Overview of the Canadian Oil Industry
Canada has 171.0 billion barrels of proved oil reserves, the third-most among the nations of the world. Canada’s reserves account for 10.3% of the world’s reserves. By the same reserves accounting methods (which are not entirely accurate when dealing with unconventionals), the United States has only 38.1 billion barrels of proved reserves. 166.3 billion of Canada’s reserves barrels are contributed by Western Canada’s oil sands, the rest being accounted for by other types of reserves. In the last 12 months, Canada has averaged 4.99 MMbo/d of crude oil production, just shy of the amount of crude that Texas produces.
Alberta, in the last 12 months, has accounted for 88.9% of Canada’s oil production, Saskatchewan has accounted for 9.0%, and the rest is spread between the other provinces. As shown below, the oil sands and other heavy oil are the largest contributors to Canadian production. Also notable are the various shale plays in Western Alberta like the Montney, the Madison, and the Cardium.
In 2018, 96% of Canadian crude exports went to the US. Canada is by far the largest foreign supplier of crude oil to the US, accounting for half of all US crude imports. It has gradually edged out Middle-Eastern suppliers, who now export very small volumes of crude oil to the US. Interestingly, due to the regional nature of oil markets and despite the fact that Canada is very much a net exporter of oil, Canada imports a few million barrels of oil every quarter and the US provides over half of that imported volume.
Oil sands are generally mined if they are less than 250 feet below the surface. In surface mining, hydraulic shovels and large ore haul trucks (often with capacities of around 400 tons) are used to dump oil sands into a cleaning facility where the sands are mixed with hot water and diluent in order to strip the bitumen from the sand. The bitumen can then be separated from the water and processed.
If the oil sands are more than 250 feet deep, they are often extracted using solvents or steam. Canada is the leader in steam-assisted gravity drainage (SAGD), a process wherein two parallel horizontal wells are drilled close to each other, with one wellbore positioned ~50 feet above the other. The upper wellbore is used as a steam injection wellbore and the lower is the producing wellbore. The upper wellbore mobilizes the heavy hydrocarbon which flows downward towards the producing wellbore.
A special type of heavy oil production is employed in the Cold Lake oil sands region east of Edmonton called Cold Heavy Oil Production with Sand, or CHOPS. CHOPS involves the deliberate flow of sand into the wellbore in order to create wormholes in the reservoir that increase the reservoir’s permeability and therefore stimulate bitumen production.
Oil sands receive considerable criticism because of the unsightliness of their operations and because the carbon intensity incident to their production is greater than conventional resource production. Proponents of oil sand production point to the fact that the ground is cleaner after oil sand production as the seeping, oozing oil is extracted from the surface sands, which are washed with surfactants, replaced, and re-sodded. In short, oil sand production cleans landscapes that are naturally oil-soaked.
There are several shale plays that exist in Canada that bear a resemblance to American shale plays. The Montney shale on the western side of the Alberta Basin is the most prolific. It covers an area of just over 50,000 square miles, straddling the Alberta/British Columbia border. The Montney has developed a similar commercial culture to the American shale basins, and it is produced using very similar completion designs and procedures.
Other shale plays in Canada are commercially significant as well, including the Cardium, Duvernay, and Viking formations in Alberta; the Bakken formation in Saskatchewan; and the Montney and Horn River in British Columbia.
Canada’s Small Offshore Oil Industry
A small portion of Canada’s hydrocarbons come from offshore production. Mobil began exploration off of Sable Island on the East Coast in 1959, but commercial production began in 1992 with the Panuke and Cohasset fields off of Nova Scotia. In 1997, the Hibernia field off of Newfoundland and Labrador was brought on production. The Jeanne d’Arc (Joan of Arc) basin, southeast of Newfoundland, is the most active basin in the Canadian offshore world. The Terra Nova and White Rose fields were brought online in 2002 and 2005, respectively. The Hebron field came online in 2017.
Mineral Ownership in Canada
In Alberta, 81% of the oil and gas mineral rights are owned by “The Crown”, or, more descriptively, the provincial governments. Federal governing bodies own 9% of Alberta’s mineral rights and corporations own 7%. Private citizens own about half of one percent of Alberta’s mineral rights. These private mineral owners are subject to a “freehold mineral tax”, which is something like a levy in the US.
Freehold minerals are leased out in a manner similar to how privately-held mineral interests in the United States are leased to operators. Crown minerals operate similarly to American federal acreage, with the government holding nomination and bid rounds and collecting a royalty. The Canadian provincial governments hold auctions for the leasing of government-controlled minerals in a similar fashion to US federal acreage blocks.
Surface ownership in the oil and gas context works similarly in Canada to how it works in the United States, with landowners receiving payments for surface damages as compensation for allowing oil and gas activities to take place on their land.
Largest Canadian Operators
Among the largest Canadian oil and gas operators are Canadian Natural Resources, Cenovus, and Imperial Oil. Canadian Natural Resources is the largest producer of heavy oil in Canada and leads the way in oil sands production. Cenovus was formed in 2009 when Encana (now Ovintiv) split off Cenovus in order to give investors the option to buy into gassier (Encana) or oilier (Cenovus) resources. Imperial Oil was formed in 1880 and was eventually integrated into Standard Oil. In 1911, when Standard Oil was broken up, ownership of Imperial went with Standard Oil of New Jersey (now Exxon). To this day, Exxon has a 69.6% interest in Imperial.
Several American companies besides Exxon have significant footprints in Canada, including Chevron and ConocoPhillips. Interestingly, Petronas’ Canadian subsidiary is among the largest operators in the Montney Shale. The largest Montney operator is ARC Resources, a Montney pure-player.
Canadian Oil Production in Last Month by Operator – Bbl
Future of the Canadian Oil Industry
Canada is poised to steadily increase production from both her nearly-inexhaustible oil sands and underdeveloped shale resources. Canada also has more potential for chemical EOR in its mature heavy oil conventional fields than any other country due to the availability of chemicals, capital, infrastructure, and expertise in North America, the heavy, viscous nature of the crude (which benefits from the mobility ratio-enhancing effects of polymer), and the abundance of large, highly-permeable conventional reservoirs that have high residual oil saturation.
Canada will continue to export fossil fuels to California and to the large refineries around the Gulf of Mexico. Despite the final cancellation of the Keystone Excel pipeline, designed to take Canadian heavy crude to Gulf Coast refineries, other means of transporting those crude volumes will be found. Canada will export more to the rich Asian markets as more pipeline infrastructure is built across British Columbia and as larger oil terminals and LNG terminals are built near Victoria, the first of which is scheduled to be completed mid-decade. Canada could possibly become a larger supplier of European energy, but its fossil fuel resources are concentrated on the western side of its very large landmass. It seems perhaps likelier that the US begins to service more of the European market as the American Shale Revolution continues to unfold and that Canada takes a larger share of the ever-growing East Asian market.
Despite the fact that Canada is quite sensitive to oil prices because of the relatively high breakeven of oil sands, the country’s vast reserves, technical engineering expertise, and access to capital will ensure that Canada remains a big player in international energy markets.