By PAUL JACKSON
This is just one story of 'Little Oil' but a story that can be echoed 1,001 times throughout our province.
It was 1991 and Joseph Werner, Ted Donhuysen and wife, Rosa, decided to start their own oil and natural gas company.
"We had no money, and no ability to raise money. We just had to finance it out of our own pockets" explains Donhuysen, now vice-president of exploration and development of Petro-Reef Resources Ltd.
What they did have, aside from Donhuysen being a geologist, was Werner's background as a geophysicist. He had spent 10 years as a consultant, with more than 35 clients, working around the world on 500 projects. He is now company president.
For the first seven years, they paid themselves no wages, and even paid operating expenses out of their own pockets.
The 'big' pay-off came when Petro-Reef was producing just 40 barrels a day, and new, experimental 3-D seismic technology gave them a breakthrough in finding wells.
But for those initial seven years, the three had many a sleepless night, while they continued to pull together.
Now, Petro-Reef, with 10 employees, produces 1,000 barrels of oil equivalent a day -- oil and natural gas -- and is listed on the Toronto Venture Exchange.
It hit it "big" at its main location at Alexandra, about 35 miles northeast of Edmonton, currently with 16 producing wells, and 40 to 50 other very promising locations set for drilling.
"We were lucky enough to find high-producing wells, in easily accessible areas, so our rate of return per barrel is higher than that of many other companies.
Yet here's a telling concern that means those sleepless nights may soon be back.
Petro-Reef shares are now trading at $1.10 rather than the $2.20 of just four months ago, or the 52-week high average of $2.30.
Why this dismal news on a company that seems to have such a bright future -- seemingly just at the start of moving aggressively ahead, if not into the big leagues, at least into substantial and sustained growth?
Blame it mainly on Premier Ed Stelmach's new royalty regime.
Donhuysen pulls out a notepad and quickly charts the fortunes, and now the misfortunes, the industry, particularly junior oil companies, are now facing.
No one has put this into perspective better.
Let's take a natural gas price of $6 for one-thousand cubic feet (MCF) the industry measurement, and suggest to heat a 1,500 sq. ft. home in winter would use 40-50 MCF a month.
The drilling cost to get that MCF for Petro-Reef is $1.50. General and administration costs 50 cents. Exploration and development cost $1.50. Current royalty costs are $2.
That leaves a tidy -- or tiny -- profit of 50 cents.
What happens when the new $3 royalty rates come into play?
"Where we now make 50 cents profit, then we'll have a 50 cent loss on every MCF," explains Donhuysen.
Coincidentally, Petro-Reef is fortunate in that its exploration and development finding costs are just $1.50, while the industry average is $3.
"The new royalty rate will be worse for the likes of companies like ours than the National Energy Program ever was, and that was disastrous," says Donhuysen.
The really bitter pill here is it was a Liberal government in Ottawa that foisted the NEP on our oil and gas industry, while today, incredibly, it is our own Progressive Conservative government in Edmonton. How can we allow the Stelmach government to do this to us?
And, as I said earlier, Petro-Reef is just one of 1,001 small oil companies whose visionary, risk-taking founders that are being slapped in the face.
This is just one story of 'Little Oil' but a story that can be echoed 1,001 times throughout our province.
It was 1991 and Joseph Werner, Ted Donhuysen and wife, Rosa, decided to start their own oil and natural gas company.
"We had no money, and no ability to raise money. We just had to finance it out of our own pockets" explains Donhuysen, now vice-president of exploration and development of Petro-Reef Resources Ltd.
What they did have, aside from Donhuysen being a geologist, was Werner's background as a geophysicist. He had spent 10 years as a consultant, with more than 35 clients, working around the world on 500 projects. He is now company president.
For the first seven years, they paid themselves no wages, and even paid operating expenses out of their own pockets.
The 'big' pay-off came when Petro-Reef was producing just 40 barrels a day, and new, experimental 3-D seismic technology gave them a breakthrough in finding wells.
But for those initial seven years, the three had many a sleepless night, while they continued to pull together.
Now, Petro-Reef, with 10 employees, produces 1,000 barrels of oil equivalent a day -- oil and natural gas -- and is listed on the Toronto Venture Exchange.
It hit it "big" at its main location at Alexandra, about 35 miles northeast of Edmonton, currently with 16 producing wells, and 40 to 50 other very promising locations set for drilling.
"We were lucky enough to find high-producing wells, in easily accessible areas, so our rate of return per barrel is higher than that of many other companies.
Yet here's a telling concern that means those sleepless nights may soon be back.
Petro-Reef shares are now trading at $1.10 rather than the $2.20 of just four months ago, or the 52-week high average of $2.30.
Why this dismal news on a company that seems to have such a bright future -- seemingly just at the start of moving aggressively ahead, if not into the big leagues, at least into substantial and sustained growth?
Blame it mainly on Premier Ed Stelmach's new royalty regime.
Donhuysen pulls out a notepad and quickly charts the fortunes, and now the misfortunes, the industry, particularly junior oil companies, are now facing.
No one has put this into perspective better.
Let's take a natural gas price of $6 for one-thousand cubic feet (MCF) the industry measurement, and suggest to heat a 1,500 sq. ft. home in winter would use 40-50 MCF a month.
The drilling cost to get that MCF for Petro-Reef is $1.50. General and administration costs 50 cents. Exploration and development cost $1.50. Current royalty costs are $2.
That leaves a tidy -- or tiny -- profit of 50 cents.
What happens when the new $3 royalty rates come into play?
"Where we now make 50 cents profit, then we'll have a 50 cent loss on every MCF," explains Donhuysen.
Coincidentally, Petro-Reef is fortunate in that its exploration and development finding costs are just $1.50, while the industry average is $3.
"The new royalty rate will be worse for the likes of companies like ours than the National Energy Program ever was, and that was disastrous," says Donhuysen.
The really bitter pill here is it was a Liberal government in Ottawa that foisted the NEP on our oil and gas industry, while today, incredibly, it is our own Progressive Conservative government in Edmonton. How can we allow the Stelmach government to do this to us?
And, as I said earlier, Petro-Reef is just one of 1,001 small oil companies whose visionary, risk-taking founders that are being slapped in the face.
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