Texas: One more threat to the oil sands – by Nathan Vanderklippe (Globe and Mail – April 17, 2013)

Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

CALGARY — As the Canadian oil industry fights against rising costs and blocked pipelines, it finds itself facing new threats from an old competitor.

The Alberta oil sands were once seen as the last big oil reserve available to be exploited in a stable, democratic country. But that is no longer the case as companies bore in on new pools of oil in the United States. The latest is the Permian Basin, an oil-rich region in Texas that has produced crude since the 1920s.

Using new technology, the industry has now begun to to unlock parts of that reservoir they say are amongst the largest ever tapped.

“This is the second-largest discovery in the history of the world,” said Scott Sheffield, the chief executive officer of Pioneer Natural Resources Co., which is based in Irving, Tex.

The Permian has attracted rising interest in recent years, and Pioneer is the largest landholder in an area of the basin known as the Spraberry/Wolfcamp. In a presentation earlier this month at the DUG Permian Basin conference, Mr. Sheffield startled some participants by suggesting that the basin could hold 50 billion barrels of economically recoverable oil.

In another area of the Permian, a subbasin known as the Delaware, “you could easily put [estimates at] somewhere around 20, 25 billion,” Mr. Sheffield said.

The broad array of Canadian oil sands fields, by comparison, hold some 169 billion barrels of recoverable oil. But that crude faces a number of issues, including its environmental footprint, the cost to extract it and industry’s ability to get it to market – all of which give it some vulnerability to competition from elsewhere.

Part of the reason the world’s biggest oil companies flocked to the Fort McMurray, Alta., area is the belief it was “the only game in the world where you’re going to get incremental supply,” said Peter Tertzakian, chief energy economist for ARC Financial. But with major new U.S. finds, “the oil sands all of a sudden becomes somewhat marginalized,” he said.

The Permian offers wells jammed with light oil – profitable at oil prices down to roughly $70 (U.S.) a barrel – close enough to Texas refineries that it can be profitably trucked if pipeline access isn’t available. The “big risk” to Canada is that those factors attract corporate dollars to Texas that might otherwise have been spent north of the border, says Kevin Neveu, CEO of Precision Drilling Corp.

Still, he said, the U.S. is expected to need Canadian oil for years to come, suggesting the larger question for Alberta is whether it can get its oil to that market.

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