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Rows of pump jacks stand out against the snowy landscape southeast of Waskada, a small town in southwestern Manitoba. (Tim Smith for The Globe and Mail/Tim Smith for The Globe and Mail)
Rows of pump jacks stand out against the snowy landscape southeast of Waskada, a small town in southwestern Manitoba. (Tim Smith for The Globe and Mail/Tim Smith for The Globe and Mail)

Drilling technology sparks new oil boom Add to ...

Gary Williams recalls the last time the oil industry showed up in his tiny town of Waskada, Man. Crews punched holes in the prairie ground, then disappeared as suddenly as they arrived when those holes came up empty.

But that was 30 years ago. This time, it's different. Armed with new drilling technology and eager to reap the rewards of oil's high prices, companies are tapping complex geological formations, and the crude is flowing, adding Manitoba to Canada's list of significant oil-producing provinces.

"It's just a huge boost for the economy in the area," said Mr. Williams, the town's mayor. "We were sending our young people to Alberta for the last 10 years and now the trend is reversing and we're seeing a lot of Alberta people here and some of our people are coming back."

The oil-drilling boom promises what one company executive calls a "quiet revolution" in the industry. It could reduce the U.S. appetite for imported oil - including, potentially, from the oil sands. And the technological breakthrough could put the brakes on future price increases by bringing new, relatively low-cost supplies to the market - not just in North America but around the world.

Waskada, population 225 and just a few kilometres away from the U.S. border, is on the northern fringe of the prolific Bakken field, a booming unconventional oil play that could soon make North Dakota the second-largest oil-producing state after Texas. The rapid development of the Bakken - which now is now producing 350,000 barrels a day - signals a dramatic new chapter in North American oil industry, where conventional, onshore production was recently considered to be in terminal decline.

As energy companies turned away from low-priced gas, onshore oil production in the United States began reversing a 30-year decline last year. Some analysts project so-called tight-oil plays could contribute two million barrels a day of production by the middle of the decade - nearly as much as current oil sands production.

"It could potentially be a real game changer," said Peter Tertzakian, chief energy economist at Calgary-based ARC Financial Corp.

"Peak oil in North America is likely not to be peak" given $90 per barrel prices and new technology that makes it easier to recover oil, he said.

Drill crews are being deployed across Western Canada and the United States, tapping new formations or, in many cases, reworking old ones that were first brought on stream in their grandfathers' time.

Oil companies are adapting the same advanced drilling techniques that created the boom in shale gas: horizontal drilling and multistage hydraulic fracturing that allow them to break open the rocks at various points and capture the hydrocarbons trapped within.

The other key factor in the tight-oil boom is a high oil price, as North American crude is trading around $90 (U.S.) a barrel and international grades, near $100.

"High oil prices are definitely driving this thing," said Stephen Sonnenberg, a leading geologist at the Colorado School of Mines. "Gas prices are suppressed, oil prices are quite high and everybody is really excited about these tight oil plays."

Growing U.S. oil production would not have the same deflationary impact on prices that the shale gas boom has had - natural gas is a North American commodity and more sensitive to continental factors, while oil price are set on global markets.

Development of tight-oil projects will reduce the United States' reliance on crude oil imports from the Middle East and other OPEC sources as well as Canada, meaning producers in those countries will have to look to other markets to sell their oil. Canadian companies are already attempting to increase exports in the face of stagnant American demand; rising U.S. production will put even greater pressure on them to find new markets in Asia. And it could even delay investments in more costly and challenging Arctic fields, particularly if the companies use new drilling technology to boost production around the globe.

But the tight-oil boom is also reviving the fortunes of Canadian independents who expect to squeeze considerably more oil from formations that, until very recently, were viewed as nearly played out. And it is creating another revenue stream for Alberta and Saskatchewan, and to a lesser degree, Manitoba and British Columbia.

Still, there are major challenges to achieving the much-touted production potential. As with the shale gas, there are doubts over whether the production volumes can be sustained, given the rapid decline in individual wells.

As well, the U.S. Environmental Protection Agency is reviewing the use of hydraulic fracturing in the gas industry, and the tight-oil development may well be constrained by regulators. The EPA is addressing widespread fears about the impact on local drinking water resources from the hydraulic fracturing - in which chemical-laced water is shot into rock to pry open cracks and let the hydrocarbons flow.

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