History of the petroleum industry in Canada (frontier exploration and development)

Canada's early petroleum

Petroleum

Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...

discoveries took place near population centres or along lines of penetration into the frontier.

The first oil play, for example, was in southern Ontario

Ontario

Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....

. The first western natural gas

Natural gas

Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...

discovery occurred on a Canadian Pacific Railway

Canadian Pacific Railway

The Canadian Pacific Railway , formerly also known as CP Rail between 1968 and 1996, is a historic Canadian Class I railway founded in 1881 and now operated by Canadian Pacific Railway Limited, which began operations as legal owner in a corporate restructuring in 2001...

right-of-way. The site of the first discovery in the far north, the 1920 Norman Wells

Norman Wells, Northwest Territories

Norman Wells is the regional centre for the Sahtu Region of the Northwest Territories, Canada...

, Northwest Territories

Northwest Territories

The Northwest Territories is a federal territory of Canada.Located in northern Canada, the territory borders Canada's two other territories, Yukon to the west and Nunavut to the east, and three provinces: British Columbia to the southwest, and Alberta and Saskatchewan to the south...

wildcat, was along the Mackenzie River

Mackenzie River

The Mackenzie River is the largest river system in Canada. It flows through a vast, isolated region of forest and tundra entirely within the country's Northwest Territories, although its many tributaries reach into four other Canadian provinces and territories...

, at that time the great transportation corridor into Canada's Arctic

Arctic

The Arctic is a region located at the northern-most part of the Earth. The Arctic consists of the Arctic Ocean and parts of Canada, Russia, Greenland, the United States, Norway, Sweden, Finland, and Iceland. The Arctic region consists of a vast, ice-covered ocean, surrounded by treeless permafrost...

.

From those haphazard beginnings the search for petroleum spread to the fringes of continental Canada - and beyond those fringes onto the ocean-covered continental shelves

Continental shelf

The continental shelf is the extended perimeter of each continent and associated coastal plain. Much of the shelf was exposed during glacial periods, but is now submerged under relatively shallow seas and gulfs, and was similarly submerged during other interglacial periods. The continental margin,...

.

Exploration in those areas involves huge machines, complex logistical support systems, and large volumes of capital. Offshore wells in the Canadian sector of the Beaufort Sea have cost more than $100 million. Across the International border, a well drilled in the US sector of the Beaufort - Mukluk by name - cost $1.5 billion, and came up dry.

For the petroleum sector, Canada's geographical frontiers are the petroleum basins

Petroleum exploration in the Arctic

The exploration of the Arctic for petroleum is more technically and physically challenging than for any other environment. However, with increases in technology and continuing high oil prices the region is now receiving the interest of the petroleum industry....

in northern Canada

Northern Canada

Northern Canada, colloquially the North, is the vast northernmost region of Canada variously defined by geography and politics. Politically, the term refers to the three territories of Canada: Yukon, Northwest Territories, and Nunavut...

, in the Canadian Arctic Archipelago

Canadian Arctic Archipelago

The Canadian Arctic Archipelago, also known as the Arctic Archipelago, is a Canadian archipelago north of the Canadian mainland in the Arctic...

, and off the coast of Atlantic Canada

Atlantic Canada

Atlantic Canada is the region of Canada comprising the four provinces located on the Atlantic coast, excluding Quebec: the three Maritime provinces – New Brunswick, Prince Edward Island, and Nova Scotia – and Newfoundland and Labrador...

. These areas are difficult and expensive to explore and develop, but successful projects can be profitable using known production technology.

As the world's onshore oil reserves

Oil reserves

The total estimated amount of oil in an oil reservoir, including both producible and non-producible oil, is called oil in place. However, because of reservoir characteristics and limitations in petroleum extraction technologies, only a fraction of this oil can be brought to the surface, and it is...

deplete, offshore resources

Natural resource

Natural resources occur naturally within environments that exist relatively undisturbed by mankind, in a natural form. A natural resource is often characterized by amounts of biodiversity and geodiversity existent in various ecosystems....

- in Canada, also known as frontier resources - become increasingly important. Those resources in turn complete the full cycle of exploration, development, production and depletion

Oil depletion

Oil depletion occurs in the second half of the production curve of an oil well, oil field, or the average of total world oil production. The Hubbert peak theory makes predictions of production rates based on prior discovery rates and anticipated production rates. Hubbert curves predict that the...

.

Some frontier crude oil production - for example, Bent Horn in the Arctic and the Panuke discovery offshore Nova Scotia - have already been shut down after completing their productive lives. Similarly, some natural gas fields in the frontiers are now in later stages of decline.

In part, this history illustrates how important changes take place in the economies of newly-producing regions, as frontier exploration shifts from wildcat drilling through oil and gas development into production. It also explores the ingenuity needed to drill in those inhospitable areas, and the deadly challenges explorers sometimes face.

Norman Wells

The first great story in Canada's exploration

Exploration

Exploration is the act of searching or traveling around a terrain for the purpose of discovery of resources or information. Exploration occurs in all non-sessile animal species, including humans...

of the geographical frontiers is that of Norman Wells

Norman Wells, Northwest Territories

Norman Wells is the regional centre for the Sahtu Region of the Northwest Territories, Canada...

in the Northwest Territories

Northwest Territories

. During his voyage of discovery down the Mackenzie River to the Arctic Ocean

Arctic Ocean

The Arctic Ocean, located in the Northern Hemisphere and mostly in the Arctic north polar region, is the smallest and shallowest of the world's five major oceanic divisions...

in 1789, Sir Alexander Mackenzie noted in his journal that he had seen oil

Oil

An oil is any substance that is liquid at ambient temperatures and does not mix with water but may mix with other oils and organic solvents. This general definition includes vegetable oils, volatile essential oils, petrochemical oils, and synthetic oils....

seeping from the river’s bank. R.G. McConnell of the Geological Survey of Canada confirmed these seepages in 1888. In 1914, British geologist Dr. T.O. Bosworth staked three claims near the spot. Imperial Oil

Imperial Oil

Imperial Oil Limited is Canada's largest petroleum company. The company is engaged in the exploration, production and sale of crude oil and natural gas. It is controlled by US based ExxonMobil, which owns 69.6% of its stock...

acquired the claims and in 1918-1919 sent two geologists of its own, and they recommended drilling.

Led by a geologist, a crew composed of six drillers

Driller (oil)

The driller is a team leader in charge during the process of well drilling. The term is commonly used in the context of an oil well drilling rig....

and an ox

An ox , also known as a bullock in Australia, New Zealand and India, is a bovine trained as a draft animal. Oxen are commonly castrated adult male cattle; castration makes the animals more tractable...

(Old Nig by name) later began a six-week, 1900 kilometres (1,180.6 mi) journey northward by railway, riverboat

Riverboat

A riverboat is a ship built boat designed for inland navigation on lakes, rivers, and artificial waterways. They are generally equipped and outfitted as work boats in one of the carrying trades, for freight or people transport, including luxury units constructed for entertainment enterprises, such...

and foot to the site now known as Norman Wells. They found oil - largely by luck, it turned out later - after Ted Link, later Imperial Oil’s chief geologist

Geologist

A geologist is a scientist who studies the solid and liquid matter that constitutes the Earth as well as the processes and history that has shaped it. Geologists usually engage in studying geology. Geologists, studying more of an applied science than a theoretical one, must approach Geology using...

, waved his arm grandly and said, "Drill anywhere around here." The crew began digging into the permafrost

Permafrost

In geology, permafrost, cryotic soil or permafrost soil is soil at or below the freezing point of water for two or more years. Ice is not always present, as may be in the case of nonporous bedrock, but it frequently occurs and it may be in amounts exceeding the potential hydraulic saturation of...

with pick and shovel, unable to put their cable tool rig into operation until they had cleared away the mixture of frozen mud and ice. At about the 30 metres (98.4 ft) level they encountered their first oil show. By this time, the river ice had frozen to 1.5 m (4.9 ft) and the mercury

Mercury-in-glass thermometer

A mercury-in-glass thermometer, also known as a mercury thermometer, was invented by German physicist Daniel Gabriel Fahrenheit in 1724 and is a thermometer consisting of mercury in a glass tube. Calibrated marks on the tube allow the temperature to be read by the length of the mercury within the...

had plunged to -40 °C. The crew decided to give up and wait out the winter. They survived, but their ox did not. Old Nig provided many a meal during the long, cold winter.

Drilling resumed in the spring and a relief crew arrived in July. Some of the original crew stayed around to help the newcomers continue drilling. On August 23, 1920, they struck oil at 240 m (787.4 ft). The world’s most northerly oil well had come in. In succeeding months, Imperial drilled three more holes - two successful, one dry. The company also installed enough equipment to refine the crude oil into a type of fuel oil

Fuel oil

Fuel oil is a fraction obtained from petroleum distillation, either as a distillate or a residue. Broadly speaking, fuel oil is any liquid petroleum product that is burned in a furnace or boiler for the generation of heat or used in an engine for the generation of power, except oils having a flash...

for use by church missions

Mission (Christian)

Christian missionary activities often involve sending individuals and groups , to foreign countries and to places in their own homeland. This has frequently involved not only evangelization , but also humanitarian work, especially among the poor and disadvantaged...

and fishing boats along the Mackenzie. But the refinery

Refinery

A refinery is a production facility composed of a group of chemical engineering unit processes and unit operations refining certain materials or converting raw material into products of value.-Types of refineries:Different types of refineries are as follows:...

and oil field

Oil field

An oil field is a region with an abundance of oil wells extracting petroleum from below ground. Because the oil reservoirs typically extend over a large area, possibly several hundred kilometres across, full exploitation entails multiple wells scattered across the area...

closed in 1921 because northern markets were too small to justify the costly operations. Norman Wells marked another important milestone when in 1921 Imperial flew two all-metal 185 hp Junkers airplanes to the site. These aircraft were among the first of the legendary bush planes which helped to develop the north, and forerunners of today’s commercial northern air transport.

A small oil refinery

Oil refinery

An oil refinery or petroleum refinery is an industrial process plant where crude oil is processed and refined into more useful petroleum products, such as gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas...

using Norman Wells oil opened in 1936 to supply the Eldorado Mine

Eldorado Mine

Eldorado Mine is located at Port Radium, Northwest Territories, Canada.It is also known as Port Radium, a name adopted for use at this specific site after 1942...

at Great Bear Lake

Great Bear Lake

Great Bear Lake is the largest lake entirely within Canada , the third or fourth largest in North America, and the seventh or eighth largest in the world...

, but the field did not take a significant place in history again until after the United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

entered World War II

World War II

World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

.

This discovery indirectly contributed to post-war exploration in Alberta, and the decision to drill Leduc No. 1

Leduc No. 1

Leduc No. 1 was a major crude oil discovery made near Leduc, Alberta, Canada on February 13, 1947. It provided the geological key to Alberta's most prolific conventional oil reserves and resulted in a boom in petroleum exploration and development across Western Canada...

. Like Leduc, the Norman Wells discovery was drilled into a Devonian reef. After the Second World War

World War II

, Imperial identified what it thought might be the same kind of structure in Alberta, and consequently located the great Leduc oil field.

Canol: When Japan

Japan

Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

captured a pair of Aleutian Islands, Americans became concerned about the safety of their oil tanker routes to Alaska

Alaska

Alaska is the largest state in the United States by area. It is situated in the northwest extremity of the North American continent, with Canada to the east, the Arctic Ocean to the north, and the Pacific Ocean to the west and south, with Russia further west across the Bering Strait...

and began looking for an inland oil supply safe from attack. They negotiated with Canada to build a refinery at Whitehorse

Whitehorse, Yukon

Whitehorse is Yukon's capital and largest city . It was incorporated in 1950 and is located at kilometre 1476 on the Alaska Highway in southern Yukon. Whitehorse's downtown and Riverdale areas occupy both shores of the Yukon River, which originates in British Columbia and meets the Bering Sea in...

in the Yukon

Yukon

Yukon is the westernmost and smallest of Canada's three federal territories. It was named after the Yukon River. The word Yukon means "Great River" in Gwich’in....

, with crude oil to come by pipeline from Norman Wells. If tank truck

Tank truck

A tank truck or road tanker is a motor vehicle designed to carry liquefied loads, dry bulk cargo or gases on roads. The largest such vehicles are similar to railroad tank cars which are also designed to carry liquefied loads...

s had tried to haul the oil to Alaska, they would have eaten up most of their own load over the vast distance.

This spectacular project, dubbed the Canol Road

Canol Road

The Canol Road was part of a project to build a pipeline and a road from Norman Wells, Northwest Territories to Whitehorse, Yukon during World War II. The pipeline no longer exists, but the long Yukon portion of the road is maintained by the Yukon Government during summer months...

- a contraction of "Canadian" and "oil" - took 20 months, 25,000 men, 10 million tonne

Tonne

The tonne, known as the metric ton in the US , often put pleonastically as "metric tonne" to avoid confusion with ton, is a metric system unit of mass equal to 1000 kilograms. The tonne is not an International System of Units unit, but is accepted for use with the SI...

s (9.8 million long ton

Long ton

Long ton is the name for the unit called the "ton" in the avoirdupois or Imperial system of measurements, as used in the United Kingdom and several other Commonwealth countries. It has been mostly replaced by the tonne, and in the United States by the short ton...

s or 11 million short ton

Short ton

The short ton is a unit of mass equal to . In the United States it is often called simply ton without distinguishing it from the metric ton or the long ton ; rather, the other two are specifically noted. There are, however, some U.S...

s) of equipment, 1600 km (994.2 mi) each of road

Road

A road is a thoroughfare, route, or way on land between two places, which typically has been paved or otherwise improved to allow travel by some conveyance, including a horse, cart, or motor vehicle. Roads consist of one, or sometimes two, roadways each with one or more lanes and also any...

, and telegraph

Telegraphy

Telegraphy is the long-distance transmission of messages via some form of signalling technology. Telegraphy requires messages to be converted to a code which is known to both sender and receiver...

line and 2575 km (1,600 mi) of pipeline

Pipeline transport

Pipeline transport is the transportation of goods through a pipe. Most commonly, liquids and gases are sent, but pneumatic tubes that transport solid capsules using compressed air are also used....

. The pipeline network consisted of the 950 km (590.3 mi) crude oil line from Norman Wells to the Whitehorse refinery. From there, three lines carried products to Skagway

Skagway, Alaska

Skagway is a first-class borough in Alaska, on the Alaska Panhandle. It was formerly a city first incorporated in 1900 that was re-incorporated as a borough on June 25, 2007. As of the 2000 census, the population of the city was 862...

and Fairbanks

Fairbanks, Alaska

Fairbanks is a home rule city in and the borough seat of the Fairbanks North Star Borough in the U.S. state of Alaska.Fairbanks is the largest city in the Interior region of Alaska, and second largest in the state behind Anchorage...

in Alaska, and to Watson Lake

Watson Lake, Yukon

Watson Lake is a town at historical mile 635 on the Alaska Highway in the southeastern Yukon close to the British Columbia border. Population in December 2004 was 1,547 ....

, Yukon. Meanwhile Imperial was drilling more wells. The test for the Norman Wells oil field came when the pipeline was ready on February 16, 1944. The field surpassed expectations. During the one year remaining of the Pacific war, the field produced about 160,000 m³ (1.4 million barrels

Barrel (unit)

A barrel is one of several units of volume, with dry barrels, fluid barrels , oil barrel, etc...

) of oil.

The total cost of the project (all paid by U.S. taxpayers) was $134 million, in 1943 U.S. dollars. Total crude production was 315,000 m³ (2.7 million barrels) of which 7,313 m³ (63,000 barrels) were spilled. The cost of the crude oil was $426 per cubic metre ($67.77 per barrel). Refined petroleum product output was just 138,000 m³ (1.2 million barrels). Cost per barrel of refined product was thus $975 per cubic metre, or 97.5 cents per litre

Litre

pic|200px|right|thumb|One litre is equivalent to this cubeEach side is 10 cm1 litre water = 1 kilogram water The litre is a metric system unit of volume equal to 1 cubic decimetre , to 1,000 cubic centimetres , and to 1/1,000 cubic metre...

($3.69 a gallon). Adjusted to current dollars using the U.S. consumer price index

Consumer price index

A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...

, in 2000 dollars the oil would have cost $4,214 per cubic metre ($670 a barrel), while the refined product would have been worth an astonishing $9.62 a litre ($36.42 a gallon).

After the war, there was no use for the Canol pipeline. It simply fell out of use, with pipe and other equipment lying abandoned. The Whitehorse refinery kept on going - in a different locale. Imperial bought it for $1, took it apart, moved it to Edmonton

Edmonton

Edmonton is the capital of the Canadian province of Alberta and is the province's second-largest city. Edmonton is located on the North Saskatchewan River and is the centre of the Edmonton Capital Region, which is surrounded by the central region of the province.The city and its census...

, Alberta

Alberta

Alberta is a province of Canada. It had an estimated population of 3.7 million in 2010 making it the most populous of Canada's three prairie provinces...

and reassembled it like a gigantic jigsaw puzzle to handle production from the fast-developing Leduc oil field near Devon

Devon, Alberta

Devon is a town in the province of Alberta, Canada, situated southwest of Edmonton, the provincial capital, and located along the banks of the North Saskatchewan River.- History :Devon owes its existence to one of the largest oil discoveries in the world...

.

The Norman Wells story is not yet complete. The field entered its most important phase in the mid-1980s, when a pipeline connected the field to the Canada-wide crude oil pipeline system. Oil began flowing south in 1985.

Norman Wells was a frontier discovery. It was not Arctic exploration

Petroleum exploration in the Arctic

, however, since it was located south of the Arctic Circle

Arctic Circle

The Arctic Circle is one of the five major circles of latitude that mark maps of the Earth. For Epoch 2011, it is the parallel of latitude that runs north of the Equator....

and also outside the narrowly-defined Arctic environment (see map).

The definitive push into the Arctic took place in 1957 when Western Minerals and a small exploration company called Peel Plateau Exploration drilled the first well in the Yukon. To provision the well, some 800 km (497.1 mi) from Whitehorse at Eagle Plains, Peel Plateau hauled 2,600 tonnes (2,559 L/T or 2,866 S/T) of equipment and supplies by tractor train. This achievement involved eight tractors and 40 sleighs per train, for a total of seven round trips. Drilling continued in 1958, but the company eventually declared the well dry and abandoned. Over the next two decades, however, Arctic exploration gained momentum.

Arctic frontiers

Stirrings of interest in the Canadian Arctic Archipelago

Canadian Arctic Archipelago

The Canadian Arctic Archipelago, also known as the Arctic Archipelago, is a Canadian archipelago north of the Canadian mainland in the Arctic...

(Arctic Islands) as a possible site of petroleum reserves came as a result of "Operation Franklin," a 1955 study of Arctic geology directed by Yves Fortier

Yves Fortier (geologist)

Yves Oscar Fortier, OC, FRSC is a Canadian geologist.He was the director of the Geological Survey of Canada from 1964 to 1973....

under the auspices of the Geological Survey of Canada. This and other surveys confirmed the presence of thick layers of sediment

Sediment

Sediment is naturally occurring material that is broken down by processes of weathering and erosion, and is subsequently transported by the action of fluids such as wind, water, or ice, and/or by the force of gravity acting on the particle itself....

containing a variety of possible hydrocarbon

Hydrocarbon

In organic chemistry, a hydrocarbon is an organic compound consisting entirely of hydrogen and carbon. Hydrocarbons from which one hydrogen atom has been removed are functional groups, called hydrocarbyls....

trap

Flood basalt

A flood basalt or trap basalt is the result of a giant volcanic eruption or series of eruptions that coats large stretches of land or the ocean floor with basalt lava. Flood basalts have occurred on continental scales in prehistory, creating great plateaus and mountain ranges...

s.

Petroleum companies applied to the Government of Canada

Government of Canada

The Government of Canada, formally Her Majesty's Government, is the system whereby the federation of Canada is administered by a common authority; in Canadian English, the term can mean either the collective set of institutions or specifically the Queen-in-Council...

for permission to explore these remote lands in 1959, before the government had begun regulating such exploration. The immediate result was delay. In 1960, the Diefenbaker

John Diefenbaker

John George Diefenbaker, PC, CH, QC was the 13th Prime Minister of Canada, serving from June 21, 1957, to April 22, 1963...

government passed regulations, then granted exploration permits for 160000 square kilometres (61,776 sq mi) of northern land. These permits issued mineral rights

Mineral rights

- Mineral estate :Ownership of mineral rights is an estate in real property. Technically it is known as a mineral estate and often referred to as mineral rights...

for work commitments - that is, for agreeing to spend money on exploration.

The first well in the Arctic Islands was the Winter Harbour #1 well on Melville Island

Melville Island, Canada

Melville Island is a vast, uninhabited member of the Canadian Arctic Archipelago with an area of . It is the 33rd largest island in the world and Canada's eighth largest island. Melville Island is shared by the Northwest Territories, which is responsible for the western half of the island, and...

, drilled in the winter of 1961-62. The operator was Dome Petroleum

Dome Petroleum

Dome Petroleum Limited was a Calgary-based petroleum producer in the Alberta oilfields. Jack Gallager joined a group of investors in Dome Exploration Ltd. in 1950 and built it into the major Canadian oil company Dome Petroleum Limited . Gallagher was the sole employee for the first two years...

. Equipment and supplies for drilling and for the 35-man camp came in by ship from Montreal

Montreal

Montreal is a city in Canada. It is the largest city in the province of Quebec, the second-largest city in Canada and the seventh largest in North America...

. This well was dry, as were two others drilled over the next two years on Cornwallis

Cornwallis Island, Nunavut

Cornwallis Island is one of the Queen Elizabeth Islands, part of the Canadian Arctic Archipelago, in the Qikiqtaaluk Region of Nunavut in the Canadian Arctic. It lies to the west of Devon Island and at its greatest length is about . At ) in size, it is the 96th largest island in the world, and...

and Bathurst Island

Bathurst Island

A member of the Canadian Arctic Archipelago, Bathurst Island is one of the Queen Elizabeth Islands in Nunavut Territory, Canada. The area of the island is estimated at , making it the 54th largest island in the world and Canada's 13th largest island. It is uninhabited.The island is low-lying with...

s. All three wells were technical successes.

The federal government's eagerness to encourage Arctic Islands exploration, partly to assert Canadian sovereignty, led to the formation of Panarctic Oils Ltd.

Panarctic Oils Ltd.

Panarctic Oils was formed in 1968 as a result of the Canadian government's eagerness to encourage exploration of the Canadian Arctic islands and to assert Canadian sovereignty in the region. That company consolidated the interests of 75 companies and individuals with Arctic Islands land holdings...

in 1968. That company consolidated the interests of 75 companies and individuals with Arctic Islands land holdings plus the federal government as the major shareholder.

Panarctic began its exploration program with seismic

Seismology

Seismology is the scientific study of earthquakes and the propagation of elastic waves through the Earth or through other planet-like bodies. The field also includes studies of earthquake effects, such as tsunamis as well as diverse seismic sources such as volcanic, tectonic, oceanic,...

work and then drilling in the Arctic Islands. By 1969 its Drake Point gas discovery was probably Canada's largest gas field

Natural gas field

Oil and natural gas are produced by the same geological process according fossil fuel suggestion: anaerobic decay of organic matter deep under the Earth's surface. As a consequence, oil and natural gas are often found together...

. Over the next three years came other large gas fields in the islands, establishing reserves of 500 billion m³ (4,324 billion barrels) of sweet, dry natural gas.

There were two significant blowouts during this drilling program. Panarctic's Drake Point N-67 well, drilled in 1969 to 2577 m on the Sabine Peninsula of Melville Island, was the first major discovery in the Arctic Islands. This giant gas field has been delineated by 14 wells, (including the 1969 discovery well and two relief well

Relief well

A relief well is a well drilled to intersect an oil or gas well that has experienced a blowout. Specialized liquid, such as heavy drilling mud followed by cement, can then be pumped down the relief well in order to stop the flow from the reservoir in the damaged well.The first use of a relief well...

s drilled to control a blowout

Blowout

-Science and technology:*Blowout , a sudden release of oil and gas from a well*Blowout , a sandy depression caused by the removal of sediment by wind*Blowout grass is a grass that can be found on sand dunes...

of the discovery well). A well drilled in 1970 on King Christian Island

King Christian Island

King Christian Island is an uninhabited member of the Canadian Arctic Archipelago in the Sverdrup Islands, a part of the Queen Elizabeth Islands archipelago, in the Qikiqtaaluk Region of Nunavut, Canada. It lies in the Arctic Ocean, from the southwestern coast of Ellef Ringnes Island, separated by...

resulted in another blowout, though of spectacular proportions. King Christian D-18 blew wild for 91 days, and, after catching fire, was the source of an 80-metre (250 ft) column of flame. It may have been emitting as much as 200 million cufts (5,663,369.4 m³) of gas per day.

Panarctic also located oil on the islands at Bent Horn and Cape Allison, and offshore at Cisco and Skate. Exploration moved offshore when Panarctic began drilling wells from "ice islands" - not really islands, but platforms of thickened ice created in winter by pumping sea water on the polar ice pack

Polar ice packs

Polar ice packs are large areas of pack ice formed from seawater in the Earth's polar regions, known as polar ice caps: the Arctic ice pack of the Arctic Ocean and the Antarctic ice pack of the Southern Ocean, fringing the Antarctic ice sheet. Polar packs significantly change their size during...

.

The company found lots of gas but also some oil. In 1985, Panarctic became a commercial oil producer on an experimental scale. This began with a single tanker load of oil from the Bent Horn oil field (discovered in 1974 at Bent Horn N-72, the first well drilled on Cameron Island

Cameron Island

Cameron Island is one of the Canadian arctic islands in Nunavut, Canada. Located in the Arctic Ocean, close to Bathurst Island, it has an area of . Île Vanier lies immediately to the south, across the Arnott Strait.- Commercial oil production :...

). The company delivered its largest annual volume of oil - 50,000 m³ (432,424 barrels) - to southern markets in 1988. Production continued until 1996.

Panarctic's ice island wells were not the first offshore wells in the Canadian north. In 1971, Aquitaine (later known as Canterra Energy, then taken over by Husky Oil

Husky Energy

Husky Energy Inc. is a large integrated Canadian energy company based in Calgary, Alberta. Husky's foundation is in Western Canada, where it has extensive conventional oil and natural gas assets, significant heavy oil production and a range of midstream and downstream operations, including...

) drilled a well in Hudson Bay

Hudson Bay

Hudson Bay , sometimes called Hudson's Bay, is a large body of saltwater in northeastern Canada. It drains a very large area, about , that includes parts of Ontario, Quebec, Saskatchewan, Alberta, most of Manitoba, southeastern Nunavut, as well as parts of North Dakota, South Dakota, Minnesota,...

from a barge-mounted rig. Although south of the Arctic Circle

Arctic Circle

The Arctic Circle is one of the five major circles of latitude that mark maps of the Earth. For Epoch 2011, it is the parallel of latitude that runs north of the Equator....

, that well was in a hostile frontier environment. A storm forced suspension of the well, and the ultimately unsuccessful exploration program languished for several years.

Mackenzie delta and the Beaufort Sea

The Mackenzie River

Mackenzie River

delta was a focus of ground and air surveys as early as 1957, and geologists drew comparisons then to the Mississippi

Mississippi Delta

The Mississippi Delta is the distinctive northwest section of the U.S. state of Mississippi that lies between the Mississippi and Yazoo Rivers. The region has been called "The Most Southern Place on Earth" because of its unique racial, cultural, and economic history...

and Niger Delta

Niger Delta

The Niger Delta, the delta of the Niger River in Nigeria, is a densely populated region sometimes called the Oil Rivers because it was once a major producer of palm oil...

s, speculating that the Mackenzie could prove as prolific. For millions of years sediments had been pouring out of the mouth of the Mackenzie, creating tremendous banks of sand

Sand

Sand is a naturally occurring granular material composed of finely divided rock and mineral particles.The composition of sand is highly variable, depending on the local rock sources and conditions, but the most common constituent of sand in inland continental settings and non-tropical coastal...

and shale

Shale

Shale is a fine-grained, clastic sedimentary rock composed of mud that is a mix of flakes of clay minerals and tiny fragments of other minerals, especially quartz and calcite. The ratio of clay to other minerals is variable. Shale is characterized by breaks along thin laminae or parallel layering...

- laminates of sedimentary rock warped into promising geological structures. Drilling began in the Mackenzie Delta-Tuktoyaktuk

Tuktoyaktuk, Northwest Territories

Tuktoyaktuk, or Tuktuyaaqtuuq , is an Inuvialuit hamlet located in the Inuvik Region of the Northwest Territories, Canada. Commonly referred to simply by its first syllable, Tuk, the settlement lies north of the Arctic Circle on the shore of the Arctic Ocean...

Peninsula in 1962, and accelerated during the early 1970s. The mouth of the Mackenzie River was not a Prudhoe Bay

Prudhoe Bay, Alaska

Prudhoe Bay or Sagavanirktok is a census-designated place located in North Slope Borough in the U.S. state of Alaska. As of the 2010 census, the population of the CDP was 2,174 people; however, at any given time several thousand transient workers support the Prudhoe Bay oil field...

, but it did contain large gas fields.

By 1977, its established gas reserves were 200 billion m³ (1,730 barrels), and a proposal, the Mackenzie Valley Pipeline

Mackenzie Valley Pipeline

The Mackenzie Valley Pipeline is a proposed project to transport natural gas from the Beaufort Sea through Canada's Northwest Territories to tie into gas pipelines in northern Alberta. The project was first proposed in the early 1970s, but was scrapped following an inquiry conducted by Justice...

, was put forth. The ensuing Mackenzie Valley Pipeline Inquiry

Mackenzie Valley Pipeline Inquiry

The Mackenzie Valley Pipeline Inquiry was commissioned by the Government of Canada on March 21, 1974 to investigate the social, environmental, and economic impact of a proposed gas pipeline that would run through the Yukon and the Mackenzie River Valley of the Northwest Territories...

headed by Justice Thomas R. Berger resulted in a moratorium on such a pipeline, which today is again under consideration.

The petroleum industry gradually shifted its focus into the unpredictable waters of the Beaufort Sea

Beaufort Sea

The Beaufort Sea is a marginal sea of the Arctic Ocean, located north of the Northwest Territories, the Yukon, and Alaska, west of Canada's Arctic islands. The sea is named after hydrographer Sir Francis Beaufort...

. To meet the challenges of winter cold and relatively deep water, drilling technologies in the Beaufort underwent a period of rapid evolution.

The first offshore wells drilled in the Beaufort used artificial island

Artificial island

An artificial island or man-made island is an island or archipelago that has been constructed by people rather than formed by natural means...

s as drilling platforms, but this was a winter drilling system, and was only practical in shallow water. In the mid-1970s, the introduction of a fleet of reinforced drillships extended the drilling season to include the 90 to 120 ice-free days of summer. This also enabled the industry to drill in the deeper waters of the Beaufort Sea. By the mid-1980s, variations on artificial island and drilling vessel technologies had extended both the drilling season and the depth of water at which the industry could operate. They had also reduced exploration costs.

The first well to test the Beaufort was not offshore, but was drilled on Richards Island in 1966. The move offshore came in 1972-73 when Imperial Oil

Imperial Oil

built two artificial islands for use in the winter drilling season. The company constructed the first of these, Immerk 13-48, from gravel dredged from the ocean floor. The island's sides were steep and eroded rapidly during the summer months. To control the erosion, the company used wire anchored across the slopes topped with World War II surplus anti-torpedo netting. The second island, Adgo F-28, used dredged silt. This proved stronger. Other artificial islands used other methods of reinforcement.

In 1976, Canadian Marine Drilling Ltd., a subsidiary of Dome Petroleum

Dome Petroleum

, brought a small armada to the Beaufort. It included three reinforced drillships and a support fleet of four supply boats, work and supply barges and a tugboat. This equipment expanded the explorable regions in the Beaufort Sea. Drillships, however, had their limitations for Beaufort work. Icebreakers and other forms of ice management could generally conquer the difficulties of the melting icecap in the summer. But after freeze-up began, the growing icecap would push the drill ship off location if it did not use icebreakers to keep the ice under control. CanMar's fleet eventually grew to include 5 drillships, the SSDC (Single Steel Drilling Caisson) and the Canmar Kigoriak, a Artic Class 4 Icebreaker.

The most technologically innovative rig in the Beaufort was a vessel known as Kulluk, which originated with Gulf Oil

Gulf Oil

Gulf Oil was a major global oil company from the 1900s to the 1980s. The eighth-largest American manufacturing company in 1941 and the ninth-largest in 1979, Gulf Oil was one of the so-called Seven Sisters oil companies...

. Kulluk was a circular vessel designed for extended-season drilling operations in Arctic waters. Kulluk could drill safely in first-year ice up to 1.2 m (3.9 ft) thick. Dome eventually acquired the vessel, which then passed progressively through acquisitions to Amoco

Amoco

Amoco Corporation, originally Standard Oil Company , was a global chemical and oil company, founded in 1889 around a refinery located in Whiting, Indiana, United States....

and then BP

BP p.l.c. is a global oil and gas company headquartered in London, United Kingdom. It is the third-largest energy company and fourth-largest company in the world measured by revenues and one of the six oil and gas "supermajors"...

. BP intended to sell this tool for scrap around 2000. Royal Dutch Shell

Royal Dutch Shell

Royal Dutch Shell plc , commonly known as Shell, is a global oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the fifth-largest company in the world according to a composite measure by Forbes magazine and one of the six...

subsequently purchased the vessel, however, and made plans to drill in the disputed waters of the Beaufort Sea in 2007.

The major Beaufort explorers experimented with a variety of new technologies and produced some of the most costly and specialized drilling systems in the world. Some of these were extensions of artificial island technologies; design engineers concentrated on ways to protect the island from erosion and impact. In shallow water, the standard became the sacrificial beach island. This island had long, gradually sloping sides against which the vengeance of weather and sea could spend themselves.

Beaufort Sea exploration activity followed oil prices: it was kick-started by the Arab Oil Embargo in 1973 and withered as prices fell in the early 1980s. Canada's National Energy Program, which was announced just as prices peaked in 1980, imposed price controls on Canadian oil and further suppressed investment.

In December 2005 Devon Energy

Devon Energy

Devon Energy Corporation , is among the largest U.S.-based independent natural gas and oil producers. Based in Oklahoma City, Oklahoma, the company's operations are focused on North American onshore exploration and production...

started drilling the first offshore well in Canadian waters of the Beaufort sea since 1989, from the drilling rig SDC. The SDC (or Steel Drilling Caisson) was built for Canmar in 1982 by attaching the forebody of the Very Large Crude Carrier

Tanker (ship)

A tanker is a ship designed to transport liquids in bulk. Major types of tankship include the oil tanker, the chemical tanker, and the liquefied natural gas carrier.-Background:...

World Saga to the top of a steel barge with sloping sides (mimicking an artificial island); the barge can be ballasted to sit on the bottom for drilling operations. The Paktoa C-60 well was completed in 2006, but results are unknown as it was designated a "tight hole" - a well for which, for competitive reasons, no information could be released.

Scotian Shelf

The site of Canada's first salt water offshore well was 13 km (8.1 mi) off the shores of Prince Edward Island

Prince Edward Island

Prince Edward Island is a Canadian province consisting of an island of the same name, as well as other islands. The maritime province is the smallest in the nation in both land area and population...

. Spudded in 1943, the Hillsborough #1 well was drilled by the Island Development Company. The company used a drilling island constructed in 8 m (26.2 ft) of water of wood and some 7,200 tonnes (7,086 L/T or 7,937 S/T) of rock and concrete. The well reached 4479 m (14,694.9 ft) at a cost of $1.25 million - an extremely expensive well in that era. Part of the Allied war effort

Participants in World War II

The participants in World War II were those nations who either participated directly in or were affected by any of the theaters or events of World War II....

, Hillsborough was declared dry and abandoned in September 1945.

In 1967 Shell

Royal Dutch Shell

drilled the first well off Nova Scotia

Nova Scotia

Nova Scotia is one of Canada's three Maritime provinces and is the most populous province in Atlantic Canada. The name of the province is Latin for "New Scotland," but "Nova Scotia" is the recognized, English-language name of the province. The provincial capital is Halifax. Nova Scotia is the...

, the Sable Offshore Energy Project

Sable Offshore Energy Project

The Sable Offshore Energy Project is a consortium based in Halifax, Nova Scotia which is attempting to locate and produce natural gas found near Sable Island on the edge of the Nova Scotian continental shelf in eastern Canada...

C-67 well. Located on desolate, sandy Sable Island

Sable Island

Sable Island is a small Canadian island situated 300 km southeast of mainland Nova Scotia in the Atlantic Ocean. The island is a year-round home to approximately five people...

(best known for its herd of wild horses), the well bottomed in gas-bearing Cretaceous

Cretaceous

The Cretaceous , derived from the Latin "creta" , usually abbreviated K for its German translation Kreide , is a geologic period and system from circa to million years ago. In the geologic timescale, the Cretaceous follows the Jurassic period and is followed by the Paleogene period of the...

rocks. Drilling stopped there because the technology did not exist to handle the super-pressures the well encountered.

Shell's experience at this well foreshadowed two future developments on the Scotian Shelf

Continental shelf

. First, major discoveries offshore Nova Scotia would generally be natural gas reservoirs and second, they would involve high pressures. In the early 1980s, two discovery wells - Shell's Uniacke G-72 and Mobil

Mobil

Mobil, previously known as the Socony-Vacuum Oil Company, was a major American oil company which merged with Exxon in 1999 to form ExxonMobil. Today Mobil continues as a major brand name within the combined company, as well as still being a gas station sometimes paired with their own store or On...

's West Venture N-91 - actually blew wild. The Uniacke well, which was being drilled from the semi-submersible rig Vinland, took about ten days to bring under control. By contrast, the blowout

Blowout (well drilling)

A blowout is the uncontrolled release of crude oil and/or natural gas from an oil well or gas well after pressure control systems have failed....

at West Venture took eight months to shut in.

West Venture started as a surface blowout, and was swiftly shut in by the crew of the rig, Zapata Scotian, but the well then blew out underground. High-pressure natural gas burst through the well's casing, and began rushing from a deep zone into a shallow one. In oil industry parlance, the blowout "charged" (i.e., fed into) the shallower geological zone, dramatically increasing reservoir pressure. The direct cost of bringing this one well under control was $200 million.

The industry made other modest oil and gas discoveries in its early years off Nova Scotia - for example, Shell's Onandaga E-84 gas well, drilled to a depth of 3988 m (13,084 ft) in 1969. And in 1973, Mobil spudded the D-42 Cohasset well on the western rim of the Sable sub-basin.

Mobil's bit found almost 50 m (164 ft) of net oil pay in eleven zones of Cretaceous lower Logan Canyon sands. However, a follow-up well five years later found only water-bearing sands, and the company suspended work on the field. Mobil moved to other Scotian Shelf locations, discovering the promising Venture gas field in 1979.

Located on a seismic prospect which had been recognized some years earlier, Mobil had waited to drill the Venture probe because the structure was deep and could contain high-pressure zones like those which had halted drilling at Sable Island in the previous decade. The Venture discovery well cost $40 million, then a startling price for a single well.

Ironically, the first commercial offshore discovery, Mobil's 1973 Cohasset discovery, appeared relatively inconsequential when found. But toward the end of the 1980s, a combination of exploration successes and innovative thinking led to development of a field which most of the industry had seen as uneconomic. In December 1985, Petro-Canada

Petro-Canada

Petro-Canada was a crown corporation of Canada in the field of oil and natural gas. It was headquartered in the Petro-Canada Centre in Calgary, Alberta. In August, 2009, Petro-Canada merged with Suncor Energy, a deal in which Suncor investors received approximately 60 per cent ownership of the...

spudded the Cohasset A-52 step-out well to explore the Cohasset structure southwest of Mobil's 1973 discovery well. Unlike a disappointing 1978 step-out, that hole tested oil at a combined rate of 4,500 m³ (38,918 barrels) per day from six zones.

Following up on the positive results of the A-52 well, Shell drilled a discovery well at Panuke, 8 km (5 mi) southwest of Cohasset. The Shell Panuke B-90 wildcat encountered a relatively thin zone that tested light oil at a rate of 1,000 m³ (8,648 barrels) per day. The following year, Petro-Canada drilled the F-99 delineation well at Panuke. That well tested oil at 8,000 m³ (69,188 barrels) a day for six days.

While the Cohasset and Panuke discoveries were marginal by themselves, in the mid-1980s a consulting firm hired by Crown corporation Nova Scotia Resources Limited (NSRL) investigated the idea of joining them together. By forming a joint venture

Joint venture

A joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets...

with British-based Lasmo

Lasmo

Lasmo plc was a leading British oil and gas exploration and production business. It was listed on the London Stock Exchange and was a constituent of the FTSE 100 Index.-History:...

plc, which formed a Nova-Scotian affiliate to operate the field, NSRL was able to make the project a financial and technical success. In the end, however, production was less than expected; the field only produced from 1992 to 1999.

In January 2000 offshore development reached a milestone when gas from Nova Scotia's Sable Offshore Energy Project

Sable Offshore Energy Project

gas plant was first delivered to Maritimes

Maritimes

The Maritime provinces, also called the Maritimes or the Canadian Maritimes, is a region of Eastern Canada consisting of three provinces, New Brunswick, Nova Scotia, and Prince Edward Island. On the Atlantic coast, the Maritimes are a subregion of Atlantic Canada, which also includes the...

and New England

New England

New England is a region in the northeastern corner of the United States consisting of the six states of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut...

markets. The project now produces between 400 and 500 cu ft (11,326,738.8 and 14.2 m3) of natural gas and 20000 barrels (3,179.7 m³) of natural gas liquids every day. However, EnCana Corporation

EnCana Corporation

Encana Corporation is one of North America's largest natural gas producers, with about 95 percent of its production being natural gas. Its strategy is to be the lowest-cost, highest-growth senior natural gas producer in North America. The company produced approximately of natural gas in 2010.The...

is now developing a gas find known as Deep Panuke

Deep Panuke

Deep Panuke is the name of an offshore natural gas field. It is located off the coast of Nova Scotia, Canada on the Scotian Shelf. It is currently under development by the EnCana Corporation.-References:*...

, which could replace some of the depleting gas fields from Nova Scotia's existing offshore gas fields.

Newfoundland and Labrador

The bitter-cold Labrador Shelf of Newfoundland and Labrador

Newfoundland and Labrador

Newfoundland and Labrador is the easternmost province of Canada. Situated in the country's Atlantic region, it incorporates the island of Newfoundland and mainland Labrador with a combined area of . As of April 2011, the province's estimated population is 508,400...

was another prospective exploration province in the early period of eastern offshore exploration. First drilled in 1971, wells in the deeper waters were drilled from dynamically positioned drillships.

Iceberg

Iceberg

An iceberg is a large piece of ice from freshwater that has broken off from a snow-formed glacier or ice shelf and is floating in open water. It may subsequently become frozen into pack ice...

s calved from the glacier

Glacier

A glacier is a large persistent body of ice that forms where the accumulation of snow exceeds its ablation over many years, often centuries. At least 0.1 km² in area and 50 m thick, but often much larger, a glacier slowly deforms and flows due to stresses induced by its weight...

s of Greenland

Greenland

Greenland is an autonomous country within the Kingdom of Denmark, located between the Arctic and Atlantic Oceans, east of the Canadian Arctic Archipelago. Though physiographically a part of the continent of North America, Greenland has been politically and culturally associated with Europe for...

and Labrador

Labrador

Labrador is the distinct, northerly region of the Canadian province of Newfoundland and Labrador. It comprises the mainland portion of the province, separated from the island of Newfoundland by the Strait of Belle Isle...

earned this stretch of water the unaffectionate nickname "Iceberg Alley." Icebergs drifting toward drilling equipment posed a unique hazard for the industry in that forbidding environment. But using a blend of cowboy and maritime technology, Labrador drillers handled the problem by lassoing the bergs with nylon ropes and steel hawsers, then towing them out of the way.

Worsening exploration economics and poor drilling results dampened the industry's enthusiasm for the area. Drilling stopped in the early 1980s, although it continued in the more southerly waters off the "Rock" (island) of Newfoundland.

The most promising drilling off Canada's east coast took place on the Grand Banks

Grand Banks

The Grand Banks of Newfoundland are a group of underwater plateaus southeast of Newfoundland on the North American continental shelf. These areas are relatively shallow, ranging from in depth. The cold Labrador Current mixes with the warm waters of the Gulf Stream here.The mixing of these waters...

- particularly the Avalon and Jeanne d'Arc basins. Exploration began in the area in 1966 and, save one oil show in 1973, the first 40 wells on the Grand Banks were dry.

Then, in 1976, came the Hibernia

Hibernia (oil field)

Hibernia is an oil field in the North Atlantic Ocean, approximately east-southeast of St. John's, Newfoundland, Canada.The production platform Hibernia is the world's largest oil platform and consists of a 37,000-tonne integrated topsides facility mounted on a 600,000-tonne gravity base structure...

oil strike, which changed the fortunes of the area. It soon became clear that offshore Newfoundland could and did host large oil fields.

Although non-commercial, the next nine wildcats provided valuable geological information. More importantly, two discoveries from the mid-1980s - Terra Nova

Terra Nova (oil field)

Terra Nova is an oil field development project 350 kilometres off the coast of Newfoundland. Discovered in 1984 by Petro-Canada, the field is the second largest off Canada's East Coast. Terra Nova is the first harsh environment development in North America to use a Floating Production Storage and...

and White Rose

White Rose (oil field)

White Rose is an oil field development project 350 kilometres off the coast of Newfoundland. Husky Energy is the operator and 72.5 per cent interest holder in the White Rose oil fields....

- looked to be more easily producible than Hibernia. They did not go into production until 2002 and 2005, however.

Terra Nova and White Rose each use a floating production storage and off-loading vessel (FPSO; see illustration) to gather and store produced oil. Production facilities were constructed in excavations on the ocean floor. The vessels can be moved to harbour if conditions warrant, and being recessed protects sub-sea facilities from iceberg scouring.

Although not appropriate for many offshore reservoirs, this approach is both economical and safe. Industry insiders sometimes call them “cut and run” systems.

The production system eventually developed for Hibernia is quite another matter. Insiders sometimes describe it as a “stand and fight” system - a fixed platform heavily fortified to withstand iceberg impact. It is strong on safety, but it was not cheap.

Hibernia

Chevron

Chevron Corporation

Chevron Corporation is an American multinational energy corporation headquartered in San Ramon, California, United States and active in more than 180 countries. It is engaged in every aspect of the oil, gas, and geothermal energy industries, including exploration and production; refining,...

drilled the Hibernia discovery well to earn a commercial interest in Grand Banks acreage held by Mobil

ExxonMobil

Exxon Mobil Corporation or ExxonMobil, is an American multinational oil and gas corporation. It is a direct descendant of John D. Rockefeller's Standard Oil company, and was formed on November 30, 1999, by the merger of Exxon and Mobil. Its headquarters are in Irving, Texas...

and Gulf. The field is 315 km (195.7 mi) east-southeast of St. John's

St. John's, Newfoundland and Labrador

St. John's is the capital and largest city in Newfoundland and Labrador, and is the oldest English-founded city in North America. It is located on the eastern tip of the Avalon Peninsula on the island of Newfoundland. With a population of 192,326 as of July 1, 2010, the St...

, and water depth is about 80 m (262.5 ft). Between 1980 and 1984, Mobil drilled nine delineation wells in the field at a cost of $465 million. Eight of those wells were successful. They established the field's recoverable oil reserves at around 625 Moilbbl - about 40 per cent more oil than originally estimated.

Bringing the field on production was a long time coming. It involved settling a jurisdictional dispute between Newfoundland and Canada over ownership of offshore minerals and other issues. Lengthy fiscal negotiations began in 1985, shortly after Mobil submitted a development plan to the two governments. Not until 1988 did the two governments reach agreement on the development with Mobil, Petro-Canada, Chevron Corporation

Chevron Corporation

and Gulf Oil - the companies with interests in the field.

By the terms of this agreement, the federal government would provide $1 billion in grants, $1.66 billion in loan guarantees, and other assistance to the $5.8 billion development. These concessions were necessary because of government insistence on a huge, expensive concrete production platform (the Gravity Base System or GBS) despite an environment of lower and declining oil prices. Potentially, these factors would make the field uneconomic.

The world's largest oil platform

Oil platform

An oil platform, also referred to as an offshore platform or, somewhat incorrectly, oil rig, is a lаrge structure with facilities to drill wells, to extract and process oil and natural gas, and to temporarily store product until it can be brought to shore for refining and marketing...

, Hibernia's GBS sits on the ocean floor approximately 80 m (262.5 ft) in depth with its topsides extending approximately 50 m (164 ft) out of the water. The platform acts as a small concrete island with serrated outer edges designed to counter icebergs. The GBS contains storage tanks for 1.3 Moilbbl of oil, and the remainder of the void space is filled with magnetite

Magnetite

Magnetite is a ferrimagnetic mineral with chemical formula Fe3O4, one of several iron oxides and a member of the spinel group. The chemical IUPAC name is iron oxide and the common chemical name is ferrous-ferric oxide. The formula for magnetite may also be written as FeO·Fe2O3, which is one part...

ballast

Sailing ballast

Ballast is used in sailboats to provide moment to resist the lateral forces on the sail. Insufficiently ballasted boats will tend to tip, or heel, excessively in high winds. Too much heel may result in the boat capsizing. If a sailing vessel should need to voyage without cargo then ballast of...

. The structure weighs 1.2 million tons (1.1 million tonnes).

A floating platform like those used in the North Sea

North Sea

In the southwest, beyond the Straits of Dover, the North Sea becomes the English Channel connecting to the Atlantic Ocean. In the east, it connects to the Baltic Sea via the Skagerrak and Kattegat, narrow straits that separate Denmark from Norway and Sweden respectively...

would have been far less expensive. However, GBS had safety

Safety

Safety is the state of being "safe" , the condition of being protected against physical, social, spiritual, financial, political, emotional, occupational, psychological, educational or other types or consequences of failure, damage, error, accidents, harm or any other event which could be...

advantages for a field located in an extremely inhospitable environment where rogue waves, fog

Fog

Fog is a collection of water droplets or ice crystals suspended in the air at or near the Earth's surface. While fog is a type of stratus cloud, the term "fog" is typically distinguished from the more generic term "cloud" in that fog is low-lying, and the moisture in the fog is often generated...

, icebergs and sea ice

Sea ice

Sea ice is largely formed from seawater that freezes. Because the oceans consist of saltwater, this occurs below the freezing point of pure water, at about -1.8 °C ....

, hurricane

Tropical cyclone

A tropical cyclone is a storm system characterized by a large low-pressure center and numerous thunderstorms that produce strong winds and heavy rain. Tropical cyclones strengthen when water evaporated from the ocean is released as the saturated air rises, resulting in condensation of water vapor...

s, and nor'easter

Nor'easter

A nor'easter is a type of macro-scale storm along the East Coast of the United States and Atlantic Canada, so named because the storm travels to the northeast from the south and the winds come from the northeast, especially in the coastal areas of the Northeastern United States and Atlantic Canada...

winter storms were not uncommon. Because of an industrial disaster at Hibernia at the beginning of the decade, this was a critical argument.

Since the oil industry's earliest days, discovery and production have periodically taken a human toll. For Canada's petroleum industry, the worst incident was the Ocean Ranger

Ocean Ranger

Ocean Ranger was a semi-submersible mobile offshore drilling unit that sank in Canadian waters on 15 February 1982. It was drilling an exploration well in the Grand Banks area, east of St. John's, Newfoundland, for Mobil Oil of Canada, Ltd. with 84 crew members on board when it sank...

disaster of 1982. In that terrible tragedy the Ocean Ranger, a semi-submersible

Semi-submersible

A semi-submersible is a specialised marine vessel with good stability and seakeeping characteristics. The semi-submersible vessel design is commonly used in a number of specific offshore roles such as for offshore drilling rigs, safety vessels, oil production platforms and heavy lift cranes.The...

offshore rig drilling the Hibernia J-34 delineation well, went down in a winter storm. The vessel took 84 hands into the frigid sea; none survived. This memory was fresh in everyone's mind when the field's production system was being negotiated.

For the governments involved, the high cost of the project actually had appeal as a way to help counter Newfoundland's chronically high unemployment. Whether profitable to its owners or not, this vast project would stimulate the economy of Canada's poorest province. According to Newfoundland historian Valerie Summers, Now thought to have begun its productive phase as a billion-barrel reservoir, Hibernia went on stream in 1997.

Ten years later, the province negotiated a deal to develop a fourth project at the Hebron discovery. The industry partners in this development are ExxonMobil

ExxonMobil

Canada, Chevron

Chevron Corporation

Canada, Petro-Canada

Petro-Canada

and Norsk Hydro

Norsk Hydro

Norsk Hydro ASA is a Norwegian aluminium and renewable energy company, headquartered in Oslo. Hydro is the fourth largest integrated aluminium company worldwide. It has operations in some 40 countries around the world and is active on all continents. The Norwegian state holds a 43.8 percent...

Canada. ExxonMobil will be the operator. The Province of Newfoundland and Labrador will take a 4.9 per cent equity stake in the project through its Energy Corporation. The province also negotiated an additional 6.5 per cent royalty paid on net revenues whenever monthly average oil prices exceed US$50 per barrel after net royalty payout.

The development costs for the project are estimated to be between $7 billion - $11 billion over the 20-25 year lifespan of the field. The owners expect the project to be able to produce 150,000 to 170000 barrels (27,027.8 m³) of oil per day.

West coast

A sedimentary basin also exists off the British Columbia Coast

British Columbia Coast

The British Columbia Coast or BC Coast is Canada's western continental coastline on the Pacific Ocean. The usage is synonymous with the term West Coast of Canada....

, and some exploratory drilling has taken place there. From 1967 to 1969, Shell drilled 14 deep dry holes from the Transocean

Transocean

Transocean Ltd. is one of the world's largest offshore drilling contractors. The company rents floating mobile drill rigs, along with the equipment and personnel for operations, to oil and gas companies at an average daily rate of US$282,700...

135-F semi-submersible - some west of Vancouver

Vancouver

Vancouver is a coastal seaport city on the mainland of British Columbia, Canada. It is the hub of Greater Vancouver, which, with over 2.3 million residents, is the third most populous metropolitan area in the country,...

, others in Hecate Strait

Hecate Strait

Hecate Strait is a wide but shallow strait between the Haida Gwaii and the mainland of British Columbia, Canada. It merges with Queen Charlotte Sound to the south and Dixon Entrance to the north...

beside the Queen Charlotte Islands

Queen Charlotte Islands

Haida Gwaii , formerly the Queen Charlotte Islands, is an archipelago on the North Coast of British Columbia, Canada. Haida Gwaii consists of two main islands: Graham Island in the north, and Moresby Island in the south, along with approximately 150 smaller islands with a total landmass of...

. Exploration off the west coast stopped in 1972 when the federal and British Columbia governments imposed moratoria on exploration, pending the results of studies into the environmental impact of drilling. In 1986 a government-appointed commission recommended an end to the moratorium.

The province had still not acted by 1989, however, when an American barge spilled oil off the British Columbia

British Columbia

British Columbia is the westernmost of Canada's provinces and is known for its natural beauty, as reflected in its Latin motto, Splendor sine occasu . Its name was chosen by Queen Victoria in 1858...

coast. A few months later came the disastrous Exxon Valdez

Exxon Valdez

Oriental Nicety, formerly Exxon Valdez, Exxon Mediterranean, SeaRiver Mediterranean, S/R Mediterranean, Mediterranean, and Dong Fang Ocean is an oil tanker that gained notoriety after running aground in Prince William Sound spilling hundreds of thousands of barrels of crude oil in Alaska...

oil spill off Alaska

Alaska

. Although neither of these spills was related to crude oil exploration or production, they made it politically impossible for governments to lift the moratorium.

In 2001, the provincial government initiated another review of its drilling ban, and recommended lifting the moratorium. A federal panel then convened, held a hearing and issued a report in 2004 that did not make any recommendations and the federal ban remained in place.

In 2007, the BC government announced an energy policy that formally called for lifting the moratorium. Without federal agreement, however, no drilling can begin.

Matters of policy

As industry explored the frontiers, Canada drilled some of the world's deepest offshore wells - notably the Annapolis G-24 gas well, drilled to a depth of 6100 m (20,013.1 ft) (water depth was 1675 m (5,495.4 ft)) offshore Nova Scotia in 2002. The industry built new artificial island and mobile drilling systems. It created networks capable of providing instant communication between head office and remote well sites. And it developed the world's most sophisticated understanding of ice and ways to deal with it in the north. These and other initiatives gave the Canadian petroleum industry unrivalled expertise in some areas.

Petroleum Incentive Payments

Because petroleum is a strategic commodity mostly found on Crown land

Crown land

In Commonwealth realms, Crown land is an area belonging to the monarch , the equivalent of an entailed estate that passed with the monarchy and could not be alienated from it....

and an important source of government revenue, Canadian governments have long been involved in developing energy policy

Energy policy of Canada

Canada is the 5th largest producer of energy in the world, producing about 6% of global energy supplies. It is the world's largest producer of natural uranium, producing one-third of global supply, and is also the world's leading producer of hydro-electricity, accounting for 13% of global...

and passing it into law. This was particularly evident for frontier exploration in 1980, when Canada's federal government

Government of Canada

imposed the National Energy Program

National Energy Program

The National Energy Program was an energy policy of the Government of Canada. It was created under the Liberal government of Prime Minister Pierre Trudeau by Minister of Energy Marc Lalonde in 1980, and administered by the Department of Energy, Mines and Resources.-Description:The NEP was...

(NEP) upon companies exploring federal lands. The policy was far-reaching, and it included a complex mix of tax

Tax

To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

es, royalties

Royalties

Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...

, reversion to the Crown

The Crown

The Crown is a corporation sole that in the Commonwealth realms and any provincial or state sub-divisions thereof represents the legal embodiment of governance, whether executive, legislative, or judicial...

of frontier properties, and incentive payments

Incentive

In economics and sociology, an incentive is any factor that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives. It is an expectation that encourages people to behave in a certain way...

. This policy was a direct response to several years of rising oil prices punctuated by the 1979 energy crisis

1979 energy crisis

The 1979 oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil...

, which briefly took crude oil prices

Price of petroleum

The price of petroleum as quoted in news generally refers to the spot price per barrel of either WTI/light crude as traded on the New York Mercantile Exchange for delivery at Cushing, Oklahoma, or of Brent as traded on the Intercontinental Exchange for delivery at Sullom Voe.The price...

to $39.50.

By December 1985, OPEC

OPEC

OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...

oil output had reached 18 Moilbbl per day. This worsened an existing glut of oil and triggered a price war. In the following year, average world oil prices fell by more than 50 per cent. This price shock took many oil companies and oil-producing states and regions into a long period of crisis.

The industry's frontier operations were particularly vulnerable to the oil price collapse. Canada had already dismantled the NEP, and costly frontier drilling, which had found reserves that were mostly uneconomic in the lower-price environment, was the first casualty of an industry-wide crisis. A precipitous decline in frontier activity was well underway by mid-year 1986, and drilling was almost at a standstill by year-end.

This sequence of events gives an interesting illustration of the potential for economic distortions

Market failure

Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off...

from government incentives. In five-year increments from 1966, average exploration costs for frontier wells changed as follows:


Period	Canadian Arctic	East coast offshore
1966–1970	$4.3 million	$1.2 million
1971–1975	$3.6 million	$3.8 million
1976–1980	$24.4 million	$22.4 million
1981–1985	$63.2 million	$45.8 million
1986–1989	$44.2 million	$20.5 million

The stand-out numbers are marked in bold. Clearly, drilling during the first half of the 1980s was for incentive payments as much as for oil. Major beneficiaries of the Petroleum Incentives Payments among Canadian oil-producing companies included Dome

Dome Petroleum

, Imperial Oil

Imperial Oil

and Gulf Canada

Gulf Oil

. All three operated drilling subsidiaries in the North.

After the oil price crash, cash flow

Cash flow

Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...

for many companies was in negative territory. Exploration activity declined dramatically, but did not come to a complete halt. There was intense competition among drilling companies for the work available, and the cost inflation

Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

induced by the federal government's Petroleum Incentives Payments declined swiftly.

Atlantic Accord

An important policy question of who owns Newfoundland's offshore minerals briefly stood in the way of offshore oil and gas development. With the discovery of Hibernia came the prospect of petroleum riches from under the sea. In response, the government of Newfoundland and Labrador

Politics of Newfoundland and Labrador

The Canadian province of Newfoundland and Labrador is governed by a unicameral legislature, the House of Assembly, which operates under the Westminster model of government. The executive function of government is formed by the Lieutenant Governor , the premier and his or her cabinet...

laid claim to mineral rights

Mineral rights

- Mineral estate :Ownership of mineral rights is an estate in real property. Technically it is known as a mineral estate and often referred to as mineral rights...

in its offshore regions. The province had been a dominion

Dominion of Newfoundland

The Dominion of Newfoundland was a British Dominion from 1907 to 1949 . The Dominion of Newfoundland was situated in northeastern North America along the Atlantic coast and comprised the island of Newfoundland and Labrador on the continental mainland...

until 1934 and then - for the rest of the Great Depression

Great Depression

The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

and through the Second World War

World War II

- run by a Commission of Government

Commission of Government

The Commission of Government was a non-elected body that governed Newfoundland from 1934 to 1949...

subordinate to the British Government in London

London

London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...

. It now said it had not ceded its offshore resources to Ottawa when it became a Canadian province in 1949.

In terms of petroleum politics

Petroleum politics

Petroleum politics have been an increasingly important aspect of diplomacy since the rise of the petroleum industry in the Middle East in the early 20th century...

, the decade beginning in 1973 was a fractious period in Canada, and Newfoundland's claim led to a stand-off with the Liberal

Liberal Party of Canada

The Liberal Party of Canada , colloquially known as the Grits, is the oldest federally registered party in Canada. In the conventional political spectrum, the party sits between the centre and the centre-left. Historically the Liberal Party has positioned itself to the left of the Conservative...

government of Pierre Trudeau

Pierre Trudeau

Joseph Philippe Pierre Yves Elliott Trudeau, , usually known as Pierre Trudeau or Pierre Elliott Trudeau, was the 15th Prime Minister of Canada from April 20, 1968 to June 4, 1979, and again from March 3, 1980 to June 30, 1984.Trudeau began his political career campaigning for socialist ideals,...

, which took the case to the Supreme Court of Canada

Supreme Court of Canada

The Supreme Court of Canada is the highest court of Canada and is the final court of appeals in the Canadian justice system. The court grants permission to between 40 and 75 litigants each year to appeal decisions rendered by provincial, territorial and federal appellate courts, and its decisions...

. The court ruled against Newfoundland in 1984.

In the end, however, the issue was resolved politically

Geopolitics

Geopolitics, from Greek Γη and Πολιτική in broad terms, is a theory that describes the relation between politics and territory whether on local or international scale....

. In 1985, the newly elected Progressive Conservative

Progressive Conservative Party of Canada

The Progressive Conservative Party of Canada was a Canadian political party with a centre-right stance on economic issues and, after the 1970s, a centrist stance on social issues....

(PC) government of Brian Mulroney

Brian Mulroney

Martin Brian Mulroney, was the 18th Prime Minister of Canada from September 17, 1984, to June 25, 1993 and was leader of the Progressive Conservative Party of Canada from 1983 to 1993. His tenure as Prime Minister was marked by the introduction of major economic reforms, such as the Canada-U.S...

and Newfoundland's PC

Progressive Conservative Party of Newfoundland and Labrador

For pre-1949 Conservative parties see Conservative parties in Newfoundland The Progressive Conservative Party of Newfoundland and Labrador is a centre-right provincial political party in Newfoundland and Labrador, Canada. Originally founded in 1949 the party has formed the Government of...

government (headed by Brian Peckford

Brian Peckford

Alfred Brian Peckford, PC served as the 3rd Premier of Newfoundland. He served as leader of the Progressive Conservatives from 1979 until his retirement in 1989....

) negotiated a deal known as the Atlantic Accord. As opposition leader

Leader of the Opposition (Canada)

The Leader of Her Majesty's Loyal Opposition , or simply the Leader of the Opposition is the leader of Canada's Official Opposition, the party with the most seats in the House of Commons that is not a member of the government...

, Mulroney had offered this deal to Peckford in the lead-up to the federal election of 1984

Canadian federal election, 1984

The Canadian federal election of 1984 was held on September 4 of that year to elect members of the Canadian House of Commons of the 33rd Parliament of Canada...

. As a result, Peckford campaigned vigorously for the Progressive Conservatives. In the election

Election

An election is a formal decision-making process by which a population chooses an individual to hold public office. Elections have been the usual mechanism by which modern representative democracy operates since the 17th century. Elections may fill offices in the legislature, sometimes in the...

, Newfoundland returned four Progressive Conservative MPs

Member of Parliament

A Member of Parliament is a representative of the voters to a :parliament. In many countries with bicameral parliaments, the term applies specifically to members of the lower house, as upper houses often have a different title, such as senate, and thus also have different titles for its members,...

to the House of Commons

Canadian House of Commons

The House of Commons of Canada is a component of the Parliament of Canada, along with the Sovereign and the Senate. The House of Commons is a democratically elected body, consisting of 308 members known as Members of Parliament...

.

The accord put aside the question of ownership of those resources, even though that issue had already been decided by the court. Instead, the agreement acted as though the two levels of government had equal mineral rights in the offshore. The governments passed mutual and parallel legislation to get the deal done.

In the formal signing, Ottawa and St. John's described the purposes of the Accord in these terms:

With the accord signed and the necessary legislation being prepared, the companies involved in Hibernia could complete their development plan and negotiate project approval with the Canada-Newfoundland Offshore Petroleum Board, a regulatory body representing both levels of government. Elsewhere, this history describes some of the terms they reached for the Hibernia project.

In 1986, Mulroney and premier John Buchanan

John Buchanan

John MacLennan Buchanan, PC, QC is a Canadian lawyer and former politician who served as the 20th Premier of Nova Scotia from 1978 to 1990 and as a member of the Senate of Canada from 1990 to 2006.-Early life:...

(a Nova Scotia PC

Progressive Conservative Association of Nova Scotia

The Progressive Conservative Association of Nova Scotia, registered under the Nova Scotia Elections Act as the "Progressive Conservative Party of Nova Scotia", is a moderate right-of-centre political party in Nova Scotia, Canada....

) signed the Canada-Nova Scotia Offshore Petroleum Resources Accord. This agreement was similar to the Atlantic Accord in intent, tone and implementation.

Key to these negotiations were two important federal concessions: Ottawa

Ottawa

Ottawa is the capital of Canada, the second largest city in the Province of Ontario, and the fourth largest city in the country. The city is located on the south bank of the Ottawa River in the eastern portion of Southern Ontario...

would not include St. John's

St. John's, Newfoundland and Labrador

or Halifax's petroleum revenues in its calculations for equalization payments

Equalization payments

Equalization payments are cash payments made in some federal systems of government from the federal government to subnational governments with the objective of offsetting differences in available revenue or in the cost of providing services....

to those provinces, and initially all revenues from offshore oil and gas would accrue to the provinces. These deals thus allowed the provinces to tax offshore petroleum resources as if they were the owners.

When amending the agreements in 2005, the short-lived Liberal government of Paul Martin

Paul Martin

Paul Edgar Philippe Martin, PC , also known as Paul Martin, Jr. is a Canadian politician who was the 21st Prime Minister of Canada, as well as leader of the Liberal Party of Canada....

provided these two Atlantic provinces

Atlantic Canada

with transitional protection from reductions in equalization that would have otherwise resulted from their growing offshore revenues. In Newfoundland's case, the province offered an up-front payment of $2 billion as a "prepayment" toward this protection guarantee. Those accords extend to 2011-12, with the option of an extension to 2019-2020 if the provinces remain disadvantaged relative to other provinces.

In an effort to create a single regime for both provinces, the incoming government of Conservative

Conservative Party of Canada

The Conservative Party of Canada , is a political party in Canada which was formed by the merger of the Canadian Alliance and the Progressive Conservative Party of Canada in 2003. It is positioned on the right of the Canadian political spectrum...

Prime Minister Stephen Harper

Stephen Harper

Stephen Joseph Harper is the 22nd and current Prime Minister of Canada and leader of the Conservative Party. Harper became prime minister when his party formed a minority government after the 2006 federal election...

proposed an alternative approach. The two provinces could stick with the deals they had already signed, or they could accept a more generous formula that included 50 per cent of resource revenue in the equalization formula. Nova Scotia signed on October 10, 2007.

In an environment of higher energy prices, these two traditionally poor provinces could see futures in which they would be less dependent on federal transfers of funds. This was a clear indication of the value to their economies of greater petroleum development in an energy-dependent world.

Metric conversions

One cubic metre of oil = 6.29 barrels.
One cubic metre of natural gas = 35.49 cubic feet (1 m³).
One kilopascal = 1% of atmospheric pressure (near sea level).

Canada's oil measure, the cubic metre, is unique in the world. It is metric in the sense that it uses metres, but it is based on volume so that Canadian units can be easily converted into barrels. In the rest of the metric world, the standard for measuring oil is the metric tonne

Tonne

. The advantage of the latter measure is that it reflects oil quality. In general, lower grade oils are heavier.

Norman Wells

Arctic frontiers

Mackenzie delta and the Beaufort Sea

Scotian Shelf

Newfoundland and Labrador

Hibernia

West coast

Matters of policy

Petroleum Incentive Payments

Atlantic Accord

Metric conversions

See also

Further reading