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Waste to Wealth

Peter McKenzie-Brown
June 12th, 2009

Cleaning up after fossil fuels is a thriving enterprise, recession or not.
This article appears in the May 2009 issue of Alberta Oil Magazine

Oil and gas fields, like homes, never stop generating trash. The difference lies in the volume and nature of the rubbish. From exploration through production and eventual abandonment of wells and plants after fossil fuel reservoirs deplete, energy waste management has grown into an industry in its own right.

Common oilfield wastes include oceans of brackish “produced water” that flow to the surface in volumes measured in millions of barrels and have to be separated from oil then put into safe disposal. There are other oil-contaminated materials that can be solid or liquid. The process of completing wells alone generates respectable volumes of drill cuttings and other solids that can no longer be left lying around.

Over the last 25 years, waste regulations have become steadily tougher, encouraging growth of a disposal business that has outlasted boom-and-bust cycles of energy prices and spread across the countryside in tandem with exploration and production operations. Since 1998, the number of producing wells across Western Canada has more than doubled to about 226,000.

Deepwell Energy Services is considered a small newcomer in the field but already has four facilities in Alberta, including a large new waste treatment facility south of Calgary, near Claresholm. Last year, the company acquired a 50 per cent interest in a water disposal facility near Midale, Saskatchewan, as the celebrated Bakken oil drilling play expanded across the southeastern reaches of the province.

Built upon assets that have been around for a while, three-year-old Deepwell organized itself as an income trust and went public just before a federal government decision dubbed by investors as the Halloween Massacre of 2006 to start taxing trusts in 2011. “Everyone in the trust system is now trying to figure out how to reorganize,” says Bob Ritchie, a veteran of more than 25 years in the industry who was Deepwell’s president until March 23.

The biggest players in oilfield waste have already made their moves: Newalta Inc. has reverted to the traditional corporate model. With the help of a large hedge fund sponsored by investors from the United States as well as Canada, CCS Corporation turned itself into a private company in 2007. For its part, Deepwell is using a five-year transition period allowed by the government to decide upon its next move.

Licensed to deal only with “upstream” exploration and production materials, Deepwell typifies the independent specialist in oilfield waste management operations. “It’s up to the producer to characterize and classify their wastes. Our facilities can accept a lot of waste streams, but some materials are not on the list of acceptable materials,” Ritchie explains. Lubricating oil used in exploration and production machinery, for instance, has to go to another specialist as a refined product. Production companies are responsible for tracking and reporting their waste streams to Alberta’s Energy Resources Conservation Board.

The watchdog agency keeps a close watch on waste disposal. “All our Alberta sites are ERCB-approved,” Ritchie says. “We use compacted clay liners, concrete berms, groundwater monitoring, water run-off and run-on systems – it’s all self-contained. The facilities are inspected quite often and very rigorously. It’s completely random. ERCB inspectors are out there at least once a quarter.”

Deepwell vice-president Brian Johnson describes how the company deals with basic waste streams in its Alberta facilities. “We purify produced water as much as we can, then inject the cleaned-up water down our disposal wells,” he says. These are drilled into secure underground formations of porous sedimentary rock capped or surrounded by harder stone, in structures that can be used as natural vaults for permanent storage.

Crude oil waste that has value is also scoured out of industry equipment. The material comes “from such sources as tank bottoms we clean up and dry up and either credit back to our customers, keep for our own account, or do a bit of both,” Johnson reports. The recovered oil must satisfy standard quality specifications before it can be put into pipelines. Cleaned-up solids like sand used in well “fraccing” or fracturing operations are shipped off to sanitary landfill sites.

While Deepwell is a small player in the sector, CCS Corporation is big. It has 48 facilities across Canada, from northeastern British Columbia to Manitoba, plus operations in Louisiana and Texas. Greg Dickie, a senior manager, reports that CCS deals primarily with dangerous materials.

“Wastes coming into our facility are called dangerous because they have a flashpoint, and they have a flashpoint because they contain hydrocarbons. The ERCB defines oilfield wastes, and there’s a clear line between hazardous wastes and dangerous wastes, and between dangerous wastes and not-dangerous wastes, and they fall within different jurisdictions,” Dickie says.

Hazco, a CCS subsidiary, operates a network of industrial landfills, bioremediation facilities and hazardous waste transfer stations. Hazardous wastes are regulated by Alberta Environment and mostly treated at the special treatment facility near Swan Hills. “Our business is to recover hydrocarbons from the wastes and then deal with the byproducts,” Dickie says. “The solids go to landfill, while the liquids go to deepwater disposal. We separate oil from water at our sites.” CCS also has terminals. “We are connected to a pipeline. We receive a producer’s oil, clean it up and send it through the pipeline.”

As economic recession slows down drilling and development across Western Canada until energy prices and bank credit make comebacks, is waste still a growing business? The consensus among the specialists is yes. At Deepwell, Ritchie says: “Last quarter we saw a downturn in exploration activity, and that is not likely to be good for the industry. Having said that, we do get a significant portion of our business from production, and production tends to continue even in a low commodity price environment.”

At CCS, Dickie says: “Up until most recently business was growing – right through 2008, in fact. We believe our industry will continue to grow even as the conventional industry begins to deplete. The types of services we offer through our operations are services that assist people in cleaning up, remediating and managing depleting assets. We believe our business will continue to grow even if the oil industry has the occasional decline.”

In the long run, conventional oil and gas production are in decline in Western Canada as geological reservoirs deplete naturally. Does that mean there will be less oilfield waste?

At Deepwell, Johnson isn’t so sure. “The lines between conventional and nonconventional production are beginning to disappear,” he says. “More and more effort is being put into making unconventional wells produce economically. As we use more unconventional resources, there will be greater volumes of waste. It is a growth sector.” He adds that as fields age, they tend to produce more water, and the need for water disposal will continue to grow.

Dickie sees additional opportunity within areas where there is still some infill drilling to be done. “As the percentage of oil in production goes down, the percentage of water and other materials, including emulsions and some solids like silts, goes up. That’s where our facilities become valuable to producers,” the CCS executive says. Emulsions or streams of mixed liquids and solids need to be treated as oilfield wastes.

Much water is also produced with some of the newer oil discoveries including Saskatchewan’s Bakken formation. Sometimes the water is used to maintain reservoir pressure. Sometimes it’s simply re-injected into a deep rock formation, to prevent surface- and groundwater contamination. Whatever the case, the volumes are increasing, and the job of getting rid of the stuff is requiring more effort.

At the ERCB, regulatory manager Susan Halla flags another reason the waste management business is going to continue to grow. Reading from the regulations, she describes oilfield waste as “an unwanted substance or mixture of substances that results from the construction, operation, abandonment or reclamation of a facility, wellsite or pipeline.”

Based on that definition, the industry creates wastes at all stages of operation – from construction to decontamination and reclamation. So there will be wastes to manage whether an operation is in the stage of development, oilfield decline, closure, abandonment or surface land reclamation.

Environmentalism is a growth force, says Ritchie, who saw the effects of public demand for cleaner industry first-hand as a project manager for TransCanada Corp. as well as during his tenure at the helm of Deepwell. “The movement to be environmentally responsible has continued to advance. Over time it’s likely to become more stringent, and that is actually likely to help us.”

It is a widespread industry consensus that western Canadian waste management regulations are among the most stringent in the world. “Over the last 15 years Alberta has been at the forefront of waste management, even compared to Louisiana and Texas. I don’t know of another regulator that has taken the same initiative as Alberta in developing waste management regulations,” says Dickie. Where CCS operates, “the ERCB is the leader. Saskatchewan and British Columbia are close behind, and Western Canada is at the front of the pack.”

At the ERCB, Halla stresses that Canadian regulators work with each other to make sure their regulations march in step. “We work with Alberta Environment to harmonize waste management practices within the province. We also have committees to harmonize practices in Western Canada, and also we are involved in national harmonization.”

Ritchie says there is momentum for improvements within the private sector. Annual inspections of facilities became routine at Deepwell, he recalls. “I think the whole industry has a heightened awareness of the need to meet or exceed regulations. Everyone is conscious of environmental stewardship. I see the whole industry trying to advance their performance.”

Peter McKenzie-Brown
June 12th, 2009

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