Alberta’s energy story started millions of years ago

Alberta’s substantial oil, natural gas and oil sands resources have their beginnings in a time long passed. Hundreds of millions of years ago, water-borne sediments — plant and animal matter — accumulated on an ancient sea bed and seashore. Over time, as the sediment deepened and the earth’s tectonic plate movement pushed up mountains and foothills over some of it, overlying rock placed huge amounts of pressure on the layers of sediment. Trapped under the massive rock, the decaying plant and animal matter became oil, natural gas, bitumen (oil sands) and coal.

The massive area of rock formations is known as the Western Canada Sedimentary Basin (WCSB). It underlies northeastern British Columbia, the western Northwest Territories, most of Alberta, southern Saskatchewan and southwestern Manitoba. The rock is shaped like a wedge, with the thickest portion at the western edge (about 6 kilometres thick), and the thinnest portion at the eastern edge. The deepest layers of the WCSB are more than 500 million years old.

Different mixes of plant and animal material settled at different times, and were exposed to different temperatures and pressures over those millions of years. As a result, different types of resources are found in different areas of the WCSB.

Different types of resources are also found in different layers of rock in the WCSB within the same area. These rock layers, located at various depths, are referred to as “formations”.

Each formation has different geological characteristics. These characteristics influence the kinds of technologies and processes that need to be used to access and produce the resources that are in the formation.

Oil and natural gas is contained in the pore spaces among the rock of the WCSB. The amount of pore space depends on how the surrounding grains of rock are arranged. (The grains of rock can be arranged uniformly or randomly, and they can be tightly or loosely packed.) The more pore space there is (relative to the surrounding rock), the more porous the rock is, and generally speaking, the more it can hold and the easier it will be to access the oil and gas.

Pore spaces can also be interconnected to different degrees, depending on the arrangement of the surrounding rock. The more connected the pore spaces are, the more permeable the rock is, and generally speaking, the easier the oil and gas will flow.

If the formations are “tight” (i.e., not very porous or permeable), then more advanced and expensive technologies (such as long horizontal wells and multistage hydraulic fracturing) are required to produce the resource.

These formations can also be shallow, or very deep. They can be located close to existing energy facilities (e.g., pipelines, roads and gas plants), or a long distance away from such infrastructure. They can be accessed for drilling year-round, or only in the winter or summer months. They can also be highly productive, or only produce a small amount of oil or gas.

What does this have to do with royalties? Well, royalties are about Alberta collecting the value of the resources that Albertans own. The value of those resources is influenced by how much it costs to produce them. The depth of a formation, how far it is located from infrastructure, and what types of technology are required to access the oil and gas within it, all influence costs. How much oil and gas is produced from the formation determines how much revenue can be generated to cover those costs. Together, all this helps determine how profitable a well or project can be.

Generally speaking, the easier it is to access the oil and gas and the easier the oil and gas flows, the less costly it is to produce the resources.

The value of Alberta’s resources is therefore rooted in the province’s geology (and the resulting geography) — a geology that’s been handed to us over hundreds of millions of years. Understanding the geology of Alberta’s oil, natural gas and oil sands resources, and how it contributes to cost and profitability, is important for understanding how key elements of Alberta’s royalty framework are structured and can be optimized.