None for me, two for you and Lots for the Big Green Eyed Monster… A discussion of “fair share” in Alberta

I’m told I’m very wordy. So I will try. I also know in many ways I’m preaching to the converted, BUT for the “Green Eyed Monster” out there…here goes.

Here is the story of a REAL Alberta gas well. It is also the story of 365 Alberta families. I don’t know who they are, but I am sure they are lovely people, some of which may be part of the big green eyed monster, the jealous “I didn’t get my fair share” green eyed monster.

In late 2009 Sandbox Energy, the company I am CEO of, made an acquisition. We bought a bunch of wells west of the Edmonton airport/Leduc in the hustling, bustling metropolis of Calmar PLUS a bunch of scattered wells in SW Saskatchewan with various working interests. I like Calmar. I like Lee’s Chinese Restaurant there. I have spent A LOT of money in Calmar and in Leduc. Someone, or actually many someones have got a lot of the share of the capital Sandbox has raised because I don’t have it. In fact all in they’ve gotten about $400,000. My operators, contractors, etc etc. More importantly though is I have had to pay out a lot of money in taxes and royalty payments. Uncle Ed has changed his mind on the cheque I send him every month, though he still calls, and that has led to a lot of confusion, BUT one thing that is not confusing is the amount of money WHICH HAS INCREASED that I have to pay to lease the land from the many kindly Dutch/Ukranian farmers/offspring of the kindly Dutch/Ukranian farmers in and around Calmar. In addition, the County of Leduc tells me that Uncle Ed has asked them to collect a bunch of taxes on his behalf. We thought that was “fine”, until the County asked us for the share of taxes that THEY were owed, not on behalf of Uncle Ed but for them. Apart from the fact that my water tanks (I know I promised I wouldn’t get verbose, BUT the blog is coming and coming soon about the absolutely, completely misguided water disposal practice that exists in Alberta) are about 15 ft high or so, the “footprint” we leave is about the size of the main floor of my house, a modest BRIDGELAND not MOUNT ROYAL 1.5 storey, about 1100 sq ft. Oh I know what you’re thinking that is just the “Calgary house” what has he done with the rest of the share, must be a place in Phoenix, lakeside house in Kelowna. Yes I know some of those guys, but no, we live in Bridgeland in our 1952 house. We bought it at the height of the insanity for +$600k. I have a very decent sized mortgage. I look out on to downtown, the BOW BUILDING actually. I’m not sure about their whole take of the share, ask Ms. Smith. I digress.

So back to the nice Albertans, 365 homes of them to be exact. The average Calgary home uses 140 Gigajoules of natural gas a year (mostly for heating/cooling only 30ish% of our electricity comes from natural gas), our wells produce 140 Gigajoules of natural gas a day. Bear with me while math kicks in. So basically my wells (the 2 that are producing) produce enough gas in a day to heat 1 home in Calgary for a year. We receive a price per Gigajoule THIS YEAR of approx. $3.50. So every day our little contribution to the homes of 365 Albertans makes about $490.00 NOW, not a couple of years ago, but NOW. By the way when we bought the wells, despite the fact many of my colleagues told me not to because they would water out and I would have to shut them in, they were shut in, not producing anything, zero. 365 Albertans had to get their natural gas from someone else. We blew about half a million and got them going. Now they have potential of making the aforementioned revenue. Now comes the interesting part. The kindly gas plant owner that I send my gas to needs to pay for the capital they’ve expended on the plant so I get charged $1.80 a Gigajoule all day everyday for sending my gas to them and processing it so the 365 homes get heated with clean gas, so that equals $252.00 per day that I send their way. As is often typical in Alberta, we produce a lot of HEATED DOWNHOLE water. This is where I begin to get a WEE BIT frustrated. The government asks me to send my produced water either to a big hole near Leduc owned by a large American corporation or to my friends at the gas plant who also have a big hole. The cost of me getting the water into the big hole is measured in m3 (cubic metres), $10 for every m3 by the Americans, this was an even bigger ripoff, so I negotiated $8 with my friends at the gas plant. This is for dumping it, in a hole, never to be seen or used again, in a  hole, a deep hole, in the ground. Our water has about 7 parts per 1000 salinity in it. Apparently the government says, this is very bad for everything except deep holes owned by Americans. Seawater has 35 parts per 1000 in it. As I write this, around the world, especially in the Middle East at a certain 6 Star hotel, machines are converting seawater into drinking water. At the Petroleum Show in Calgary this past June I talked to 5 suppliers who laughed at me when I told them about disposing our water in a hole. Anyway, so everyday we send about 15 m3 of produced water to the hole for about $120.00 or another $0.86 per Gigajoule. By the way there isn’t any other way to get that to the hole so a truck has to come and take it. The trucking company, a bunch of fine Albertans who I happen to like quite a bit, because they’ve been very patient with us when we haven’t been able to pay our bill on time, charge us $8 per m3 to take the water to the hole, so another $120.00 per day or $0.86. Uncle Ed also calls EVERY MONTH without fail and asks me for about $500-1000, and that isn’t all the royalties we pay, we can add on another $2000 or so for our favourite landowners in the area.

Let’s do a little calculation:

$490   everyday in revenue

-$252  for my friends @ the gas plant

-$240  for my dangerous water

-$100  for royalties for Uncle Ed and our local Calmarians (or is it “ites”) or offspring of same

-$30     for the taxes collected by my good friends at the County Office in Leduc for them and Uncle Ed

-$30     for my insurance to operate as a licensee in the Province

-$55     for my operator (one of the coolest guys in Calmar) to go check on the wells.

Oops, I’m $217 in the glue and I haven’t paid my SUBLEASE which works out to $120 per day and my staff OR MY MORTGAGE and diapers for my son, University fees for my other son, school fees for my little Kindergarten Princess, and school fees PLUS CHILD SUPPORT for my rising Grade 12 Musical Theatre sensation. Should I continue? I know people say I’m verbose, but I want to make sure that the green eyed monster gets their share. He knows I’m squirreling it away somewhere. Hiding it, keeping the big chunk for myself.

So then someone else chimes in and says “what the hell are you doing losing $3-400 per day”? Shut it in, it’s not economic, let’s try solar, let’s try wind. Hmm I wonder how that goes down with 100’s of thousands of Albertans? BUT so you know, to cut operating costs I converted our pumpjacks to fuel gas (bypass gas that comes up from the casing in our wellbores) and I run our instrumentation off of solar, with bypass gas backup. What will I tell the 365 homeowners if like me it ALL gets shut in because it’s not economic because the big green eyed monster isn’t happy because it’s not getting it’s fair share? All around this amazing Province there are 100’s of thousands of people who really need companies like Sandbox to keep going and producing our wells because their share means their house gets CONSISTENTLY AND EFFICIENTLY AND ECONOMICALLY HEATED (BUT NOT NECESSARILY POWERED) and a roof over their head, food on their table, a real job. Everyday hundreds of operators just like SBox as we affectionately call it, for the day we ever get our stockticker, struggle to know what to do, massively undercut by the coal industry and dinged with a huge discount to market for the gas we send to the other ravenous monster to the South, so that they can extract “cheaper” shale gas (they don’t have a bunch of the costs we do, you see they dump their water into a pit, right beside the well, as in FREE).

I’m going to get verbose and believe me on this matter I can do a several day seminar so I will, STOP. BUT indulge me this one more, ok couple more thoughts. Next time you hear the energy industry (ie. Oil and Gas, emphasis on gas) isn’t paying their fair share, maybe just review my blog and think about Leduc and Calmar and some of my Dutch friends. Also, next time you hear about how Alberta is experiencing ANOTHER DROUGHT and next time your County tells you how much their FRESH water bill is for the year, for spraying to keep DUST DOWN on the roads, maybe you will envision me standing beside my well, shaking my head, watching the water truck sucking out the water tank to dump in a hole. Maybe you will then ask yourself “who isn’t getting the fair share”? Because sorry monster but as you can see there’s no more “cookies” for you today!

~ by lotsofenergy aka Chris D. Tesarski on December 3, 2010.

One Response to “None for me, two for you and Lots for the Big Green Eyed Monster… A discussion of “fair share” in Alberta”

  1. UPDATE: August 2011…

    Since I initially wrote this blog the wells are shut in. Why? We couldn’t afford the costs anymore (in addition the rain in the Calmar area has left us in danger of destroying the leases – an ERCB directive). We are left with huge payables as a result of the ERCB DEMANDING $150,000 (which we paid, and is on deposit in a “special account” in Edmonton) in Liability Deposit for a “designed” facility that was actually never built (by a large company at the time which has become very large and shall remain nameless and was never asked for any payment – the Liability program didn’t exist back then- except for a $10,000 design fee) and has never existed on a lease that has basically never produced. Because all of our wells are shut in our Liability has now increased even more with the ERCB despite the fact that they have told us we can’t effectively access the leases and they are demanding a further $50,000+ even though we are incapable of producing. Fair share, hmmmm. Apologies to the 365 homeowners who we were supplying. Don’t worry though, your gas supply is safe. One of the large oilsands producers will supply it to you as their Liability Rating is POSITIVE with the ERCB as the ASSET VALUE of their oil properties outweighs the LIABILITY VALUE of their gas properties. Everything is just fine, your tax dollars have been well spent at one of Alberta’s “top 50 Corporations to work for… the ERCB” yes I said corporations.

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