TEXT OF ADDRESS delivered JUNE 23rd, 1949 at the ANNUAL MEETING of the INVESTMENT DEALERS ASSOCIATION OF, CANADA, at MINAKI LODGE, Ontario, by Mr. C. O. NICKLE, publisher of the DAILY OIL BULLETIN at Calgary, editor of OIL IN CANADA Magazine, oil editor of THE CALGARY HERALD, oil reporter for the TORONTO TELEGRAM, WINNIPEG TRIBUNE, VANCOUVER PROVINCE and several other Canadian and American news oil and financial journals.
Texas is a remarkable State - vast, husky and rich. The majority of its people to a greater extent than those of any other American State is used to thinking big, talking big, and doing big. Anything that Texas has must be at "least the biggest and best in the whole United States." Outside of size whether referring to land area, industry, hats or mouths Texas has plenty of reason to boast.
Texas and Texans have grown to wealth and stature in world affairs because of petroleum and natural gas. The State is producing about one quarter of all the oil being used by the whole world enough to provide eight to nine times the entire needs of all Canada and is the world's biggest gas producer. Americans living outside of Texas will agree with the latter statement but they won't necessarily be thinking of natural gas of the kind to which I refer.
I come from Alberta a province whose people now have good reason to believe their land will become the Texas of Canada. Furthermore, I come from Calgary that Foothills City, Oil Capital of Canada, whose citizens over the past half century have contributed greatly to making other Albertans, other Canadians, and the world oil industry, conscious of the rich promise of oil and gas underlying the province.
Being a Calgarian and an Albertan, I have been given pretty good reason to start talking like a Texan. I may dish out some staggering sort of figures and predictions. When I'm finished speaking, I hope that you will believe as I sincerely do that what is taking place in Alberta, and to a lesser extent in other western provinces, is of such importance to Canada and the world that even a blowhard Texan or Albertan would be hard put to do the matter full justice.
Over the Plains and Foothills of Alberta, four score companies Canadian and American, large and small have some 4,000 men at work. They are carrying on a job which has during the past 2 ½ years vastly altered the economy of Alberta, now and for generations to come; has greatly affected the economy of the Prairie Provinces; has made its weight felt in increasing degree in the Canadian economy; and has become of increasing importance to the continent and the world.
This Alberta oil and gas industry has already uncovered natural resources worth at least 2,500 million dollars, despite the fact it has so far completed only a minute fraction of the ultimate, thorough exploration job. It has recorded the fastest growth of any Canadian industry in the postwar years, in terms of spending, production end revenues. This year, for the first time in history, Alberta oil has made the Prairie Province self-sufficient in petroleum. There is good reason to hope that, in from three to five years Alberta can develop oil reserves and productive potential, large enough to make all of Canada self sufficient in petroleum. When and, still, if that day comes, Canada can achieve at least two major objectives: (1) self sufficiency in a resource as vital to the economy as the basic necessities, food, clothing and shelter; (2) elimination of the greatest single drain on Canada's U.S. dollar supply, and the achievement by Canada of a longterm favorable balance of trade.
These Alberta oil reserves are mighty important to Canada and our friends among world nations from the defence viewpoint. The more oil found, the more secure will we be should Joe Stalin and his gang decide to turn the present 'cold war' into a 'shooting war'.
During World War 2 the democracies had to use about two million barrels of petroleum daily to fuel the armed forces, on land, sea and air. If Communism forces war on us, we, and our allies will need at least two million barrels daily for the fighting job alone. During the last war the United States carried the supply burden. It is no longer capable of fueling a war and still look after its own minimum civilian needs. In the Middle East are located half the world's proved oil reserves. The Arab countries are the only ones presently capable of expanding production fast enough to fuel an war and Joe Stalin sits right at the back door to those reserves. He could take over, or at least neutralize, Middle East oil in event of war.
For safety's sake alone, if for no other reason, great oil reserves in Canada and the means of producing, transporting and refining those reserves, are vital not only to us, but also to the United States, Great Britain and our other good friends in the world.
As some of you know, southwest Alberta enjoys each winter what we call 'Chinook Winds', warm winds which blow across the Rocky Mountains at frequent intervals, sometimes raise temperatures 40 to 70 degrees in a few hours, melt away the snow and bring us Spring Weather until the next blizzard appears.
The Rev. John MacDougall a pioneer missionary who built a church in the Foothills west of Calgary more than half a century ago had a favorite Texas-style 'true experience' story about Chinooks. He claimed that one-day, many winters ago, he hitched a horse to his sleigh to drive from his church to Calgary. There was plenty of snow on the ground, but he knew he had to hurry, because he could see a warm Chinook Wind heading down towards him from the mountain pass to the west.
Just as he climbed aboard the sleigh and started his horse towards Calgary, the Chinook caught up with him. He raced the Chinook all the way to Calgary, but could never quite get ahead of it. He finally reached Calgary, but the race was nip and tuck. As Rev. MacDougall explained, the Chinook Wind melted the snow so fast as it raced beside his sleigh, he was barely able to keep the front sleigh runners in snow, and the rear runners traveled all the way in water.
The Chinook story has a lot in common with Alberta's Oil Industry. Chinooks are beneficial. So are oil discoveries, Sometimes Chinooks can be temporarily embarrassing as one almost was to John MacDougall. So can oil discoveries and expansion of productive potential as they are right now in Alberta.
Chinook winds can travel fast. Ability to produce oil can expand far faster then transport, processing and marketing facilities can be created to cope with potential. That is Alberta Oil's Problem today. The industry is straining its britches, suffering growing pains, getting bigger every dry, waiting for pipelines, refineries and markets to give it a vastly greater place in the North American economy.
Before looking into the future, and discussing what is being done about it, lot us look back at the past and review the present picture.
A long history precedes the Leduc Discovery, of February 1947, which started the modern, greatest era of Alberta oil. The first Alberta oil boom was a half century ago. It started because Alberta pioneers Kootenai Brown and Lafayette French saw a band of Indians back in 1898, skimming a brown, vilesmelling, oily liquid off the top of a slough near Pincher Creek, in the southwest corner of Alberta.
Kootenai and Lafayette figured the liquid which the Indians were using for internal and external lubricant (for purgative and rubdowns) was rock oil. They made a deal with the Indians, traded them a packhorse for the slough, and then headed for Calgary. Calgarians joined them to provide capitol, and in 1901 a forest of tents sprang up around the slough and drilling was started. In those days a few hundred feet was 'deep drilling'. The first oil promoters reached their limit, found no oil and the boom collapsed.
That Pincher Creek boom has a sequel. In 1941 Gulf Oil Corporation began a geological study of the region, followed up with a four year geophysical survey, and then decided to drill. Twenty months ago Gulf discovered gas and light oil, over 12,000 feet down, and is now embarked on a multimillion dollar program to determine whether or not a major field has been tapped. Pincher Creek is at least a great 'wet gas' field. It might also become a large crude oil field.
Alberta's next oil boom started because of 'Fried Eggs'. Legend has it that, back in 1911, W. S. 'Bill' Herron noticed seepages of gas coming out of fissures in rock formations studding the surface of what is now called Turner Valley. Rancher Herron reasoned that gas seeps could mean a lot of gas and perhaps a lot of oil in the rocks far below the surface.
Bill Herron came to Calgary to persuade businessmen that drilling for oil should be done. He met with little success, until one day he persuaded two Calgarians to visit Turner Valley for a demonstration on the spot. They arrived at the gas seeps. Bill Herron hauled out a match, set fire to the escaping gas, pulled out a frying pan and a pair of eggs, broke the eggs into the pan and casually proceeded to fry them. The demonstration convinced. The Calgary Petroleum Products Company (we now know it as Royalite Oil Company) was formed and drilling started.
In May 1914, at a depth of 2,700 feet, the well famed as the 'Dingman Discovery' reached production. It came in with a heavy flow of natural gas, saturated with a straw colored light oil so pure and clean it was used straightway to operate automobiles then at the well site.
From that beginning grew, Turner Valley the British Empire's first major oil end gas field, located 25 miles southwest of Calgary. That field had many ups and downs before it reached maturity. As oilmen dug ever deeper into the rocks below the Valley, the full worth gradually became apparent. In 1924 Royalite Oil Company drilled below the shallow sands whore Herron and Dingman first found oil, and discovered the Madison Limestone the same formation later tapped at Pincher Creek Until 1936 Turner Valley's Madison was classed as a major 'wet gas' source. Then R. A. 'Bob' Brown and Calgary associates drilled to 6,800 feet at Turner Valley Royalties No. 1, and opened up a major oil pool down the west flank of the structure.
So far Turner Valley has produced nearly 100 million barrels of oil and about 1,500 billion cubic feet of natural gas. It still has upwards of 25 million barrels of oil and 400 billion cubic feet of gas to go. In 1942 Turner Valley reached its peak of 30,000 barrels of oil daily and then as all fields must began to age, and commence a long, slow decline. Today the Valley puts out between 12,000 and 13,000 barrels daily, serving Calgary area refineries. The Valley's gas serves Calgary, Lethbridge end other south Alberta communities.
During World War 2, Turner Valley played a vital role in supplying aviation gasoline requirements for the British Commonwealth Air Training Plan, and part of the civilian needs of the prairies. As the field aged and production declined exploration for new fields in the prairies was intensified.
Turner Valley marked the Alberta production start for many of the companies active in Canadian Oil today Imperial Oil, British American, Royalite Home, Anglo Canadian, Pacific Pete, Commonwealth, General Pete, Herron's Okalta Oils, Brown's Federated and Coastal, and many others.
It seemed to Canadian and American oil companies who carried the exploration burden until 1947 that a province that had given Turner Valley should contain many other oil and gas fields. For a long time, however, the finding proved difficult. Guesswork gave way to science. Geology and Geophysics were called on in increasing degrees in the search for subsurface wrinkles or structures that might be productive. Better equipment made deeper drilling possible.
By 1946 hopes for major oil discoveries reached a low ebb. Several small oil fields had been found on the Alberta Plains at Princess, Taber, Conrad, Vermilion, Wainwright and Lloydminister but none very big. A lot of gas, however, was found and several major oil companies started thinking seriously about using gas to create synthetic gasoline for use in the, Prairie Provinces. Imperial, Shell, CaliforniaStandard, McColl Frontenac, Union of California and smaller companies opened up large natural gas reserves, with synthetics in mind.
Then, on February 13th, 1947, a new era dawned. Imperial Oil brought in its Leduc No. 1 as a thousand-barrel gusher from a Devonian formation 20 miles southwest of Edmonton. CaliforniaStandard, back in 1941, had first found oil in Devonian at Princess, over 200 miles southeast of Leduc, and had started the industry's widely scattered probing of that formation.
Leduc's Discovery made the Devonian the 'hottest' objective of oilseekers in Western Canada, for the Leduc find rapidly emerged as a major oilfield larger than Turner Valley. Leduc's core D3 zone is a coral reef a prolific source of oil and gas in several parts of the world, including West Texas, and Norman Wells (in Canada's Northwest Territories).
Today Leduc is rated an oil reserve good for upwards of 250 million barrels plus 500 billion cubic feet or more of natural gas. The mile deep field, rapidly developed, is now capable of putting out over 40,000 barrels daily. Market pro ration holds it down to under 30,000 barrels daily.
With the Leduc discovery came a very rapid expansion of exploration and development in Alberta, and beginnings of major pipeline and refinery expansion. Here are a few measures of the growth:
Estimated oil industry spendings were only about $12 millions in 1946. They mounted to an estimated 425 millions in 1947; $50 millions in 1948; and are expected to reach $25 millions this year.
Revenue from oil sales gross value before operating costs, royalties and taxes amounted to about $14.5 millions in 1946; climbed to about $18 millions in 1947; exceeded $36 millions in 1948 and will probably reach; 50 millions this year, despite market proration of production.
At the tire of Leduc's discovery only 20 drilling rigs were operating. Now some 90 are at work. When Leduc was discovered only 15 geophysical parties seismograph gravitymeter and magnetometer cre ws were working. Now over 70 geophysical parties and dozens of Geologists are in the field.
At the time of Leduc's Discovery about 20 million acres of oil rights in Alberta were under exploration reservation or lease. Now, in Alberta, over 56 million acres are being actively explored, spread from the American border northward over 600 miles, from the Rocky Mountains on the west to Saskatchewan onthe east.
This exploration and land play has also spread to other sections of Western Canada where oil and gas possibilities exist. Over 36 million acres of government and freehold rights in the south 400 miles of Saskatchewan have recently been taken under commitment, to start off a long range, and perhaps largescale exploration program by Canadian and American oil interests. Other millions of acres have been committed in southwest Manitoba end in the Peace River Block of northeast British Columbia.
The intensified exploration in Alberta has as might be expected brought materiel results. Today it may be reasonably said that Alberta's proved oil reserves exceed 700 million barrels, and that development of fields already established and of recent discoveries may boost total proved reserves to around 1,000 million barrels.
How many more millions or billions of barrels will be added to reserves by further discoveries is anybody's guess. Odds favors however, that the present reserves are little more than a drop in the bucket of the ultimate Alberta and Prairie Provinces oil reserves. The past eight months have brought seven oil discoveries. More are certainly coming.
Natural gas reserves now proved in Alberta exceed 4,200 billion cubic feet, between 70 and 80 times Alberta's annual requirements, making allowances for substantial increases in Alberta consumption. The gas figure large as it is includes only reserves actually established by development drilling. It does not include estimates for over forty Alberta areas where gas has been discovered by single wildcat wells, which were capped or abandoned for lack of an immediate market. The search for oil is adding more such gas discoveries of still unknown worth. This year alone has already yielded half a dozen or more.
I have already referred to Leduc, Turner Valley and Pincher Creek, brief look at other oil areas. Let us take a brief look at other oil areas.
In January 1948 Imperial Oil discovered Woodbend Devonian reef field a few miles north of Leduc. Recently the HomeAngloC. & E. team tapped oil between the west edges of Leduc and Woodbend, to indicate a link between the two. Eight months ago Continental Oil of Canada Calgary independent tapped light crude in the Cretaceous formation east of Woodbend, and a sizeable oil pool has been developed. West, southwest, south and southeast of Imperial's Leduc strike, Devonian production has been tapped and field reserves expanded by such firms as Globe Oil & LeducWest Oils. British American, Home Oil, Okalta Oils, and LeducCalmar Oils, all Canadian independents.
In September 1948 Imperial discovered Redwater a Devonian reef field 50 miles northeast of Leduc which has developed into a reserve larger than any other yet found in Canada, Redwater, whose D3 oil pay has a maximum thickness of 150 feet compared with combined D2 and D3 average Leduc pay of 70 feet, is now rated good for at least 300 million barrels. Actual reserve may prove considerably higher. Redwater production rapidly built up this spring to over 10,000 barrels daily, and is being held around that figure by market proration. Actual potential has already climbed to around 30,000 barrels daily by completion of over 60 wells with initial flush flows ranging from 500 to 2,500 barrels daily.
Leading Redwater producers are Imperial Oil, the Home OilAnglo Canadian term, Royalite, the Pacific Pete Sunray Calvan Princess Atlantic group, British American Hudson's Bay team, Western Leaseholds, Canadian Gulf Oil Company, and the Barrsdall-Honoulu-Senbonrd Los Neitos team.
In March and April this year came several discoveries, all still to be evaluated. Imperial Oil discovered Golden Spike, several miles west of Woodbend; with initial well showing Canada's biggest flush flow to date 12,000 barrels daily rate from 545 feet of Devonian reef D3 pay. A major discovery is indicated. Imperial also made a D2 Devonian zone oil strike at Bon Accord, ten miles southwest of Redwater; and a Cretaceous discovery at Whitemud, several miles east of the Woodbend Cretaceous pool.
Around 60 miles northwest of Leduc, Stanolind Oil & Gas Company found heavy crude in the Madison limestone, on a farmout block of land secured from Imperial. Twenty, miles east of Leduc, the independent team of Superior Oils General Pete Kroy Oils Jupiter Oils made a promising discovery of light crude in the Viking sand at Joseph Lake, also on a farmout block from Imperial.
In recent weeks the 'hot news' was made by Canadian Gulf Oil Company, at Stettler, in south central Alberta, about midway between the original Devonian oil find at Princess, and the several Devonian pools stretching out from Leduc. Gulf's Stettler well, on drillstem tests, indicated a potential exceeding 3,000 barrels daily of light crude oil, from about 100 feet of pay zone in D2 and D3 sections of Devonian.
The Stettler strike has heated up a broad stretch of territory in south and central Alberta, and has assured expanded exploration on the Plains reaching east from the cities of Red Deer and Calgary.
Another important feature of the prairie oil play the past two years has been emergence of the Lloydminister region, straddling the AlbertaSaskatchewan border east of Edmonton, as, a large reserve of Black Oil. Lloyd oil is molasses thick crude which, unlike the light oils of Leduc, Redwater and Turner Valley, yields little gasoline. In its crude state, Lloyd oil makes good railway or ship fuel. Processed, it yields asphaltic products as good as ANY on the continent. The Cretaceous Sands of Lloydminister have a proved oil reserve of at least 30 million barrels, and some Geologists believe the Sands ray give up from 100 to 300 million barrels.
Partly because of the rapid expansion of light crude production, which has cut into prairie markets that could be served by Lloyd, and partly because of freight rates and fuel tax inequalities (as compared with the competitive fuel, coal), Lloydminister is suffering growing pains. This summer Lloyd is producing from 4,500 to 5,500 barrels of oil daily, during the seasonal peak, while its many small independent producers and its major marketer (Husky Oil & Refining) press for new outlets to ease the seasonal cutback this fall and winter. Lloydminister is a rich asset to Alberta and Saskatchewan. In time, it will play amore important role in Canadian economy.
At the time of the Leduc Discovery, prairie oil production was lagging along at about 19,000 barrels daily. During 1947 production amounted to 7.3 million barrels. In 1948 production climbed to about 11 million barrels. This year, total production will likely be between 19 and 20 million barrels. This year's increase large as it will be is not a measure of ability to produce, which brings us to market proration, the transition period, and the expansion of markets ahead.
In recent weeks oil production climbed to a peak of about 58,000 barrels daily. By that time the flood of oil from Alberta fields had swept across the Prairie Provinces, displacing Americans oil, filling storage tanks at refineries and fields. The first natural marketing area had been made self sufficient in petroleum, to the limit of its current refining capacity. The day of prairie saturation came faster than expected, largely because of the very rapid expansion of Redwater production within six months of that field's discovery. As a result, came 'growing pains' market proration.
During the transition period ahead there won't be any great increase in oil production though there will be a continued growth of oil potential, or ability to produce. As new wells are, placed on production they will come in for a share of the available market. The result will be reduced production quotas for individual. wells.
To ease the strain of transition, steps will probably be taken to allow a fair volume of Alberta light crude to reach the Pacific Coast and Eastern Canada by railway. Negotiations are underway for special rail freight rates to make such shipments feasible.
Meanwhile, during the next 2 ½ years, there will be an increase of at least fifty percent in prairie refining capacity for light crude In 1948 the capacity was 46,000 barrels, having been boosted by the completion of first phases of Imperial's Edmonton refinery, the first refinery in the vicinity of the LeducRedwater fields. This year capacity is being stepped up to at least 54,000 barrels, by additions to ImperialEdmonton refinery and North Star's Winnipeg plant. In 1950, capacity will increase to at least 61,000 barrels and in 1951 to at least 70,000 barrels by construction of McColl Frontenac's first prairie refinery at Edmonton, and expansion of Imperial and British American plants, at such refinery centers as Calgary, Moose Jaw and Regina. There may be a Winnipeg refinery built by Imperial. Refinery projects by others can be expected.
Such refinery expansion necessarily fairly slow and highly costly is needed to meet increasing demands for all types of petroleum products on the prairies. Overall prairie area demand in 1948 was 58,000 barrels daily. Estimated demand this year will, average about 65,000 barrels daily. It will continue to grow in years to follow. By 1958 prairie demand is expected to reach the 100,000 barrels daily level.
It is now reasonable expect that Alberta oil could, within a few years, make all of Canada self sufficient in petroleum. Our Dominion is a large petroleum consumer, with a per capita demand not for short of that of the United States, and far ahead of that of any nation outside of North America. This year Canada is using around 290,000 barrels, of oil daily. Demand is growing steadily. It has nearly doubled the past decade. By 1958 economists estimate Canadian demand will exceed 400,000 barrels daily.
As far as Alberta's ability to produce is concerned, it is now estimated under proper conservation methods existing wells could put out at least 80,000 barrels daily. By the end of this year, potential will probably exceed 100,000 barrels. By the end of 1950, making due allowance for decline in potential of older wells completion of more wells in existing fields, and for new discoveries, potential might grow to anywhere between 150,000 and 250,000 barrels. Beyond 1950 is anybody's guess.
That outlook requires markets for Alberta oil beyond the prairies. That means pipelines, to lower costs of transport and thus permit competition in a broader market. Large pipelines can transport oil for as little as one-third the cost of rail transport. In effect, they eat up twothirds of the distance between oilfields and outer fringes of market, and move more distant markets proportionately closer.