Petroleum fuels thriving industry in province.

If records are made to be broken, the natural gas sector holds an interesting future in Saskatchewan. Activity by oil and gas companies on the natural gas front hit an all-time high in 2000, and despite gas prices subsiding from the record peaks experienced last winter, thus far the industry shows no real significant indications of slowing down.

"As it pertains to gas, the year 2000 was an all-time record," notes Hon. Maynard Sonntag, Minister of Saskatchewan Energy and Mines. "Oil and gas was the third-best year on record; in the year 2000 there were 1,201 gas wells drilled and 2,401 oil wells drilled, combining to make the third-best year ever.

Combined the oil and gas sector accounts for approximately 20,000 direct and indirect jobs and generate in the neighborhood of just more than $1 billion in royalty and tax revenue for the province. In addition, oil and gas companies invest between $1.5 billion and $1.6 billion in exploration and development in Saskatchewan. Therefore, its value in the eyes of the government is virtually without peers.

"We value it tremendously," says Sonntag. "It is the single-largest contributor to our economy right now, well ahead of agriculture. For an agricultural province, the oil and gas sector is absolutely critical."

Sonntag and other industry experts affirm that the record activity in the gas sector was very much a result of the aforementioned high gas prices the commodity experienced last year.

"Obviously there's a lot more drilling for gas going on in Western Canada because of last summer's gas price hikes," says Zane Tymrick, vice-president of production for EOG Resources Canada Inc., historically one of the more active oil and gas companies in Saskatchewan's gas sector. "Some other companies have decided to do some drilling. We've always been pretty consistent in our drilling whether the gas price is up or down, we keep our program going."

Another significant player in the Saskatchewan natural gas sector is Anadarko Canada. Like EOG Resources, Anadarko believes the best method for oil and gas is that of sustained, long-term development.

"We try not to ride those commodity cycles from an activity standpoint," concurs Anadarko Canada's Jim Ashton, vice-president of of reservoir engineering. "Our motto is long, sustained growth and profitability, so if you look at this year when gas prices are down, we essentially have the same level of activity in Saskatchewan."

Although a welcome development among industry experts, all concur that it's not realistic to expect gas prices to resume the astronomical hikes that were witnessed last year. Industry analysts are expecting the prices to return to their normal regime, which actually would be a welcome rebound in comparison to the lower-than-average rates presently commanding the market.

Though the industry runs its scenarios and tries to speculate as much as possible to predict the ebbs and flows typical of a commodity price cycle, Sonntag stresses that doing so is certainly not an exact science.

"I hope not too frequently, but there will be circumstances like the (terrorist attacks) that just occurred in the United States that will have some significant impact I suspect, unfortunately," Sonntag says. "And those sorts of things you can't predict."

"If the prices stay down where they are, there probably will not be quite the activity next year as there was this year, but having said that, there's still a lot of interest and with the primary view by industry that there is dearly a trend upwards again."

Like all other non-renewable resource sectors, the natural gas sector is not afforded the luxury of simply turning on a tap to increase production and hence meet increased demand. Rather, there is a staggering amount of investment and exploration that needs to be undertaken far before any production commences.

"There's an awful lot of paper that needs to be dealt with in terms of application, approvals, surface lease acquisitions, government approvals," Tymrick notes. "There's a huge amount of work that needs to be done prior to drilling and pipelining."

Holding much the same view as Tymrick is Bryan Jackson, operations manager for the gas business unit of Nexen. Sitting atop the gas producing companies in Saskatchewan in terms of actual production within the province, Nexen currently produces approximately 130 million cubic feet per day.

Jackson concedes that once a field is identified and the drilling activity commences, everything that follows suit, from the production, to the transportation, to the marketing, is relatively a downhill affair. That's not to diminish any of these important components of the upstream gas industry, however, he qualifies. But the primary challenge, he insists, is that of identifying the resource initially.

"The real challenge is finding new gas reserves, new pools of gas," Jackson says. "That is not easy. We've been working very hard at that, we have a couple of teams of geologists and geophysicists working on that extensively."

Nexen's history has distinct ties to the province of Saskatchewan. Originally a Crown corporation by the name Sask Oil, the company became an independent Saskatchewan-based oil and gas company as the government kept selling its shares.

Able to weather a hostile takeover bid by Talisman Energy in 1997, the company, which was now known as Wascana Energy, instead became property of Canadian Occidental (CanOxy), who thwarted the takeover bid by Talisman and purchased Wascana. About a year ago, CanOxy renamed itself Nexen.

With this history in mind, Jackson, a Kindersley native, admits to having a soft spot for Saskatchewan. "For Nexen, we are a big player in the province, and we want to continue to be a big player in the province," he says. "We have a very good relationship with the regulatory people, the government people, We're here in the province exploring and drilling for gas because we currently have assets in Saskatchewan and we're very comfortable with working in this province."

Common perception would have many believe that there's little comparison between Saskatchewan and Alberta in many respects within the oil and gas sector. But Jackson says that Saskatchewan actually keeps pace with Alberta on many accounts.

"One thing that Saskatchewan offers is your cost of doing business are less, ie: gas wells, or wells in general in Saskatchewan, are shallow," Jackson says. "So your cost to drill a well in Saskatchewan is quite inexpensive. Shooting seismic in the plains of Saskatchewan, is much cheaper than it is anywhere else, because it's flat terrain, so it makes it a lot easier."

Although technology has played a pivotal role in many areas of the upstream oil sector, with the innovations of horizontal drilling, [CO.sub.2] miscible flooding as shining examples, the fundamentals of the upstream gas industry has remained rather consistent since gas drilling began in Saskatchewan in the 1930s.

"There's been some changes in the type of frac and maybe in how the wells are drilled," points out Kerry Archibald, area production engineer for EOG Resources Canada Inc. "But it's usually the same process in that you drill your wells, set your casing and come out; perforate and stimulate."

Therefore in the absence of major technological advancements to stimulate gas production, the industry must look to other alternatives to extract the maximum amount of the reserve. The solution is to increase the frequency of the wells, a pattern known as downspacing.

"The only way you can accelerate getting the gas out is to drill more wells," says Tymrick. "These wells are very, very tight. To get the volume that is out there takes a very long time. So the only way you can accelerate that is to drill more and more wells to try and increase the recovery."

Typically a gas well is drilled at a rate of one per every section, or every square mile. Based on the performance of those wells, data is then analyzed to see if the area is being drained sufficiently.

"We're in the process right now where we're drilling on one well every 80 acres, so eight wells per section is what Hatton is being developed on," says Anadarko's Ashton of their area under development in southwest Saskatchewan. "Even at eight wells per section, we're not going to recover 100 per cent of the resource."

With the National Energy Board estimating the remaining gas reserves in Saskatchewan to be in the neighborhood of nine trillion cubic feet, Ashton says that the Hatton field itself is estimated to have approximately 30 years remaining of reserves at the current rates of extraction. Therefore, the future of the gas industry in Saskatchewan shows no sign of slowing down for the near future.

"As technology improves and changes, which happens all of the time in our industry, that's a moving target," Ashton concedes of the remaining reserves. "You tell me what the price is going to be and I'll tell you how much of an investment industry is going to make. We'll go further, we'll drill deeper, we'll drill smaller pools, we'll drill more complex geology than we have before."

"From a macro perspective, it's certainly Anadarko's strategy as a business is one of North American gas," says Ashton. "Looking at it from a continental standpoint, that's something that we have a lot more control over than certainly oil, importing oil as a supplier to the U.S. and so forth. So natural gas is where we see growth from a fossil fuel standpoint."

"It certainly is a desirable fuel from an emissions standpoint, a lot cleaner than oil," adds Ashton. "We see gas as a premium commodity going forward and that's why we're putting a lot of our efforts into exploring for it. Really, natural gas is where we see our growth in Canada."

The oil and gas industry has seen other changes of late as well. Particularly, the companies that are active in the market are oftentimes newer versions of predecessors in the field. Mergers and acquisitions have put a different face on the sector overall.

Sonntag says his gut feeling tells him that the considerable consolidation that is taking place on a regular basis throughout the oil and gas sector will actually have a positive impact on Saskatchewan's oil and gas sector, as well as on the smaller independent companies who remain so by opposing such mergers and acquisitions.

"My view is that much of what has happened in Canada with respect to consolidation in Calgary is starting to have, and to a large degree it has also occurred primarily in Houston, Texas, I think that actually creates an opportunity for Saskatchewan," Sonntag says. "In speaking to the oil and gas sector, I think they would concur that as well."

"The opportunity it creates is large oil companies that have consolidated in Houston have little interest in primarily shallow wells in Saskatchewan. That leaves a real void that needs to be filled and real opportunities for many of these smaller oil an gas companies that are starting to take a look at Saskatchewan. And they're not in a position anymore where they're bidding against one of the big oil companies. I think there's a great deal of excitement by these smaller companies by looking into Saskatchewan."