While Westman pumpjacks continue to streamline oil royalties into provincial coffers, infrastructure deficits that include crumbling roads, continue to plague the area.
Last year, the provincial government made more than $10.5 million in direct oil royalties.
The government receives the money as a result of owning approximately 20 per cent of the mineral rights in the province.
Ross Tycoles, chair of the Oil Producing Municipalities of Manitoba, said a portion of that money should be allocated for infrastructure needs in the areas where production is taking place.
“The government seems to be ignoring the need for infrastructure and I’d like to see them set aside, say,
25 per cent of that money in an infrastructure fund on a needs basis,” said Tycoles, who is also the reeve of the RM of Pipestone, one of the major oil producers in the province.
In the five-year period from 2008-2012, the government raked in $48 million in royalties. Including the previous five years, the number swells to $68 million.
The royalties are deposited into general revenue, according to a spokesman for Manitoba Innovation, Energy and Mines.
“I’m concerned because if we need resources to develop further in the future, where are we going to get that money from?” Tycoles asked. “For me, there needs to be better budgeting.”
As of Aug. 20, 10 of 24 rigs in Manitoba are working, according to the Canadian Association of Oilwell Drilling Contractors.
Industry has held up its end of the bargain, according to Tycoles, but he’d like to see the government take a tougher stance when negotiating, to ensure the exploration creates a legacy that will have lasting implications for the province.
“The government is just giving away everything to get the industry here and keep them here,” Tycoles said.
“We’re trying to negotiate maintenance agreements so if they beat up a road they have to fix it after they’re done.”
While the $48 million pumped into provincial coffers in the last five years represents a significant amount of money, Tycoles said it doesn’t come close to the amount the oilfield has generated.
In 1985, oil was discovered in the Bakken Formation in the Daly area.
Almost two decades later in 2004, the Daly-Sinclair discovery well produced oil from the Bakken-Torquay.
Last year, 614 new wells were drilled in the province, bringing more than 18 million barrels of oil into production.
The number of wells and barrels produced in 2012 is more than double what it was in 2008.
The United States Geological Survey recently reassessed the Bakken Formation and Three Forks Formation in North Dakota, South Dakota and Montana.
The assesment found that the formations contain an estimated 7.4 billion barrels of undiscovered, recoverable oil. That represents a significant increase over a 2008 estimate, which pegged the number at 3.65 billion barrels.
While the study doesn’t directly look at estimates in Manitoba, the implications are obvious.
Last year, the province produced 18.46 million barrels of oil with Tundra Oil and Gas Partnership, representing the largest single producer in the area.
Dean Clark, vice-president of Tundra Energy Marketing, said infrastructure deficits at times can be challenging for the industry.
“The main route into Cromer is historically in bad shape,” Clark said.
The company has invested significantly in pipelines that transport oil to loading facilities or main lines to minimize the number of trucks on the road.
A wet spring, coupled with several road closures, created a logistical nightmare for some rigs in the area. As a result, some drilling programs are more than a month behind, Clark said.
While the province owns 20 per cent of the royalties, the other 80 per cent are owned by private individuals, who are free to negotiate a royalty schedule with oil companies, which usually works out to approximately 15 per cent.
With the advent of horizontal drilling, which is particularly well-suited in the Bakken Formation, many newer wells are producing 50 plus barrels of crude oil a day.
With oil prices at $105 a barrel, a well producing 50 barrels per day would be worth about $1.9 million per year. A 15 per cent royalty would equal $285,000 for the mineral rights owner — of which the province grabs 10 per cent based on a special tax introduced in the 1950s.
Production from new wells typically drops after the first 18 months. Wells can remain productive for decades or just a couple of years depending on a number of circumstances.
Further money, in the form of surface rights, depends on the size of the lease the company needs to drill for oil. They typically average between $8,000 to $12,000 per hole in the first year and an additional $3,000 to $4,000 for every year the well is in service.
Increased productivity across the board in Manitoba has resulted in a windfall for the province, but you wouldn’t know it according to Shirley Kernaghan.
Since the 2011 flood, Kernaghan has had to take a
40-minute detour because the Coulter Bridge, which is located in one of the main oilfields near Waskada, has been out.
The bridge is set to reopen this fall, but Kernaghan said it’s been challenging working with the government to get the bridge built.
“If they would have invested that money back into our roads sooner, it could have helped grow everything,” she said. “Every day the bridge is out, our economy isn’t as great and that money is going into the government’s pockets — why is that happening?
“It’s because they’re broke.”
Republished from the Brandon Sun print edition August 24, 2013