The Sands of Change – Resource development remains a major “plus” for Saskatchewan’s economic future.

December 19, 2014

Screen shot 2014-12-16 at 11.18.56 AMTo declare that economic activity in Saskatchewan has advanced significantly in recent years would be an apparent understatement. Real estate values have soared and unemployment levels are among the lowest in Canada.  While agriculture certainly is entitled to accept plaudits for its share in this progress, many analysts point to rapid development of the province’s natural resources as a prime factor in those gains and within that concept, our present attention is focused on two particular segments of resource development; oil and gas activities and uranium  developments in the Athabasca Basin.

Geologists define oil sands as, “…a mixture of sand, water, clay and bitumen” with bitumen further defined as, “…oil that is too heavy or thick to flow or be pumped without being diluted or heated…Some bitumen is found within 70 metres of surface, but the majority is deeper underground.”

In Western Canada, virtually all oil sands are located within the province of Alberta near Fort McMurray, in the Peace River region and near Cold Lake.  However, it is believed they extend into Saskatchewan just to the east and south of Fort McMurray and that is where present activity is taking place, particularly in the area close to Axe Lake, near the community of La Loche, about 600 kilometres north of Saskatoon.

Bitumen in the area has been the target of exploration since the 1970s when several holes were drilled to define the resource which was located just 195 metres under the surface.  However, technologies to exploit oil sands had not yet been developed and it was not until 2004 when more serious efforts got underway with the issuing of an exploration permit to PowerMax Energy, a Texas company.  A Canadian company, Oilsands Quest (OQ) took over the permit and spent the next five years drilling more than 300 exploratory holes.

Results were sufficiently encouraging for OQ to apply for a permit to build and operate multi-well pads, as well as a central processing facility in order to enter in situ production.

According to Saskatchewan Ministry of Environment records, the purpose of the permit was to:
`…produce 30,000 barrels (4800 m3) per day of bitumen at their Axe Lake Project…90 km northwest of the Northern Village of La Loche and abutting the Alberta border…The bitumen will be pipelined from the site.”

Unfortunately the combination of technical problems and financing difficulties due to the “Great Recession” of 2008-10 forced the company into bankruptcy and in 2012, Cenovus Energy of Calgary took over the Saskatchewan exploration permit.

Current activity in the area is minimal, but the province has issued a few other exploratory permits in the Primrose Lake Air Weapons Range area northeast of Cold Lake, Alberta.

Oil and gas development work is much more intensive in the southern part of the province
as part of the general development surrounding the huge Bakken oil fields which extend from North Dakota into Saskatchewan (and southeastern Manitoba).  Anyone who has travelled to Williston, North Dakota in recent years understands the incredible nature of the region’s economic expansion and that prosperity is now extending across southern Saskatchewan as well.

The Bakken Formation is part of the larger Williston Basin, a 600,000-square-kilometre area.  One quarter of that basin lies in Saskatchewan with a much smaller segment in Manitoba.

Despite some temporary setbacks in drilling due to this past spring and summer flooding, activity across southern Saskatchewan is escalating from Estevan in the east to Swift Current in the west.  Two companies in particular, Petrobakken Energy Inc. and Crescent Point Energy Corp. are responsible for much of the growth.

Geologists have known for some time that Saskatchewan’s portion of the Bakken was quite sizeable, but there were always cheaper places to sink a drill. The turning point came five years ago when technology made it economical to tap shale oil through horizontal drilling that cuts through tight formations, and hydraulic fracturing that bombards the rock with water.  While environmentalists and others may question the sustainability of these methods, there is little question their development has played an integral part in the acceleration of this boom which has benefitted the population of the province.

Oil and gas taxation revenues now pump $1.5-billion a year into the provincial treasury – about seven times the haul from potash – and the sheer scale of the Bakken ensures that oil will enrich the provincial treasury far into the future.

While southern Saskatchewan is enjoying a true boom accompanied by future expectations which appear almost unlimited, the pathway for the world of Saskatchewan uranium development has been somewhat more uncertain.

Uranium supply and demand analysis over the past 40 odd years has been profoundly interesting.  After languishing quietly following WW11, uranium prospecting entered a period
of exploding activity thanks to the sudden development of peaceful nuclear power generation during the 1960s and 70s.  Nations as diverse as South Africa, the USSR, Australia, and Canada began to seriously develop their potential resources and within Canada, the Athabasca Basin in far northwest Saskatchewan garnered particular attention.

Unfortunately, a snag developed as the U.S. and the USSR signed mutual nuclear disarmament treaties which involved the decommissioning of huge nuclear weapons arsenals with the subsequent release of large quantities of uranium into the world’s markets.  However, as these new supplies began to be worked off, a second boom developed beginning in the late 1990s and that is when the Athabasca Basin came into its own.

The boom was brought about by a convergence of factors.  First, the new supply from weapons decommissioning began to diminish.  Then, as awareness of environmental considerations began to grow, the attractiveness of nuclear power generations’ non-pollution benefits kicked in, particularly in terms of rapidly growing economic activity in the Far East where most power was then generated by polluting coal power plants.  Finally, it dawned on the world that if the number of newly-proposed nuclear plants actually entered production during a period when supply was declining, a dramatic shortage would develop.

As a result, a bidding frenzy for uranium oxide began to develop and prices soared, quite literally into the stratosphere, rising from near $10 per pound in 2004 to almost $150 per pound in just three years.  Thanks to that price explosion, a multitude of junior mining companies cast their eyes upon any area which might allow for the discovery and development of new uranium supply – and the Athabasca Basin of Saskatchewan became one of the world`s most favoured regions for that purpose.

Quite literally, dozens of juniors entered the Athabasca Basin exploration fray and maps of the area began to look like a patchwork quilt as claim areas abutted one against the other.  The boom reached its peak in late 2007 to early 2008 with a buying frenzy in uranium shares which was so pronounced that top-to-bottom gains in share prices of 1,000 per cent and more were not unusual.

Unfortunately, the boom was not sustained.  Uranium prices began to decline, beginning a fall to their present (summer 2014) levels near $30 per pound, perhaps on fears that even if a modest number of these new entrants actually reached production, the result would be a looming over-supply.  Several countries, particularly France and Germany, began to waver in their plans for new or additional nuclear power generation.  Approval times for new nuclear power plants began to notably lengthen.  And then came Fukushima.

The Fukushima Daiichi nuclear disaster occurred on March 11, 2011, when a massive earthquake off Japan created a giant tsunami which inundated the Fukushima Number 1 nuclear power plant, resulting in a meltdown of three of the plant’s six nuclear reactors.  The plant began releasing substantial amounts of radioactive material, becoming the largest nuclear incident since the Chernobyl disaster of 1986.

Country after country immediately cancelled all plans for adding nuclear capacity and some even shut down existing plants, causing a continual reduction in future nuclear oxide demand projections, and accelerating the price decline.

As a result, uranium mining company stock quotes plummeted, some companies went broke and many projects at Athabasca were either cancelled outright or put on indefinite hold.

At present, there are signs of a resurgence and production continues at the area`s two largest mines, Cameco Corp’s McArthur River and Cigar Lake Mines.  New exploration activity is taking place and the future outlook is beginning to brighten as nuclear power’s pollution-free characteristics become more widely appreciated in an age of heightened environmental awareness.

Resource development in Saskatchewan is both fascinating and varied and, despite some ups and downs, both oil and gas and uranium are expected to make major contributions to the province’s economic and social well-being through the coming years and decades.

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