Coming in from the cold

By Gerald Butt in Muscat

The trail from North America to the oil and gas fields of the Middle East is well-trodden. American companies, having gained experienced in producing oil from the wastelands of the southern United States, were among the first to start exploring the vast deserts of the Arabian peninsula and the Gulf in the first half of the 20th century. What they found - in quantity and quality - was beyond their wildest dreams.

Many of these US giants - or merged conglomerates - are still operating in the Middle East. At the same time, they have deployed their resources worldwide to look for new major reserves of oil and gas in other corners of the globe - for example, in the oceans off Africa or South America. In other words, the giant operators are looking for the giant fields with the giant rewards.

This is a policy that is leaving openings for other, smaller companies with less ambitious business plans to move in and develop the fields regarded by the giants as insignificant or uneconomical. As oil resources around the globe start to decline and the demand for natural gas soars, these apparently insignificant fields - along with smaller reserves in other Middle East states - are acquiring greater and greater importance.

Quick to seize upon these new opportunities have been a string of Canadian firms. Several companies, which gained experience in the icy wilds of North America, are establishing themselves in the deserts and the rocky hills of the Middle East. In Yemen and Sudan, in several of the countries of North Africa - even in the Gulf states - the soft Canadian accent can be heard more and more amid the Texan drawl.

The Canadians are well-placed to follow in the footsteps and exploit some of the castoff fields of the international majors. This is a pattern which has become well established in their own country. In the mid-1980s, the Canadian government made dire predictions about the future of its domestic oil industry. No major oil discoveries had been made for decades, and production from older fields was declining. New fields were smaller, harder to find and more expensive to exploit.

Multinationals. Equally alarmed were the giant multinational oil companies. Experts were predicting that they would abandon the declining conventional oilfields and seek major new reserves elsewhere - in the remote frontier areas, offshore or even outside Canadian territory altogether.

The experts were right. The multinationals, for the most part, pulled out of the main producing areas of Canada. But the Canadian oil and gas industry did not fall into decline. Instead, production stabilized. The government had underestimated the role and capabilities of the smaller Canadian companies, which came in on the heels of the departing multinational giants. Today, as much as 73 percent of conventional oil and gas production in Canada is from smaller companies - which are also responsible for drilling 96 percent of the wells. These same Canadian firms account for most of the expenditure in the country's oil and gas industry.

Much of this expenditure has been on developing the technology to target smaller and less easily accessible oil and gas fields. And it is this expertise that the Canadian firms are now offering to the Middle East oil and gas producers.

One of the companies which has extended operations from Canada to the Middle East is Calgary-based Gulfstream Resources. Its operations in Oman provide an interesting case study of how Canadian-developed expertise can be transferred to a very different setting to good effect.

In the 1980s, two international companies searched for oil in two adjacent blocks in the rocky desert landscape of central Oman, west of the capital Muscat. "The companies were disappointed," said Gulfstream's president, Roger Haines, a former executive of Canadian Occidental with long experience in Yemen. "They found only natural gas. It was in difficult terrain and there was no foreseeable market, so they relinquished the discoveries."

Today, however, the picture has changed. Oman's oil production has reached a ceiling, and the country needs gas - to fuel its electricity generation and desalination industries, and to feed its liquefied natural gas (LNG) export terminal. What Gulfstream sought was an opportunity to develop the gas discoveries made in the 1980s by the use of technology tried and tested in Canada. "We were offering technical ingenuity and fiscal discipline," said Haines. "Marginal, shallow-stranded gas pools were proven to be significant, prolific reservoirs."

The Omani government approved the project, transforming the remnants of the two exploration blocks into one new one, and the Hafar gas development scheme in newly created Block 30 was born.
Seismic studies. Approval came only after a long and difficult period of tests to guarantee the overall soundness of the venture. As part of this process, detailed seismic studies needed to be carried out.

This was no easy matter in the extremely rocky and inhospitable terrain. "Laying the high-density two-dimensional seismic lines in the mountains provided unique challenges which were met by unique solutions," said Gulfstream's vice president, Ron Barmby. "Satellite images were used to plan the grid. The specialist crews laid some of the lines by rappelling down the sheer cliffs. While this would be extraordinary for a regular seismic crew, it was routine for the professional mountaineers and ex-servicemen from the British Special Air Services (SAS) hired for the job."

The key, however, to Gulfstream's plan for the Hafar development was to reduce the cost of the gas-processing infrastructure. And this, in particular, was where the Canadian experience bore fruit.

According to Roger Haines, "Traditional methods of tailor-made, field-constructed gas processing plants were devised long ago for huge developments with huge economies of scale - of the kind carried out by the giants of the industry. Hafar is neither of these and would be uneconomic if traditional facility construction methods were used."

The Canadian gas plant of the 1980s was a unique facility built for the life of a single field. Today, the gas plant is made from standard components fabricated and assembled on transportable skids - making it, in essence, a mobile gas facility that can be moved from one field to another, and offering cost savings of around 50 percent compared to a fixed plant.

By December 2001, gas will be flowing from new wells being drilled at Hafar, linking up with an already-established Omani gas pipeline system. By that time Haines and Barmby will have decided on a site - on the stony plateau in front of a range of red-brown rocky hills - for the mobile gas processing plant. The area the Canadian team have been surveying under the burning Omani sun is just a stone's throw from a blue-and-white sign that reads "Hafar 1," marking the position of one of the original oil wells sunk in the 1980s and abandoned shortly afterwards in disappointment - its pink-painted well-head screened by a locked wire cage.

Gulfstream's hope is that the Hafar venture will demonstrate to oil and gas producers in the Gulf and elsewhere in the Middle East that the Canadian approach - of small, flexible and cost-efficient operations - can be applied in many more cases where reserves have been overlooked or abandoned by the giants of the industry.

Success would mean more ready-to-assemble, portable gas plants and other new-technology equipment being transported to the Middle East - thus establishing more firmly than ever the long trail from the snowy wastes of northern Canada to the hot and arid deserts of Arabia.