This is Part Two of a three-part article called Tech Sparks, which examines sub-sectors of Canadian technology that could spark a more general revival. For Parts One and Three follow the links at the end of the story.
When you think of oil in Saudi Arabia or Texas what image comes to mind? For most of us, it’s a gusher, an oil derrick spewing black gold into the air a-la the Oscar winning movie There Will be Blood.
Now think of Alberta. Its oil is embedded in grimy tar that is time consuming and expensive to extract; more tedious documentary than Hollywood blockbuster.
But is there a silver lining to the painful and controversial extraction of oil from this molasses like substance? That technology developed by a growing number of innovators in Alberta is, increasingly, being used around the world suggests there is. Innovators in the Western Canadian province are making the process of extracting oil from difficult places both cleaner and more efficient.
Ken Dedeluk, CEO of one of Alberta’s emerging success stories, Computer Modelling Group (TSX:CMG), says that through necessity Alberta companies have had to develop technologies to recover “difficult” hydrocarbons, and these techniques are are now being copied and used around the world.
“Technology pertaining to heavy oil, is world class, and was likely invented and tested in Canada first.” says Dedeluk. He points out that steam assisted gravity drainage, or SAGD, was first invented and patented by Dr. Roger Butler at the University of Calgary, and is now responsible for a majority of insitu production in the Alberta oilsands.
Add that to the fact that many other areas of the world have cheaper labour or less stringent environmental regulations, and Alberta companies must be ingrained as innovators.
Dedeluk’s company Computer Modelling Group, for instance, has grown from a small research facility to a leader in Enhanced Oil Recovery, or EOR, techniques. This technology is being deployed around the world in similar oilfields that require advanced modeling techniques for the stuff that’s harder to get out of the ground. Since 2008, Computer Modelling Group has nearly doubled in size, from $28 million to just under $52 in fiscal 2011.
Spending on oil and gas technology is, of course, heavily dependent upon oil and gas prices. And a growing number of experts believe we simply aren’t going back to the days of cheap oil. ““Oil prices are going to go up” says famed energy investor T Boone Pickens, who noted that global oil consumption is expected to reach ninety million barrels per day in the fourth quarter of this year.
The Paris based International Energy Agency concurs, chiming in with a familiar storyline. It says that Worldwide oil consumption will grow by 1.5 million barrels a day in 2011, driven by developing nations in Asia.
The tightening of the supply of oil has led some to the conclusion that natural gas is a cleaner and more abundant solution of energy. Huge reserves of natural gas have been found recently through hydraulic fracturing, or “fracking”, the process of extracting gas from shale fissures with pressurized water. MIT Professor Ernest Moniz, who led a comprehensive study on the future of natural gas, calls shale gas production a “game-changer”. The MIT study projects that the United States now has 92 years’ worth of natural gas at current consumption rates.
Alberta geologist Jim Letourneau, who publishes The Big Picture Speculator, believes Alberta may have a potential home run company in the space.
Wavefront Technologies (TSXV:WEE), says Letourneau, is “turning the field of reservoir engineering on its head”. While shale plays have come under environmental scrutiny of late for, among other things, causing flammable drinking water, Letourneau says Wavefront’s Powerwave, for oil field use, and Primawave, for groundwater, processes create waveforms that allow higher volumes of liquid to be injected into the ground. The technologies are a big improvement, environmentally, he says because the injected fluids migrate more uniformly which increases their ability to flush out trapped oil or groundwater contaminants.
Wavefront’s Powerwave is used as an addition to pre-existing waterfloods, but can also recovers reserves in excess of what would be recovered by water flooding alone.
Although it is early days for Wavefront, the company record just $2.4 million in revenue last year, Letourneau has high hopes for the company. “Currently about two-thirds of the world’s discovered oil is still stuck in the ground. he says “Powerwave’s technology will make extracting the next third a straightforward exercise.”
Some other Alberta innovators are not looking to the future for payoff, their future has already arrived. Calgary’s Zedi (TSXV:ZED) has taken off of late, and now has its sites set on the United States. The company has nearly doubled its revenue since 2007, from $30 million to nearly $58 in fiscal 2010. Zedi owns and licenses software that allows a myriad of production data to be monitored remotely. Field operators can log into Zedi Access Mobile, and have real time access to well data from their BlackBerry or iPhone, an advantage that not only makes their work more efficient, but makes them able to respond to critical situations faster.
Similarly, Calgary’s CriticalControl Solutions (TSX:CCZ) has more than doubled since 2007, from $23 million in 2007 to more than $50 million in fiscal 2010. It’s imaging and data capture solutions measure fluid composition, schematics and even regulatory compliance data. CriticalControl is also expanding into the United States because management believes that gas prices will continue to remain low and gas producers will continue to invest in in lower-cost, U.S.-based basins in places like Indiana and Pennsylvania.
And when it comes to technology in Alberta’s oil patch, the world is starting to take notice. In May of last year Honeywell forked over (C) $144 million to acquire Edmonton’s Matrikon (TSX:MTK). Honeywell has since integrated Matrikon into its Automation and Control Solutions business group to, among other things, complement Honeywell applications that monitor oil and gas well performance.
At the time, Norm Gilsdorf, President of Honeywell Process Solutions said “Our industrial customers want their plants to run well in any economy, and Matrikon’s products help do that. While the move was a big win for Matrikon shareholders, as the $4.50 buyout price was a more than 20% premium to the stock’s thirty day average, others actually saw it as a bigger benefit to Honeywell. ControlGlobal.com, a magazine that covers the process automation business, described the move as a “genuine win for all the Honeywell ecosystem..”