Lloydminster, an oilpatch town surrounded by transition

Lloydminster mayor talks about CHOPS to thermal affects community

Lloydminster – Lloydminster Mayor Gerald Aalbers spent his career in the oilpatch, but these days he’s heading up one of the key oilpatch communities in Saskatchewan and Alberta.

Asked how Lloydminster is doing, he replied, “I think Lloydminster is doing okay. We face challenges, being a bi-provincial city. Two provincial policies and directives of governments have a lot of effect. Our heavy oil is renowned as the best heavy oil in the world for asphalt, and that’s why we have an asphalt refinery. The challenge we have is that our lifting costs and operational costs tend to be higher than areas of Estevan, Swift Current, Kindersley, traditional other oil areas of Saskatchewan.

“Our recovery has not been as speedy as I’d like to see. I’d love to drive out and see six or seven drilling rig derricks standing. We see a few service rig derricks, and there are some drilling rigs in the area, but not as prominent as I’d like to see,” he said.

The Lloydminster area has seen a substantial transformation, from cold heavy oil production with sand (CHOPS) to thermal recovery. Asked how that is affecting the community, he said, “It’s two parts, in my opinion. CHOPS has a place. Now, it depends on the return on investment, just like any oilman will tell you, from my experience. If there’s enough money in CHOPS, they’ll make it work. The problem we have is, as you alluded to, if you’re selling that oil from cold oil production, or CHOPS, it is challenging because of differential for heavy oil. In the case we have, we are fortunate to have an upgrader and a refinery, that both use heavy oil, produced locally, plays a huge factor in it.

“SAGD (steam assisted gravity drainage) now, when you add that component, changes things. The recovery costs are less. There’s no question about it. There are environmental questions that continue to be asked – water, water reuse, are always concerns, because it takes fresh water to make steam, as well as ensuring water reuse. So that’s an important factor that needs to be considered,” Aalbers said.

To produce an equivalent amount of oil – 10,000 bpd, from CHOPS and SAGD, Pipeline News’ rough estimates, corroborated by many of the people in the industry we spoke to in Lloydminster, indicate a roughly 75 per cent reduction in people, from around 400 to less than 100. Asked about that, Aalbers said, “Absolutely. There’s no question. I came from the industry before becoming mayor, and had the opportunity to work in the area for 13 years in cold heavy oil production. It is certainly labour intensive, when you bring up sand and that much water. And then, it again depends on each well. You quoted 400 people, making 10,000 barrels. On an average company, I believe that would be a fairly reasonable number, because some wells are great wells, and some wells are ‘dog wells,’ two per cent oil and 98 per cent water. It really comes down to where that number of economics fits.

“SAGD is certainly producing a lot more oil with a lot less people.”

Several Lloydminster oilfield companies confirmed Pipeline News’ observations that, compared to 2014, their staffing had dropped by roughly half and total payroll, due to reduced pay and the disappearance of overtime, was down by about 75 per cent. Asked how this has affected Lloydminster’s economic activity and housing, Aalbers said, “It certainly brought a new equilibrium. That’s the factor that’s come into play. We have a lot less housing starts today than we did four years ago, five years ago. We’re looking at 67 new constructions for homes in the last year. So it’s down significantly from where it was in the 300 to 600 (housing starts) range.

“Certainly the number is reflective of the market. We have houses for sale on the market today. We have rental accommodations available.”

“The challenge we’re seeing is we’re seeing a change. The economy has changed in the oil and gas industry and it’s reflected, as you’ve indicated. You can drive through the industrial parks and find lots of vacant property, and properties to rent or for purchase. So I call it a rebalance. Having the opportunity to be in the oil and gas business for 25 years before moving into municipal politics, I’ve seen the highs and lows. I lived in Weyburn, Saskatchewan, when oil was $10 a barrel in 1998. I won’t forget that very easily, because I gave my house away in 1999 when my company that I was working for moved us.

“So there’s certainly been changes throughout. We’re going to see that cyclical thing happen. We all hope, very patiently, that the price does come to a reasonable level where it equals out, where investors see value in investing. I think with the technology changing continuously, and watching the industry for 25 years, and people who have been it a lot longer than that, will talk about that. From drilling rigs to completions to refining. Where that’s going to lead us, I’m not sure. But we’re well-positioned, because heavy oil, and asphalt, especially asphalt. Husky Energy has indicated there’s opportunities here and they’ll explore those opportunities in the future. We have got the right mix.

“Will it be SAGD, will it be CHOPS? Who knows. We know there’s a lot of work being done with solvent recovery,” he said.

Aalbers pointed out the failed attempt at toe-to-heal air injection (THAI) project at Kerrobert, but as a sign of progress. “Again, technology continues to lead. So I look to the industry and researchers to say, ‘Hey, there’s another way to get that oil out of the ground.’ We’re not getting it all today, even with SAGD.”

Mayor hopeful for proposed refinery

In early 2017, Husky was holding open houses about a possible second asphalt refinery for Lloydminster, to be located adjacent to the upgrader, on the Saskatchewan side. When Husky bought a refinery at Superior Wisconsin, that put the brakes on the Lloydminster project, for now.

“I think it is going to come back,” Aalbers said. “If you follow Husky’s actions after that point, that refinery came open in Superior, Wi., the numbers I read and talking to the people I know, they were basically able to buy a refinery for half price compared to building a refinery here. It’s located along Enbridge’s Line 3. They’re able to put their own product into the line and, in essence, get their own down the line and put it into their refinery. Great integrated plan.

“At the same time, we see the amount of asphalt being used and we know, in the municipal world, roads aren’t getting any newer. We continue to need to update. So there’s going to be a demand for asphalt. In talking with people from Husky that I chat with, they tell me we can expect to see that refinery down the road. As always, there’s no commitment. That’s a decision the board of directors are going to have to make for that commitment. There’s a lot of legwork to be done. I understand they know it would be good value here, to integrate it into the upgrader facility, using utilities that are existing and tying in those kind of things, the pipelines that are here. We’re right in centre, it’s the perfect business case. The problem is, it’s always the economics that need to line up, but I think we’ll see that when Husky’s ready,” Aalbers said.

Asked if a third refining facility in the community would make up for some of the decline in jobs mentioned above, Aalbers said, “It will. I think you’re going to see a shift in some of those jobs. Of course, the construction of a new facility always brings in an influx of people. We certainly have a lot of welders and pipefitters that would like to stay at home and work. Do we have enough of them? Not likely, so we’ll see an influx of workers on a major project.

“Then, the resulting project will have some operational staff and see people that will possibly transition from production to refining. Or you’ll see people, like from our Lakeland College which continues to produce power engineers, so there’ll be opportunities for those graduates.”

He added there will also be a need for ensured production of heavy oil to fill that refinery, when the time comes.

Aalbers worked in the supply store and then chemical side of the industry, then in the integrity and corrosion side. It’s definitely an advantage when being a mayor of an oil town, being able to talk turkey with those in the industry.

Lloydminster has roughly 31,500 people, split roughly 60/40 in favour of Alberta. He noted there had been a high transient population during the boom, with people living on couches. “Certainly, that transient population has moved. And people that weren’t able to continue on with their service rig jobs, water hauling and oil hauling, it was just the reduction in production.  

“The community is stable. We’re not seeing buildings boarded up. We’re seeing grass cut and maintained.”

Lloydminster has grown, especially in the service sector and retail side, despite the oil downturn. Asked about this, Aalbers said, “I think that we have certainly evolved as a regional centre. Certainly, we have the size, and the business atmosphere,” he said, pointing out the advantage of the PST-free status of the city.

The city has been growing on both sides of the border. The new casino is expected to open later this year, as is a Hyundai dealer, both on the Saskatchewan side. “We are seeing growth. We’ll continue to see growth. I think that’s the attraction – be it health care, shopping and retail that we have, employment opportunities and education opportunities,” Aalbers said.

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