2003 06 23
Research And Development Study Underway To Boost Conventional Activity
Elsie Ross, Daily Oil Bulletin

With Alberta oilsands development well underway, the province is turning its attention to how research and development can find ways to increase the 30% recovery rate for conventional oil.

"The conventional side has lost momentum," says Denis Gaudet, director of technology transfer for the Petroleum Technology Alliance of Canada (PTAC). "Without new technologies to get reserves up, we are going to leave a bunch of oil in the ground," he says. "It's a huge prize."

PTAC is doing a study for the Alberta Energy Research Institute (AERI), a research funding body, on what industry needs to be enticed to do more research and development. The study is due Aug. 1.

"We are trying to determine where government research and technology effort can add value to Alberta's resources and needs in energy," says Eddie Isaacs, managing director of the institute. However, AERI does not want to do anything on its own, he emphasizes. "We are looking for industry's commitment; we want to make sure industry is fully engaged and committed."

While some of that may involve "trying to cajole or twist arms a bit, there is a win-win here," says Isaacs.

Enhanced oil recovery using carbon dioxide injection will be a major priority for the province's research, he says. While its recently announced royalty relief program for C02 enhanced oil recovery projects is still small (DOB, May 26, 2003) it is very important, says Isaacs. "It really tells industry there are benefits to be had," he says. If the program proves popular, it can easily be extended.

The Canadian fossil fuel industry spends less than one per cent of total revenues annually on research and development, says Bill Overend, a consultant with Deep Blue Associates Inc. who has been working with PTAC on the research study. That number could actually be higher because in some cases companies may be doing the research but haven't claimed federal tax credits for it because of the paperwork required, he noted in an interview.

Statistics show that between 1983 and 1995, Canadian private sector investment in fossil fuel R&D fell by 60%. That reflected the "big gulf" in research spending after the commercialization of the oilsands, says Overend. "The overriding issue is that it's harvest mode in the Western Canadian Sedimentary Basin."

The AERI study, which also includes non-conventional gas, should provide a road map of where AERI wants to go over the next few years.

"This is not for the faint of heart," says Isaacs. "If you are going to do it, you are going to have to put resources behind and you are going to have to do it for a long time."

Isaacs says his institute would like to see a model based on that of the Alberta Oilsands Technology Research Authority (AOSTRA) which the province set up in the 1970s to find ways to make primarily bitumen development more economic to develop. AERI is the former oilsands authority with a new name and an expanded mandate to look at other energy sources.

"AOSTRA really created a climate where industry was willing to start investing," he says. "What AOSTRA managed to achieve was due mainly to the fact it developed partnerships with industry," says Isaacs. "The key is in the partnerships."

The other lesson from AOSTRA, in which the province invested $700 million over the years, is that R&D is a long-term proposition. "If you expect you are going to achieve your goals in five years, then put your money in the bank," he says. "It took 30 years and 30 pilots, none of them commercial," before development of a commercial SAGD (steam assisted gravity drainage) project, Isaacs notes.

In workshops to gather feedback, industry players cited the closure of their companies' research labs and the absence of an R&D "point person" within companies, Overend says. Another point of frustration for industry is that while basic research should be taking place in the universities, industry finds it very unfocused and most of it doesn't come out the other end, he says.

In addition to royalty incentive programs which would benefit producers involved in R&D, governments (both provincial and federal) could improve existing programs to provide incentives for innovators, mostly on the service side, says Overend. "Those are the little shops and garages that aren't really on the landscape much any more," he says.

With the prospect of some royalty relief, producers might be more open to service companies coming in and testing new technologies on their sites. Overend believes a combination of royalty incentives along with additional money for the federal Industrial Research Assistance Program and a venture capital fund dedicated to developing technology for conventional oil and gas should help to encourage more research.

Service companies pushed the government for the R&D study because they were concerned about the future of the conventional oil industry in Alberta, according to Roger Soucy, president of the Petroleum Services Association of Canada. "The oilfield service industry employs between 50,000 and 60,000 people and most are dependent on the conventional industry," he says. "It is in the government's interest to see the sector flourish."

The last significant new technologies -- horizontal drilling and three-dimensional seismic -- made a huge difference to the industry. Horizontal drilling, for example, led to new drilling bits and motors and a variety of other technologies to make it work and has been very much perfected and implemented, he says. However, both are more than 10 years old. "Where is next technological breakthrough going to come from?"

There is a need for government involvement in conventional oil research and development because the market has discouraged companies from taking a longer-term vision, says PTAC's Gaudet. "Companies that had a long term vision no longer are in vogue in the market and have had to take a much shorter look on their bottom lines," he notes.

While operators can reduce costs fairly quickly using existing processes, new ideas or new ways of doing things will take three to five to six years to develop, Gaudet says. "With a short-term outlook, those don't get developed because of lack of capital and the constant need to try and reduce operating costs."

However, some intermediate sized companies such as Penn West Petroleum Ltd. and giants such as EnCana Corporation see research and development as a competitive advantage.

"Innovation is one of the keys for finding more oil and gas," says Bill Andrew, Penn West president. "We are continually having to do more with less and come up with new ideas."

However, "I don't think general public is very aware of the fact you need the explorers and the scientists to find more oil and gas or to squeeze more (reserves) out of the old ones," he says.

Penn West' niche has been innovation and enhanced oil recovery in Western Canada. Within the next year, Penn West plans two carbon dioxide EOR pilots in Alberta's Pembina field, trucking in CO2 in preparation for a pipeline.

At EnCana, the company has been working to develop downhole submersible pumps which can operate in low pressure SADG (steam assisted gravity drainage) reservoirs. "This is a prime example of a tool of research and development," says EnCana spokesman Allan Boras. "You work through your own capacities of research and engineering and science while at the same time you are working with the tool companies in the service sector because they have the capacity to do their proportionate share."

EnCana also has the advantage of a large land base on which it can experiment and run a variety of test programs to gain knowledge and understanding of new technologies, he says.

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