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Manitoba’s oil patch — new discovery creates new crop of rural millionaires
May 06, 2005

The theme song of the old Beverly Hillbillies television comedy tells of “black gold, Texas tea.”

Jed Clampett, “a poor mountaineer, barely kept his family fed,” but one day happened to miss a possum or some such critter, “And up through the ground came a bubblin’ crude.”

The next thing everybody knew “Jed’s a millionaire.”

Although it is a 1960s sitcom story, what happened to Jed and his family is apparently happening to a few rural folks in Manitoba.

According to Free Press reporter Bill Redekop, people in “an impoverished community,” weren’t out shooting for food, but allowed Winnipeg-based Tundra Oil and Gas to drill a series of wells, and “up through the ground came a bubblin’ crude.”

Like Jed, some people in and around the hamlet of Sinclair, 300 kilometres southwest of Winnipeg, are poised to 

become instant millionaires.

Redekop reported that one of the 

local residents, Helen Dittmer, 68, stands to make $1 million in oil royalties this year from wells on her property. Since prices have escalated beyond $55 a barrel, it is apt to describe their good fortune as 

resulting from “black gold, Texas tea” 

(a slang expression for oil).

Fortunately for many Manitobans in the area, they not only have the land sought by oil companies but they also own the mineral rights to that land. Through a pleasant quirk in the law, many farmers and their descendants hold mineral rights because the area was homesteaded before 1890 — the year Ottawa took over mineral rights in Western Canada which have since been transferred to the provinces. 

According to the province, about 80 per cent of the mineral rights in Manitoba’s oil patch are in private hands. The other 20 per cent is Crown lands.

It hasn’t been reported whether or not some of Manitoba’s new millionaires will be moving to “Californy,” but they are definitely now in a much better position to wait out the series of crisis that have hit the family farm in recent years — mad cow disease, low grain prices and duties on Manitoba hogs.

Tundra Gas and Oil, which is privately owned by Winnipeg’s Richardson family, began operations at the time of Manitoba’s last major strike in 1980. It is one of four companies reaping the benefits of the new Sinclair Field strike.

To tell the story of Manitoba’s oil patch, the WREN is reprinting below the article by Kurt Refvik that first appeared in its pages on December 15, 1995. Of course, it doesn’t carry any information on the Sinclair discovery — it’s too new — but other information has been updated.

by Kurt Refvik

Although many Manitobans do not associate their province with drilling rigs and pump jacks, oil has been produced in commercial quantities in the southwest for almost 55 years.

Compared to fields in Alberta, 

Manitoba’s “oil patch” is of limited size. Nevertheless, the industry has provided 

important employment and business 

opportunities, second only to agriculture, in several communities in the region.

Prior to the Second World War, exploration for oil and gas in Manitoba was very limited and most drilling activity was in search of water. Beginning in 1873, the Geological Survey of Canada drilled a 

series of shallow wells, initially along the proposed route of the Canadian Pacific Railway, in search of coal and-water and for general geological information.

The first exploratory drilling specifically for oil was carried out on the banks of the Vermillion River in 1887 by the Manitoba Oil Company. A mechanical failure stopped drilling and in 1888 the rig was moved a short distance away with no 

success.

A little bit of excitement was created in 1927 when a well in the Grandview district was reported to have shows of oil. It was subsequently discovered, however, that the promoters had imported some barrels of oil from town to pour down the well!

In the Melita-Waskada area, drilling encountered small pockets of natural 

gas sufficient for cooking and lighting homes, but of no commercial value.

There was renewed interest in the 1930s, and drilling activity ranged over a wide area that included wells near Portage la Prairie, Pilot Mound, Manitou, Gilbert Plains, Dauphin and Birdtail.

The provincial government passed the first set of comprehensive regulations governing oil and natural gas exploration and development in Manitoba in 1947.

Under a new regulatory system, the first concentrated effort to search for oil began. The Brandon Exploration Company, a division of the California Standard Company, was issued the first oil and natural gas reservations by the province. 

By 1950, eight geophysical crews were at work in province including those of the “majors” — California Standard, Shell Oil of Canada and Imperial Oil.

Although eight wells drilled that year were abandoned as dry (not capable of commercial production) oil shows began to appear in the formations underlying Manitoba.

On the eve of the discovery of the first commercially viable well, the province was already heavily involved in the distribution and refinement of petroleum products. A company called North Star Oil had built Manitoba’s first refinery in St. Boniface in 1927 and three more — Radio Oils (east Kildonan), Imperial Oil (East St. Paul) and Anglo-Canadian (Brandon) — were operating by 1951. The combined output from Manitoba’s four refineries was 33,000 barrels of oil per day.

Manitoba’s first “oil boom” was triggered on February 1, 1951 when California Standard, which had invested $10 million in research and exploration to that point, began production from its Daly well situated 15 kilometres west of Virden. This discovery represented the first commercial well in the Williston Sedimentary Basin, which now yields production in Saskatchewan, Montana, North and South Dakota as well as Manitoba.

Further drilling around the well led to the development of Daly as Manitoba’s first major oil field.

The impact of the discovery was widespread across southwestern Manitoba. Landmen and agents descended on property owners from the Saskatchewan border to Portage la Prairie in an effort to 

secure leasing rights for exploration and drilling. The manner in which surface and mineral rights were yielded would later 

become the centre of a controversy that resulted in the calling of a commission of inquiry by the provincial government.

As drilling followed leasing, new fields were discovered at Lulu Lake, Waskada and Tilston in 1952. The following year, the Virden Scallion and Roselea fields, constituting Manitoba’s largest producing area, were discovered in an ironic twist of fortune.

Hart and George McIvor, owners of a rig that had been operating in Alberta and Manitoba, had drilled 14 unsuccessful wells under contract to the Anglo-Canadian Oil Company. During a lull in activity, the brothers took it upon themselves to drill on the homestead farm of their grandfather, Kenneth McIvor, which was 

located just 1.6 kilometres northwest of Virden. The McIvor brothers brought in Manitoba’s first flowing well in what became the Virden-Roselea field.

As the centre of activity in the oil fields, Virden soon became referred to as Manitoba’s “Oil Capital.” This honour was further entrenched in January 1955 when the first well within the actual townsite was put into production.

In a negotiated deal that involved revenue sharing with the town, Crown and individual lot owners, Ponder Oils of Calgary and the “venerable corporation of the Town of Virden” embarked on a program to develop the resource which was known to lie beneath the community. All of the 16 legal subdivisions that were drilled yielded producing wells.

In the first 14 months that production topped 250,000 barrels of oil!

The impact of the oil industry on Virden went beyond simply having rigs and pump jacks operating in town parks and playgrounds. There were far reaching social and economic implications associated with the oil boom. Before 1951, the population of Virden had remained static at around 1,750 people. As the oil industry gathered momentum, the number of residents climbed to around 3,500 by 1953.

Although many members of the drilling and exploration crews were only temporary, they still had to be accommodated in the bustling community. Long-time residents recall a trailer town that housed many of the transients and their families. Initially, the local schools had to adapt to this burgeoning population by operating classes in two shifts during the day.

The town’s infrastructure was also 

affected by the rapid growth. In the fall of 1953, a $360,000 waterworks improvement project was begun.

By the mid-1950s, the community boasted over 100 business firms, a modern hospital with a public health unit and medical health director, three modern schools, two movie theatres, a drive-in, a flying club and recreational facilities for winter and summer sports.

The rapid growth experienced by Virden during Manitoba’s first oil boom was not duplicated in other communities to the same extent. The fields near Waskada, Tilston and Pierson, for example, did not yield the levels of production found in the Virden and Daly developments.

Rather optimistically, a newspaper cartoon depicted Waskada among the  likes of the massive discoveries at Turner Valley and Leduc in Alberta. In fact, Manitoba’s “oil boom,” while important to the region, was not on a scale with its western neighbour and the excitement gradually subsided.

Activity in Manitoba’s oil patch peaked for the decade in 1956 with as many as 30 rigs drilling some 359 wells in a total of 12 discovered fields.

Production in Manitoba’s oil fields actually began to decline after reaching an initial annual high of approximately 6.1-million barrels or just under 970,000 

cubic metres in 1957. Thereafter, a decline in new wells and the depletion of known pools seemed to indicate that the “boom” was at an end.

Adding to the problem was the fact that conventional wells in Manitoba’s formations only recovered about 10 to 15 per cent of the reservoir’s oil, with the balance remaining in the ground awaiting new technology. The industry introduced a waterflood pressure maintenance scheme, Canada’s first, in Daly in 1953.

Known as an “enhanced recovery method,” waterflooding involves the injection of water under pressure down a well and into the oil-bearing formation. The increased pressure forces the oil into an adjacent well bore to be pumped out conventionally thereby increasing the well’s production by an additional 15 to 30 per cent. Even with this innovation, Manitoba’s oil production continued to decline as the boom decade — the 1950s — drew to a close.

Despite the drop in production, the oil industry was firmly established in Manitoba, and the benefits, including business and employment opportunities, were many. Direct revenues to the province exceeded $1 million in the three years from 1956 to 58. The Town of Virden and oil-producing municipalities also shared in the proceeds with the 1955 passage of the Oil Well Property Tax on petroleum facilities.

For many an individual landowner, the negotiated settlements for surface and mineral rights provided some ready cash and the royalties from successful wells (normally 12.5 per cent of production at the time, but now 15 per cent) could be significant sources of wealth.

Not everyone, however, was pleased with the treatment they received during the heyday of lease negotiations in the early 1950s. Complaints were numerous enough by the end of the decade that the provincial government felt compelled to investigate allegations that land brokers and leasing agents committed acts of misrepresentation or outright fraud to persuade landowners to unknowingly bargain away a portion of their petroleum royalty rights.

An Order in Council on March 10, 1959 appointed The Mineral Transactions Inquiry Commission under W.E. Norton, Barrister, to enquire into the disputed mineral transactions and make recommendations based on the findings. During the hearings, 119 mineral owners presented their complaints to the inquiry. At the request of the commission, five landmen and one broker testified as to the procedures involved in negotiating agreements with mineral holders.

The findings of the inquiry, published in December of 1959, were somewhat inconclusive.

It was evident that the landmen, under the direction of land brokers, did not fully understand the contracts they were presenting to the mineral rights owners. It was also pointed out that the mineral rights owners did not avail themselves of the opportunity to make even a cursory examination of the contracts and were all too quick to affix their signatures if there was a potential reward.

The commission concluded that, while brokers had been negligent in choosing and instructing their landmen, there was no evidence to support allegations of deliberate misrepresentations or fraud. Among the subsequent recommendations was a call to licence and bond all landmen and that the government give assistance in the form of legal counsel to mineral owners interested in pursuing their cases in civil court.

Waterflooding, which had been initially carried out in the Daly field, was introduced into the larger Virden fields in 1962. Results from enhanced recovery programs were several years coming and Manitoba’s oil production bottomed out in 1963 at 599,276 cubic metres.

The effort paid off over the next few years, as oil recovery increased and in 1968 production reached the highest annual level ever reached in Manitoba’s patch at 986,023 cubic metres or just over six million barrels.

While enhanced recovery operations accounted for most of the increase in production during the 1960s, there was some notable exploration and development going on. International Hydrocarbons Ltd. (later known as Omega 

Hydrocarbons Ltd.) carried out some drilling in the Waskada area and was rewarded with the discovery of a new pool in that field.

Limited developmental work was also carried out near Pierson and a small field was established in the Souris-Hartney area.

Perhaps some of the most promising (but as yet unfulfilled) research work was carried out in the unforgiving climate of northern Manitoba on Hudson Bay. A potential oil-bearing sedimentary basin underlies Hudson Bay and extends inland some distance.

In 1962, a company called Sopeget secured exploration permits covering 200,000 hectares and carried out the first geophysical activity on the inland portion of the basin. Subsequent on-shore exploratory drilling by Aquitane Co. of Canada in 1966 provided geological information suggesting that the prospects for finding oil were better in the deeper portion of the basin offshore in Hudson Bay.

The firm followed up in 1969 with an offshore well 225 kilometres east of Churchill that was abandoned as a dry hole. They drilled twice again in 1974 with the same result. Several other on-shore wells in the Hudson’s Bay basin, drilled by Houston Oils and Merland 

Exploration, were also unsuccessful.

Apart from the limited exploration attempts in the Hudson Bay basin, the first half of the 1970s saw little activity in Manitoba, particularly in the south.

The turning point came with the oil embargo imposed by the Organization of Petroleum Exporting Companies (OPEC) in 1973. As crude oil prices surged upward, the value of Manitoba’s production increased and boosted provincial royalties and tax revenues by 300 per cent in 1974.

Freehold mineral taxes, based on private mineral owners royalties, skyrocketed by 3,500 per cent in the same year.

In 1974, exploratory drilling was limited to two wells in Hudson Bay and a 25-well deep (basement— down to pre-Cambrian rock) program in the southwest that was carried out by a company called Asmera in partnership with the provincial government.

Further interest was generated in 

the province’s oil patch when Shell 

Oil announced a deep formation oil 

discovery in North Dakota, only 40 

kilometres southwest of the Manitoba-Saskatchewan border.

In 1979 alone,10 different geophysical programs were licensed and the province held its first Crown oil lease sale in over seven years. In addition to the lease sale, which generated $975,000, Crown royalties and freehold taxes combined to produce a total revenue of $12 million for Manitoba’s coffers in 1979.

Manitoba’s second “oil boom,” which spanned the first half of the 1980s, came from a somewhat unexpected source. Omega Hydrocarbons, formerly International Hydrocarbons, entered an existing well and “recompleted” (prepared the well for production) at a different formation level.

The operation was a success and was notable for being the first recorded producing well in Canada from that particular formation, known as the Jurassic Lower Amaranth or Spearfish Formation.

Omega’s discovery indicated that there was another oil-bearing formation underlying Manitoba, and sparked a flurry of drilling and exploration activity. In 1981, there was a 120 per cent increase (67 wells) in completions over the previous year. Drilling activity continued to increase each year until 1985 when 268 wells, the highest annual number in 30 years, were drilled.

As new wells were brought in, production increased for the first time since 1968 and reached 582,283 cubic 

metres (over 3.5-million barrels) in 1982.

Prior to 1983, natural gas extracted from oil-producing wells had not been commercially utilized and was generally flared off into the atmosphere. Omega proceeded with the construction of a $3.5-million plant at Waskada to extract natural gas liquids such as butane and propane in usable quantities.

After processing, the “dry” gas is re-injected into the formation as part of an enhanced recovery program. This was the first such operation in Manitoba.

The increased oil production at Waskada was also responsible for the 1984 construction of a 90-kilometre crude oil pipeline connecting the field to the Interprovincial Pipeline at Cromer. Inter-City Gas (ICG) built and operated the pipeline (owned jointly with Omega and the Manitoba Oil and Gas Corporation), which began carrying crude in January 1985.

Crown lease sales set and broke 

all-time records in both 1984 and 1985 and the government raked in $4.3 million from two sales in the latter year.

Since the development and operation of an oil lease involved taking land out of agricultural production and other hazards that could damage a farmer’s holdings, there was always the potential for conflict between the oil company and the landowner. In order to alleviate this problem, the Surface Rights Act was passed in the legislature in 1983. It established a six-member Surface Rights Board to arbitrate in any disputes between the petroleum industry and the landowners.

A consortium of companies was granted an agreement in 1981 for Canadian Occidental Petroleum to carry out an exploration program in Hudson Bay. Four years later, two other consortiums, led by Trillium and ICG, spent a total of $40 million drilling two dry holes in the middle of the bay.

In 1985, drilling in Daly actually exceeded that of the Waskada oil play. The result was the discovery of oil in the Bakken Formation at Daly, a deeper and previously unproductive level, which brought the number of proven productive formations in Manitoba to four.

In 1986, OPEC’s price structure collapsed and Manitoba crude dropped from an average of $220 in 1985 to $119 per cubic metre, a decline of 46 per cent in one year. Although prices rebounded somewhat to $143 per cubic metre in 1987, the province’s oil industry had been severely affected by the collapse.

The Manitoba Drilling Incentive Program, in effect from 1979-86, had offered only a reduced royalty on production from new wells. Subsequent programs, from 1987-91 and 1992 to the present, provided oil well operators with a royalty and tax-free “holiday” based on production over a period of five years or a “holiday volume” of 10,000 cubic metres per well, whichever came first.

(Note: The program is still in operation and was recently extended to January 1, 2009. It has also been enhanced to include a minimum of 500 cubic metres of “holiday oil” being produced before Crown royalties and production taxes are paid.)

In an effort to explore the deeper 

formations, which were known to yield oil in other parts of the Williston Basin, a special “holiday” based on 50,000 cubic metres was established for each well that was the first to produce in a previously non-productive formation.

Despite these attempts, drilling 

declined to a low of 28 wells in 1992.

An Enhanced Oil Recovery Incentive Program, which gave operators a reduction in tax and Crown royalty payments on projects such as waterflooding, was implemented in 1987. New technology in the form of horizontal drilling was introduced and included in the government incentive programs.

Simply put, horizontal wells are drilled down to the formation then sideways in the layer of producing rock. Although technologically advanced and more costly, horizontal drilling can significantly increase the rate and overall recovery of oil from a pool.

Between 1951 and 1994, the ground under Manitoba yielded over 30-million cubic metres (almost a quarter-billion barrels) of crude oil, with a cumulative value of sales in excess of $2 billion. In the same period, direct revenues to the Crown from lease sales, licences, royalties and freehold taxes amounted to $263 million. There are currently more than 25 companies operating wells in Manitoba, and it is estimated that they spent $75 million in the oil patch in 1994 on development, exploration, royalties and other production costs.

Chevron Canada was the largest player in the province’s oil patch, accounting for approximately 40 per cent of crude production (570 active wells), but it sold its wells to Enerplus in 2004. Next is Tundra Oil and Gas with 400 wells.

According to government statistics, about 80 per cent of the province’s oil reserves are still in the ground — an 

estimated 1.3-billion barrels.

In 2003, the provincial production was four-million barrels of crude, valued at approximately $157 million, which generated $6 million in revenue for the province. In 2004, the value was 

approximately $195 million. 

Royalties paid to private mineral rights holders in 2003 were estimated at $17 million.

The petroleum industry employs about 350 people, primarily in southwest Manitoba where the oil fields are located.

The province estimates the cost 

of drilling an oil well at between $150,000 and $600,000, depending upon the depth of the well.