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“Texas tea” in Manitoba
Dec 14, 2007

On February 1, 1951, production began on Manitoba’s first commercial oil well, 15 kilometres west of Virden. California Standard’s Daly well marked the beginning of Manitoba’s “oil boom.” Although the “black gold” found was not the mythic proportion of “poor mountaineer” Jed Clampett’s strike on The Beverly Hillbillies, when “up through the ground came a bubblin’ crude,”  a few families have become wealthier through a quirk in early law that allowed them to retain mineral rights on their properties.

According to the provincial government, about 80 per cent of the mineral rights in Manitoba’s oil patch are in private hands — the other 20 per cent is Crown land.

A couple of years ago, Tundra Gas and Oil, a company privately owned by the Richardson family of Winnipeg, began operation on the first major oil strike in the province since 1980. The Sinclair field was heralded at the time as the first stage of a new oil boom in Manitoba.

Helen Dittmar, 68, reported at the time by the Free Press, was poised to make $1 million in oil royalties when the price of oil stood at just US $55 a barrel as a result of new wells on her property. The price last week was US $90 a barrel and the projection is that the 2008 average will be US $85 a barrel. The days of oil at US $55 a barrel are long gone.

This year, people are once again talking about a local oil boom, although not on the scale of oil and gas rich Alberta and Saskatchewan.

What has oil companies salivating is that a portion of southwest Manitoba is on the periphery of the Williston Basin, which in recent months has been touted as the most impressive oil field in North America. The Williston Basin is found in portions of Montana, North Dakota, South Dakota, Saskatchewan and Manitoba. On this side of the border, Saskatchewan is more blessed than Manitoba as it possesses a significant chunk of the basin. One report has southwestern Saskatchewan sitting on 25 billion to 100 billion barrels of sweet, light crude in the Bakken Formation of the Williston Basin. Saskatchewan sits on about 25 per cent of the Williston Basin, while Manitoba’s  portion is dramatically smaller.

Sweet, light crude is the “Texas tea” of The Beverly Hillbillies’ theme song, the most coveted oil because it is easier to refine than heavy crude such as the oil from the tar sands in Alberta.

One commentator in the Regina Leader-Post said the Bakken deposit will be the gift that keeps on giving. A similar claim is being made in North Dakota and Montana which sit on the major portion of the Williston Basin. Both Manitoba and South Dakota are on its periphery, although even this smaller share will have a significant impact on local, state and provincial economies.

What has driven exploration and drilling on both sides of the border is new technology and the high price per barrel of oil — production costs are high to retrieve the deep oil which in Manitoba is at a depth of up to 2,300 metres (7,500 feet) — that makes the Williston Basin accessible. New horizontal drilling methods as well as production techniques such as hydraulic fracturing allow oil companies to exploit the basin.

The Americans are ahead of the exploitation curve and have been drilling wells in the basin using new technology for several years. In Montana, the Elm Coulee field produced more oil in 2005 than the entire state had produced six years earlier.

A major player in Canada’s oil and gas industry, has announced its intent to double investment in Manitoba next year to $10 million. Part of Calgary-based Canadian Natural  Resource Limited’s decision was based on the Alberta government’s announced increase on oil royalties by 20 per cent effective January 2009, but the company also realized there is new potential in the province. The company will be drilling 15 new wells in southwest Manitoba. It drilled only seven wells this year.

Tundra has also announced new activity in Manitoba’s oil patch. It drilled 240 wells this year. 

In 2006, all the companies active in the Manitoba oil patch drilled 530 wells, Another 340 were drilled this year with a projected 350 scheduled for next year.

While Alberta is increasing its royalty share, the Manitoba NDP government can be termed “oil friendly,” encouraging drilling through tax breaks on equipment and lower royalties. 

Don Herring, president of the Canadian Association of Oilwell Drilling Contractors, told Free Press writer Geoff Kirbyson that, “The Manitoba government has always been open for business and easy to deal with. 

Manitoba unfortunately isn’t blessed with quite as many opportunities as Alberta and Saskatchewan, but what is there is good. It’s a good regime to work in.”

A rather surprising statement given the perception among some business leaders is that a left-leaning government is considerably less business friendly than a Conservative government. Actually, it’s a bit of a misnomer when applied to the Doer government which in recent years has espoused fiscal and tax breaks to the corporate and business sector and other incentives to invest in the province. For example, the PST is eliminated on drilling equipment for oil companies. 

What seems to be happening is that Alberta is going the wrong way while Manitoba is taking the high road when dealing with business interests, although the local tax regime remains less attractive than Alberta’s. For example, Alberta still lacks a provincial sales tax.

“We still have to work on a number of taxes,” Premier Gary Doer told the audience at a recent breakfast meeting hosted by the Manitoba Real Estate Association.

Although oil exploration and drilling is actively encouraged in Manitoba, no matter what investment is made, the province will never approach Alberta or Saskatchewan in oil production. While oil production is cited in the millions of barrels in the two provinces to the west, Manitoba only produces 19,000 barrels a day and its production value is only at the $500-million level as opposed to the billions in Alberta and Saskatchewan.

Based on Manitoba’s oil production, few will be joining Jed and his Hillbilly clan and moving to “Californy,” but there is  optimism that oil revenues will contribute more to the ongoing solid economic growth within the province. To its benefit, Manitoba already possesses a diverse economy that helps shield it from the boom-and-bust cycles characteristic of its western neighbours.