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WELCOME TO LLOYDMINSTER

"Black Oil Capital of Canada"

This article appeared in The Roughneck magazine, August 1982 edition

Probably the simplest way to describe the Lloydminster oil patch is an oil industry within an oil industry. In other words, because of the particular nature of the crude produced, the specialized methods used in its extraction, combined with the patience learned by oilmen who make a living trying to persuade oil that does not want to pump - to pump, Lloydminster is unique within the Canadian oil industry. When examining the specialized equipment and technology used, the city of 15,000 [1982] is virtually self contained compared with other oil producing areas.

The city itself is unique as well. With half the city in Saskatchewan and the other half in Alberta, using main street as a boundary, it is the only Canadian municipality situated in two provinces. Although originally the town was primarily an agricultural centre, today Lloydminster accepts the oil industry as an integral part of its prosperity. In fact, Lloydminster may be the only place in Canada with a public development named after the president of an oil company, the Glenn E. Neilson Industrial Park. He was the president of Husky Oil, the first major company that believed in the area's oil producing potential.

Perhaps because the oil industry is so specialized in Lloydminster, explains why the area has been overlooked historically when discussing Canadian all and gas development. The region was pumping oil and producing gas before the deep well discovery at Turner Valley in 1936, and more than a decade before Leduc was even an "x" on an Imperial geologist's map. Maybe it was the type of oil produced around "Lloyd" which left the area on the industry's back shelf for many years, the petroleum being black thick with an API gravity as low as 6°, full of sand and water, hard to pump and hard to sell. The major by-products of Lloyd crude were asphalt and bunker oil and the crude is still sufficiently hard to refine that today [1982] most of Lloyd's production is exported to the United States for refining.

Attracting oil industry investment dollars to Lloydminster has never been particularly easy. Raising money to drill a 20 b/d oil well producing heavy crude nobody wants is difficult compared to a high production light crude well somewhere else which produces oil that can be sold to any refiner. Heavy oil production requires a certain breed of oilman. Compared with a gas well which is drilled and basically forgotten until it quits or runs out; in Lloydminster once you drill you are committed to either hang around and keep it operating or sell it to someone else who must do precisely the same thing. You do not pump heavy oil - you sort of coax it, and some oilmen consider Lloydminster more of a challenge than a job.

However the single factor that keeps Lloydminster pumping, and has done so for over forty years, is the huge oil reserves located in the area, with theoretical estimates ranging as high as 30 billion barrels in place in all formations in all the discovered and undiscovered fields. In a world still dependent on petroleum to keep the wheels of industry turning, one of these days more of Lloydminster s crude will be required. Over the years the local oil community has been patient simply because even today they are still sitting on 90% of it, and if you can make a living pumping part of it while trying to figure out how to get at the rest, it is a very good reason to hang around and see what technology comes up with.

HISTORY OF OIL AND GAS DEVELOPMENT

People suspected the Lloydminster area had oil or gas producing potential as early as 1919 when Imperial Oil drilled 18 holes and although the company laid claim to no discoveries, favorable geological reports were issued. In the 1920’s traces of high grade oil were discovered in a well when cattle refused to drink the water. The farmer, Charles Marren, skimmed samples of the oil from the surface of the water and sent them off for analysis. Tests indicated it was light oil, and although the well was certainly never commercial, it did further indicate the region had hydrocarbon producing potential.

Unlike other areas of western Canada where much of the exploration was done by experienced oil companies, in Lloydminster it seemed to be the local citizens who were most interested in oil. In 1927, the Oxville Oil and Gas Development Company was formed and financed by the sale of 70,000 shares at $1 each which were purchased by some 600 locals. They began drilling halfway between Blackfoot and Ribstone (10-46-2-W4). Over the next five years, numerous discoveries of "black gold" were made by the company but the oil proved perhaps too black as none of the wells were deemed commercial. The company was sold at a sheriff's sale in 1933.

Although Oxvi1le never struck it big, the company did draw attention to the area and Monitor Oils, Texecano Oils and Ribstone Oils drilled wells in the early 1930's. Again more oil was found but nothing commercial. By now companies were beginning to realize Lloydminster was not like the famous "Spindletop" discovery in Texas or "Signal Hill" in California where a proper commercial oil well was expected to gush - not drip.

In 1933, a CPR man named O. C. Yates organized the Lloydminster Gas Company which bought the assets of the now defunct Oxville for $1500 and spudded its first well on the original camp site of the early Barr colonists in November of the same year. The following March, Saskatchewan's first commercial producer of any kind, a gas well, came in and later that year the town had 184 gas meters installed and selling fuel. The well produced 16.7 million cubic feet per day (mcf/day) at 565 PSI. Later the same year, Colony Oil and Gas brought in Colony #1 which produced a respectable 42 mcf/day.

Commercial oil eluded the explorers for a few more years despite oil shows all over the place. In 1938, Lloydminster Royalties brought in a well at 250 barrels per day and caused a stir of excitement but the next day it produced only salt water.

Finally, in 1943, Sparky #1, four miles southwest of Lloydminster, was brought in and it produced for a few years but was later abandoned due to production problems. It turns out "commercial" production of heavy oil at Lloydminster was more a factor of expectations revised downwards than any particular fault of the reservoir.

Over the next few years, more drilling was done, mostly on Saskatchewan. side, and again financed largely by local syndicates. In November, 1944, National Grant #1 found oil and created Saskatchewan's first commercial oil well. Between 1943 and 1948, some 200 or more wells were drilled in the vicinity of Lloyd but by 1945 the area had only produced about 50,000 barrels of oil in total. It was refined at a small refinery operated by Excelsior Petroleum which, since 1943, had made bunker "C" fuel for the railroads.

By 1946, the area's producing capacity was far exceeding its sales and the excess oil was actually stored in huge earthen pits, a testament to the region's producing capacity. This caught the attention of Husky Oil in Cody, Wyoming, and shortly thereafter the company arrived in town with a used 1500 b/d refinery and began drilling wells. In the next year, the refinery was expanded to handle 2500 b/d. In 1954 the plant was expanded to a 8500 b/d capacity and presently [1982] handles 12,900 b/d. It is presently [1982] being expanded further to a 25,000 b/d capacity.

The first major marketing setback to hit Lloydminster came in the early 1950's when the railroads began switching from bunker "C" to diesel fuel, devastating Lloyd's sales. Activity remained slow by comparison until the late 1950's but nevertheless by 1955 the area had over 700 wells.

Two events occurred in the early 1960’s which were to permanently alter the shape of the Lloydminster oil patch and mould it into the community it is today. The first came in 1961 when the Saskatchewan government introduced the drilling of "stratigraphic test" holes on the provincial road allowances. These enabled the oil companies, particularly Husky Oil, to determine the size of the reservoirs at a very low cost since the holes could be drilled, logged, cemented and abandoned for around $3500. At the same, time Husky was producing at less than half capacity from its 180 wells which probably explains why the "strat tests" were all the drilling the company performed.

Encouraged by the size of the reservoirs defined by the strat tests, Husky considered another major development in 1963. The construction of a "yo yo" pipeline connecting to the main Inter-provincial Pipeline (IPPL) at Hardisty. By mixing the heavy oil with condensates for transportation to the main line; then returning the condensates for the next batch, this "yo yo" pipeline became the Lloyd area's first reliable market.

Along with the pipeline Husky announced the Husky Lloydminster Project in 1963, the object being to raise the company's production to 12,000 b/d while simultaneously reducing lifting, gathering and transmission costs with an ambitious battery, flow line and tie in system construction program. In 1963, the fields around Lloydminster were producing 3400 b/d but by 1970 were averaging 21,500 b/d.

Between 1944 and 1964, without a pipeline, the area produced a total of 20.5 million barrels. From 1964 to 1970, with the pipeline, the area produced 31 million barrels or in other words, in one third the time Lloydminster exceeded the twenty year production total by 51%. Husky's contribution alone was 1171 wells drilled, of which about 1,000 were completed. The company constructed 13 batteries, 23 satellites, 17 water, air or steam plants and laid an estimated 500 miles of flowline water and gas lines.

A second oil pipeline was constructed in 1971 by Murphy Oil and it ran from the fields near Lone Rock to the IPPL line at Kerrobert, Sask. The 15,000 b/d capacity line is now [1982] operated by Manitou Pipelines, a partnership between Murphy Oil and Canadian Reserve Oil and Gas. The construction of the line spurred more successful heavy oil exploration southwards along the route of the line in the direction of Macklin.

The years 1972 to 1975 saw many more companies enter the area; and notably none of them are operating in Lloyd any longer, with the exception of Mobil Oil. They were Canadian Hidrogas (now Norcen), Canadian Hunter (now Home). Hudson's Bay Oil and Gas (Dome) and General Crude (now Mobil-GC). These companies drilled 750 new wells raising the area total to around 3000 and a monthly production in excess of l million barrels per month.

LLOYDMINSTER TODAY

Unlike other Alberta and Saskatchewan oil communities, Lloydminster has been insulated to some degree from the historic and volatile fluctuations of oil and gas exploration. This is largely due to the fact that whether Oil companies are drilling new wells each year or not, the Lloyd area has around 6000 active wells which, due to the perpetual sand carried into the wellbore with the oil, have to be serviced at least three times a year on the average, sometimes more. This creates a stable oil-field service and supply industry affected more by marketing fluctuations and less by political factors than oil towns dependent solely on drilling such as Grande Prairie. Some locals feel the Lloydminster oilfields support a job per well, directly and indirectly.

However the Lloyd oil patch is slow today [1982] compared to a couple of years ago. At one time there were some 40 drilling rigs working out of Lloydminster: today there are only four or five. This has caused many of the drilling and completion personnel to remain idle, but proportionately the present industry slowdown has had less impact on Lloydminster than other areas. Earlier this year, heavy oil marketing problems had slowed down the well maintenance sector, but recent price and export duration adjustments made by the National Energy Board have more heavy oil pumping today in western Canada than even a year ago.

The future of the Lloydminster oil industry is sound; North America will always need asphalt. However, two factors could greatly escalate the activity levels in the area. The first is the success of the many thermal EOR [enhanced oil recovery] projects underway at the present time. If these experimental projects prove successful, both technologically and economically, the daily production of the region could rise dramatically in the next few years creating even more dollars for further development of the fields nearby.

The other is a heavy oil upgrader, an on again, off again project which would convert heavy oil into lighter synthetic oil which could be sold as feedstock to any operating oil refinery. This could provide Lloydminster with its first permanent domestic market, free from political pressures affecting oil exports to the United States. At an estimated cost of one billion dollars, and flat crude prices internationally, the economics of heavy oil upgrading have been placed in question.