knowledge we have around developing these assets using the multistage fracking horizontal drilling."
These techniques, however, are expensive. Trent Yanko, Legacy Oil + Gas Inc.'s CEO, said this is the conventional industry's Achilles heel. Production, he noted, also falls off very rapidly.
"So as much as there's a peak, it will be short-lived without more capital and more drilling to keep that ahead of the decline rates," he said.
Yangarra Resources Ltd. CEO Jim Evaskevich, however, believes the industry can solve the cost conundrum.
"We're finding that our results continue to improve, our costs continue to come down," he said. While the cost to drill and frack a well remain the same, the fracks – the wedges created in the reservoir after injecting sand, water, and chemicals underground – are bigger and better, bringing down the cost per barrel.
Transportation, however, remains a key problem. This drives the oil price differential – the spread between benchmark crude and oil from Western Canada – and cuts into provincial royalties and corporate profits.
"Perhaps we need to work harder as a country to ensure that we're able to get access to world markets as opposed to just U.S. markets," Mr. Evaskevich said. "We believe [this] will tighten that differential and of course be good for everybody."