Regina – Kindersley double-teamed their presentation to the Senate Transport and Communications Committee, when it held hearings in Regina on May 1 regarding Bill C-48,the Oil Tanker Moratorium Act.
Kindersley Mayor Rod Perkins and Councillor Gary Becker brought the whole issue home. Becker, owner of Kindersley-based Longhorn Oil & Gas, spoke of how the lack of pipelines has affected his company, including getting “negative pricing” for his oil.
Here are their opening statements, for the record:
Rod Perkins, Mayor, Town of Kindersley: I would certainly like to thank the senators for taking the time to come out here to hear our concerns. That’s very important and much appreciated.
First, I am the mayor of probably the largest town in Saskatchewan with 5,000 people. We are right in the middle of the oil field. We have oil every way around us 30 to 50 kilometres. We have pipelines two major pipelines within 30 kilometres of us, but you wouldn’t know it. They are buried. There are no problems whatsoever. We have feeder pipelines and flowlines going all over these oil fields, and no issues. To me, trucking or rail makes absolutely no economic sense and obviously increases the carbon footprint.
Second, having the U.S. as our major customer is pretty scary. Let’s think Donald Trump here for a minute, and we can see what we have had to deal with. To our minds, Energy East and Trans Mountain would give us the opportunity to go both east and west to sell to the world. Whether or not we like it, our Canadian dollar is a petrodollar. Many economists will say that it’s based on the oil price in a lot of instances.
I am very fortunate around my council table because I have an oilman with 20 years’ experience in it. I am going to turn it over to him because he can tell you first hand exactly what it has done.
Gary Becker, Councillor, Town of Kindersley: I would like to thank the Senate Committee for allowing me to speak with regard to this Bill C-48. Looking at the diverse group of speakers from both sides gives me faith to see democracy is alive and well in Canada.
My opinion of this bill is that it will do more harm to Western Canadian oil and gas, while holding a double standard and allowing imported oil to come in on Canada’s East Coast unabated. This bill is one of many aimed at land-locking Western Canadian oil.
Being on a small ag town council is my part-time job. My full-time occupation is owner and operator of a small independent oil company called Longhorn Oil & Gas. Longhorn currently employs 25 people in the west central Saskatchewan region. It is an oil company which produces approximately 1,400 barrels a day oil in U.S. measurement, 220 cubed metres a day in metric measurement and 220,000 a day in media measurement. As a small independent hands-on company, I believe I can give on the ground advice with regard to oil.
I would like to share a bit of my history and my upbringing because I believe they are relevant to this conversation. My background is being from a mixed farm in the Kindersley area. It was more out of accident and necessity that a person got into the oil business. The late 1980s and early 1990s were brutal times in the ag sector. Drought, low prices and relatively high debt loads accumulated to form a macro crisis throughout Saskatchewan. The feeling in ag back then was one of hopelessness with not much future. This reminds me of the exact mood in the oil and gas space today. The only difference is that government back then was trying to mitigate the hurt from the crisis, where today it feels government is the cause of the hurt.
My father was one of many farmers who was also in financial trouble. Through a Hail Mary move he bought some marginal wells on his land. It paid off. Although it was a relatively meager cash flow, it was enough to keep the family farm going through the tough times. Seeing what oil could do for cash flow, but being a farmer at heart, I attended a petroleum technologist course at SAIT in Calgary after graduating from high school.
After college I worked throughout Alberta in the oil at the same time as I farmed back in Saskatchewan. A familiar routine for many of my peers in that era was to work in the oil to subsidize the farm. This routine has not changed. As today four of my employees work full time for me while farming full time as well. In my opinion, the oil and gas industry is a major backbone to the Western Canadian economy. We in Canada are blessed to have been given a resource millions of years ago that has greatly lifted the living standard of all Canadians in the last few decades. It’s sad to see how oil has been vilified in the last decade through misinformation and propaganda campaigns. Oil, in its pure form, is actually a nutrient. Many old-timers I used to work with shared stories of how much better stuff grew where there were oil spills. The problem is the saltwater produced with the oil, not the oil itself.
I would like to share a story of my first-hand experience with an event that happened about 10 years ago. The landowner’s son was leasing a fresh source well on my property to provide water for the service side of the oil industry. The landowner is well known in the area and has a reputation with oil companies of being hostile and hard to deal with. The freshwater tanks on his land, filled from my source well, overflowed one night when someone forgot to turn off the well. There should have been no oil in the tanks being that it was a fresh well, but somehow over time a skim of oil had accumulated.
The night the tanks went over it was very windy. We estimated that about 3 to 5 cubic metres or 3,000 to 5,000 litres of oil covered an area of a hectare and a half. The landowner’s son did not want to pay for the cleanup. It would have cost $20,000 to $30,000 for dirt removal and replacement. This surprised me. If it was my fault, I would have had to clean the oil up ASAP and compensate until the land was back to original. I said fine because it was their land. This incident happened around the time of year when the grass was just starting to grow. It was about this time of year 10 years ago. As we monitored the area, to our surprise the area covered in oil was turning lusher and greener than the area not covered in oil. By July of that year the grass in the oiled area was a full foot higher and almost all traces of oil had disappeared entirely. Within a year there was no trace of any oil and the affected area was still lusher.
Having a tanker ban and limiting the access of Canadian producers to market will have monetary consequences to all Canadians through lower royalties to government. As a small marginal producer, I pay about 5 per cent of gross oil sales in royalties. Last fall, when the pipelines were full to the United States, I actually received negative pricing for my product. On the back of that handout, there was an oil statement from my marketer that shows the negative pricing I received. Instead of paying the typical $100,000 a month in royalties, I paid about $10,000 in December. Putting this in perspective with Canada producing about 3.5 million barrels a day, I estimate over $1.5 billion was lost in royalties alone in December.
It was also a shame giving all the cheap oil we produced for the U.S. when we should have been sending it to our peers in the eastern provinces. Some oil is making its way to the Eastern Canadian refineries by train, but we need a pipeline to get a significant amount of crude there, a.k.a. Energy East. I never understood the logic of Eastern Canada a buying high-priced Brent crude from unfriendly foreign governments when cheap Canadian crude is on their doorsteps. It just doesn’t make sense.
Not having access to markets has actually increased my company’s carbon footprint. As Enbridge mainlines have neared capacity limits, deep discounts for crude have been applied to crude with no other sales point. In the past year, over 50 per cent of my crude has been marketed to sales points far distances from where I normally sell my oil. The average truck ride at the local market is a 1.5-hour round trip, where my new sales point is a 15-hour round trip. There is nothing good about having to sell oil this way. It is a danger to travellers on the highway, hard on the provincial infrastructure and certainly increases CO2 emissions. I believe many other companies are doing similar marketing strategies. As the months where the price arbitrage is high, I see a lot of Super Bs throughout Saskatchewan hauling crude. This was never even considered until several years ago when the mainline logistics got out of whack.
I would like to thank the Senate Committee for allowing me to express my point of view regarding the negative consequences of Bill C-48. I would love to answer any questions and give the perspective of a small producer/farmer from Saskatchewan.
Senator MacDonald asked about job losses
Senator Mike MacDonald: I have a question for you, Mr. Becker. I certainly appreciate your discussion here. You talked about our having a petro dollar, and we do. The Canadian dollar is a petro dollar tied to the price of world oil, but we have a 75-cent dollar. I remember in 2006 or so that it was almost up to $1.09 U.S. With a 75-cent dollar we should be kicking the hell out of the Americans when it comes to production of oil because most of the money should be flooding this way. However, it’s all flooding in the other direction. All the investment money and all the experienced people are starting to go the other way.
I am curious. You were saying how many people work for you. How many people did work for you? Have you seen a reduction in the people that work for you and in the people around you who work for other companies?
Gary Becker: In December, I had to make the tough decision. I guess it would be 10 per cent of my workforce. I let two people go who directly worked for me. As a producer you have the service side but with less activity you use fewer people. Kindersley has been a bit different because they found new oil. We haven’t been as hard hit as Lloydminster. Lloyd has heavy oil and Kindersley has a light oil, so it has been a little more steady.
Kindersley hasn’t felt the pain as bad as a lot of areas, but know that Play is starting to peter off. We have all tightened our belts. For a lot of companies there has not been much profit margin and less money to the community. On marketing oil, a guy actually received negative pricing in December for some of his oil to the Americans, like negative. Most of my oil goes down the Enbridge mainline, as does most of the oil. It was something to see. I do not want to see that ever again. I was talking to an oil marketer. Oil sells in 10,000-cube batches. That’s what the refiners buy it in. He said that in December he sold a 10,000-cube batch and he got 48 cents a barrel. For the equivalent, the big batch of oil was $33,000. The price of oil came up today. It’s actually a decent price again. The Canadian differential on Western Canadian Select has narrowed, but I think the same batch that sold for $33,000 would be worth $6 million as of today, right now. There was some huge wealth transfer.
I believe for Canada it is about 4.5 million because we export 3.5 million barrels a day and we use a million internally. It’s something to see.