A story of growth in the oil industry
A little over six years ago when Harvest Energy was created, it would be difficult to imagine the growth that the company would see over the next few years. Through a series of corporate and property acquisitions complemented with technically focused operations and capital investment in the assets, a midsize integrated oil company would emerge.
Over that timeframe, Harvest Energy experienced a variety of different economic environments and although times are challenging today, the company remains well positioned with a long-term, sustainable asset base for the expected strengthening economy in the years ahead.
Harvest Energy was formed in late 2002. The original assets were medium and heavy oil producing assets in eastern Alberta. At the time, there was limited interest in this type of asset as many companies were focused on natural gas.
Harvest saw a value opportunity to acquire assets with stable production combined with a great ability to add value in the years ahead. While the assets would be stable during periods of lower commodity prices, the fact that they had relatively low recovery and large remaining resource opportunity meant that they could be exploited relatively quickly and efficiently in times of stronger commodity prices giving them an embedded “optionality.” It is a philosophy that has consistently guided Harvest through its early history.
After these and other consolidating acquisitions in eastern Alberta, Harvest added to its upstream oil and gas producing assets by moving into southern and northern Alberta as well as southeastern Saskatchewan and northeastern British Columbia. By 2005, it was clear that the great opportunity to capture incremental recovery out of the existing assets and surrounding areas would be realized through a more concentrated technical focus on the assets.
2006 was an important growth year for the company as a merger of Harvest Energy and a similar sized entity known as Viking Energy created a roughly 60,000 boepd (barrels of oil equivalent per day) producing company with concentrated high quality assets with further resource opportunity (often called resource plays) spread across Western Canada. The asset base and growth opportunity for the company was about 75% crude oil (rather than natural gas) and featured light and medium oil but also heavy oil and oilsands production.
Like other companies active in the oilsands and heavy oil generally, Harvest was exposed to crude oil differentials (price discounts relative to the light oil benchmarks such as Edmonton Light and West Texas Intermediate). In order to mitigate this risk as well as diversify and integrate its business and extend the life of its assets, Harvest saw the opportunity to create a vertically integrated oil company through the acquisition of downstream crude oil refining and marketing assets. Later in 2006, Harvest acquired North Atlantic Refining – a 115,000 bpd (barrels per day) refinery located in the Province of Newfoundland and Labrador along with associated wholesale and retail marketing assets.
While most of the very large multinational oil companies such as ExxonMobil, Royal Dutch Shell, British Petroleum, and ConocoPhillips, as well as the large Canadian companies such as Imperial Oil and PetroCanada, are integrated oil companies, it is very unique for integrated oil companies to be created in this country. Most Canadian oil and gas companies are involved only in the upstream exploration, development and production of hydrocarbons. Today Harvest is enjoying the benefit of its integrated structure with strong assets in both the upstream and downstream segments of the business.
In the upstream, the company produces over 35,000 bpd of crude oil (including light and medium oil, heavy oil, oilsands and natural gas liquids) in western Canada as well as approximately 100 mmscfd (million standard cubic feet per day) of natural gas.
The major focus of the current activity is the discovery and development of new pools in the vicinity of existing production, as well as improving the recovery from assets through the application of enhanced oil recovery technologies. These activities utilize the company’s extensive technical expertise and knowledge of the assets to ensure recovery is maximized.
In 2007 and 2008, new discoveries were made and developed in a number of areas, including high productivity liquids rich natural gas in west central Alberta as well as light oil in southeastern Saskatchewan and heavy oil in the Lloydminster area – both of which were developed with extensive application of horizontal drilling.
In terms of enhanced recovery, in 2008, three waterfloods and one polymer enhanced waterflood project were implemented and in 2009, further work will be undertaken on other enhanced oil recovery projects such as ASP (alkaline surfactant polymer) flooding. While these technologies have been used in various places around the world over the years, the application in Canada is still in its relative infancy, but with great promise to improve recovery and enhance conservation.
While the discovery and development of new fields and application of enhanced recovery will provide Harvest with significant opportunity now and in the next few years, the company is also well-positioned and active with coalbed methane, oilsands as well as oilfields with carbon dioxide flooding and carbon sequestration applications. While commodity prices and the current financial and economic conditions are unlikely to result in rapid development of these assets in the next few years, it is expected that economic conditions will improve and provide great opportunity in the years ahead.
In the downstream, Harvest’s refining and marketing operation is centered in Newfoundland on the east coast of North America which allows us to acquire medium sour crude oil from around the world in places such as the Middle East, Russia and South America.
Harvest’s operation has a number of cost advantages both due to it’s geographic proximity to these crude oil sources when compared to competing refineries in North America and the fact that this refinery is the only one in North America where a VLCC (Very Large Crude Carrier), which can carry 2 million barrels of oil, can be docked on the jetty to offload.
The raw crude oil is processed in Newfoundland into finished products such as gasoline and diesel, bringing important jobs to this part of the country. The refined products are sold domestically through a branded retail chain of gas stations and home heating stores (where appliances are sold as well as the hydrocarbon products such as furnace oil and propane necessary to run through those appliances) as well as wholesale. While Harvest’s refinery is the only one located in Newfoundland and Harvest typically has a 20-50 per cent of the local market for various hydrocarbon products, this market only utilizes about 10 per cent of the refinery’s output. Most of the refined product is exported, with gasoline and heavy fuel oil typically going to the very large east coast markets in the United States of America such as Boston and New York, and the diesel products going to European markets such as Netherlands, France, Spain, and Portugal, again taking advantage of our central location.
Harvest’s refinery is a very high quality facility and is one of the youngest and most reliable refineries in North America. It produces some of the most environmentally-friendly hydrocarbon products and meets the highest standards available anywhere in the world today and currently scheduled for the future.
Harvest is still a very young company, but one which has grown considerably over the years and features a unique set of assets combined with a very successful business model. It remains well-positioned – headquartered in Alberta, but with an impressive global reach for a company of its size and age.