Petroleum production in Canada is a major industry which is important to the economy of

North America. Canada is the sixth largest oil producing country in the world. In 2008 it
produced an average of 438,000 cubic meters per day (2,750,000 bbl/d) of crude oil, bitumen and
natural gas condensate. Of that amount, 45% was conventional crude oil, 49.5% was bitumen
from oil sands, and 5.5% was condensate from natural gas wells.[1] Most of Canadian petroleum
production, approximately 283,000 cubic metres per day (1,780,000 bbl/d), is exported.[2] Canada
is the largest single source of oil imports into the United States.

The petroleum industry in Canada is also referred to as the Canadian "Oil Patch"; the term refers
especially to upstream operations (exploration and production of oil and gas), and to a lesser
degree to downstream operations (refining, distribution, and selling of oil and gas products). In
2005, almost 25,000 new oil wells were spudded (drilled) in Canada. Daily, over 100 new wells
are spudded in the province of Alberta alone

- FROM WIKIPEDIA 2014

- History
- Main article: History of the petroleum industry in Canada
- The Canadian petroleum industry developed in parallel with that one of the United States.
The first oil well in Canada was dug by hand (rather than drilled) in 1858 by James
Miller Williams near his asphalt plant at Oil Springs, Ontario. At a depth of 20 metres
(66 ft) he struck oil, one year before "Colonel" Edwin Drake drilled the first oil well in
the United States.[4] Williams later went on to found "The Canadian Oil Company" which
qualified as the world’s first integrated oil company.
- Petroleum production in Ontario expanded rapidly, and practically every significant
producer became his own refiner. By 1864, 20 refineries were operating in Oil Springs
and seven in Petrolia, Ontario. However, Ontario's status as an important oil producer did
not last long. By 1880 Canada was a net importer of oil from the United States.
- Canada's unique geography, geology, resources and patterns of settlement have been key
factors in the history of Canada. The development of the petroleum sector helps illustrate
how they have helped make the nation quite distinct from the United States.
- At its recent peak in 1973, over 78 per cent of Canadian oil and gas production was under
foreign ownership and over 90 per cent of oil and gas production companies were under
foreign control, mostly American. It spurred the National Energy Program under the
Trudeau government.

- The Western Canadian Sedimentary Basic (WCSB) contains the majority of Canada’s
inventory of oil and gas reserves, and includes portions of the four western provinces: British
Columbia, Alberta, Saskatchewan and Manitoba, as well as portions of the Northwest
Territories. Oil and gas development in the Western Canadian Sedimentary Basin has
reached a mature stage.
- Even with the addition of new technologies, such as Steam Assisted Gravity Drainage
(SAGD), drilling of thousands of Coal Bed Methane wells (CBM), and producing gas from
extremely deep and tight shales, the overall production of oil and gas from the WCSB has
seen a steady and alarming production decline.
 - Continued development of existing and newly discovered inventories will require the
industry to make sound financial investment decisions, in addition to large investments in the
future. It must also align development strategies with very high commodity prices, extremely
high product demand, limited future supplies and the public’s newly growing demand for
“clean” energy.
- In this course, you will learn that economics will always be the controlling factor in the
exploration, development, and production of oil and gas reserves.

Example

You have been operating a very large oil field for some time and production is starting to
decline. You have contracts to supply oil and will be unable to meet you’re the customers
requirments. Your company is faced with large penalty for non delivery. As the filed operator
you and your company are faced with some decisions to make. Some of the possibilities are:

1. Drill new wells to increase production ( at $10 million per well!)

2. Install some equipment in the old field to increase production (steam assisted with the use
of boilers)
3. Do nothing (always an alternative to be considered).

The final decision would consider the following:

a) What data do you need to make your decision?

b) How will you analyze the data when it becomes available?
c) Who pays for the additional equipment or drilling of wells if that becomes a reality?
d) Why is production falling?

As in any business decision each option will have to be examined and tested to see which will be
the best for the company. Some consideration must also be given to the company reputation ( do
nothing put the company in default and maybe a poor position to do future business).

The first option assumes that there are parts of the reservoir that are untapped and available.
Geological data would have to be considered, all cost associated would have to be determined or
estimated. The time required to plan and drill the wells as well as the surface equipment to tie the
production in to existing plant would need to be costed and factored in to the schedule. The risk
associated with drilling new wells which are poor producers or “dry” wells must be considered.
There is a possibility a lot of money will be spent without any increase in production.

To consider the installation of adding steam assisted production, large boilers will be required to
produce the stream. It often takes several months after the steam is injected before any results are
obtained and occasionally, the rock structure is such that steam assist does very little to increase
production. This would require a large investment ( $1 million or more per boiler) and additional
surface piping and buildings to house the boiler and associated equipment. The location of the
boiler would need to be considered, wells don’t always occupy large parts of the land and
building may require the purchase of land. All in all, it may take several years to implement this
change. Overall this would require a smaller investment than new wells but it would likely have
a more rapidly diminishing return as compared to new wells. One additional factor would be that
the boilers may be able to be reused after they become redundant at this location, whereas
drilling additional wells would be “spent” money and unrecoverable at the end of the project.
This is referred to as “salvage” recovery. Of course, all of the environmental students are
thinking – “hey what about the reclamation cost”, associated with putting the land back to
original pristine condition – this has become a very important consideration. Comparing the
cleanup of a well site, to the cleanup of a boiler installation would be an interesting study !

The next option “do nothing” would strike most people as odd but it is always a consideration.
On a smaller scale, we often make that decision. If you drop your cell phone, you may break
your screen. The cost of replacing the screen is mentally compared with replacing the phone and
a small amount of though is given to “if the phone still works I’ll use it with the broken screen”.
Damage or breakage on ones car is often looked upon in a similar manner. The age of the
phone/car or in this case oil field is often taken into consideration. Maybe we would even
consider going without a phone – if the cost of replacing is just too much. You would pay the
penalty of cancelling your contact and use a pay as you go phone, whereas in this case the
company would be burdened with a contact cancellation fee – or be forced to supply oil
purchased from another supplier often at a very high cost to their contracted customer.

Now that we have examined several options , you would need to make a decision on which is
best. We would be looking at cash flows, and return on our investments to make the best
decision – as well as what other projects the company may be undertaking and where our
strengths as an organization lie. We would in this course do a series of calculations and compare
the options on an economic basis.

CAPITAL INVESTMENT

Projects in the engineering world are almost always financed as requiring capital funding so they
would be called capital projects. The “capital” is the money required for the project. The
economic value of a capital project is often a complex set of equations which is best done by a
computer. Companies may have many capital budget proposals and pick the best ones based on
economic value.

The budget for a capital project is often prepared in a series of steps – spread over an entire year.
Initial projects in the first quarter of the year may consist of projects proposed in earlier years
which did not receive budgeting as well as new projects. The subsequent yearly quarters will
further define the projects, add detail such as cost and equipment requirements and finally in the
last quarter be proposed for inclusion in the next year’s budget.

Larger projects may need external financing (loans) or even revenues from stock sales – if the
company is able to sell stocks as most petroleum companies do.