Manitoba’s oil rush

Hey there, time traveller!
This article was published 30/04/2005 (7648 days ago), so information in it may no longer be current.

SINCLAIR — This was an impoverished farm community a year ago, a dusty pocket of cattle country dying a little every day because of both the BSE crisis and despairingly low grain prices.

Then last fall an extraordinary thing happened, something that seems more like a fairy tale. A company drilling exploration holes in the area announced it had struck oil.

It didn’t just strike oil, it struck a gusher. It discovered the first major oilfield in Manitoba in a quarter-century, called the Sinclair Field.

About 80 oil wells have already been drilled. At least 100 more will be drilled this year, and most people expect the total will be closer to 200.

That’s up from zero a year ago.

And just as with Manitoba’s last oil discovery near Waskada in 1980, some farmers here will become millionaires.

“It’s a wonderful story,” said Karen Caldwell, reeve of the RM of Pipestone, in which the Sinclair Field is located.

Helen Dittmer, 68, is one of the area residents who stand to reap a windfall from the oil find. Unless oil prices collapse, she should make more than $1 million this year in royalties, and probably triple or quadruple that next year, from wells on her 800-acre property.

Sinclair is a tiny hamlet in southwestern Manitoba, almost at the Saskatchewan border and about 300 kilometres southwest of Winnipeg.

It has a population of about 30 “if you don’t count the cats and dogs,” a table of residents joked at the local Borderline Café. In fact, the town is so small the café is open only on Mondays, Wednesdays and Fridays.

There didn’t used to be much news in town, but that’s changed dramatically. When customers piled into the café during a recent noon hour, the first subject was rumours about whose property is going to be drilled next.

“We were all amazed” when Tundra Oil and Gas struck oil, said John Jackson, councillor for the RM of Pipestone.

There are at least four companies drilling here now. But the main player is Tundra Oil and Gas, privately owned by Winnipeg’s Richardson family. It found the oil, and it is all over this discovery. Everyone else here is a bit player by comparison.

Tundra president Roland Moberg was away and could not be reached for comment. However, Tundra has talked with the local Pipestone council.

“They didn’t hit a dry hole until north of Reston,” said Coun. John Jackson. Reston is 13 kilometres east of Sinclair. “It’s an extensive field. We had a look at the projections, and it’s quite extensive.”

If there were any justice in this world, every farm family in Manitoba would wake up and find an oil well in their field in these trying times in agriculture.

That kind of justice doesn’t exist, but at least this oil discovery seems to be widely dispersed, with many farmers, although not all, expected to benefit. People gathered in the Sinclair coffee shop estimated close to 20 farms already have oil wells in their fields.

“It’s not hitting everyone, but I think it’s going to cut a pretty wide swath before it’s finished,” said Barry Penner, interviewed on his farm north of Sinclair. Penner has already signed a lease to have an oil well drilled in one of his fields this year.

“It’s pretty exciting,” added his wife Brenda. “Everyone’s wondering when it’s going to come onto their land.”

Farmers get a straight fee for surface rights. After all, there is a substantial nuisance factor with having oil wells in fields. Payment is $6,500 to drill a hole in a farm field, and $2,300 a year after that. One farmer here already has 21 wells, which works out to a lump-sum payment of $135,000 for surface rights, with about $50,000 a year after that so long as the wells keep producing.

Unfortunately, this particular farmer doesn’t also own the mineral rights.

There’s the rub — and the beauty of oil exploration in Manitoba. Unlike the rest of Western Canada, many farmers or their off-farm descendants own mineral rights to the land in southwestern Manitoba.

That’s because much of southwestern Manitoba was homesteaded before 1890, when the Government of Canada took over mineral rights in Western Canada, which it later transferred to the provinces. About 80 per cent of the mineral rights in Manitoba’s oil patch are privately held, while the Crown owns 20 per cent, said John Fox, head of the province’s petroleum branch.

Mineral rights allow the owner to get 15 per cent of the value of oil extracted from that property.

“There are a lot of mineral rights holders in Sinclair. They will do quite well,” said Bill Roberts of Rideau Petroleum, a small player here that has five wells in Sinclair and could drill up to 20 more this year.

What is coming out of those drill holes right now? Many are producing 50 barrels of crude oil a day at an average price of $55 a barrel during the first quarter of 2005. That would work out to about $1 million a hole this year. A 15 per cent royalty from $1 million is $150,000 (minus a special tax of roughly 10 per cent on private royalties, imposed by the province in 1954).

Production from the new wells typically drops to the 10-to-20-barrels-a-day level after a couple of years. No one knows how long oil wells continue producing. Experts estimate average life spans range from 10 to 25 years. However, the very first oil well drilled in Manitoba near Virden in 1951 is still producing today.

Barry and Brenda Penner own half the mineral rights — a relative owns the other half — on one field to be drilled this summer.

“It’s free money. It’s basically like winning a lottery,” Barry Penner said.

Barry and Brenda are typical farmers out here. They grow cereal crops and have 75 head of cattle. He’s worked much of his life in the oil industry, including many years as a “roughneck” driller, to support the farm. Brenda also operates a greenhouse. They have two children. They are in their 40s and have never been able to afford a winter vacation to somewhere warm.

They lost $20 an acre on last year’s crops due to early frost and dismal grain prices. So their first lease payment from oil went directly to pay off the bank.

Will the oil money mean Barry can finally be a full-time farmer? It’s way too early to say. “Everything could change tomorrow,” said Brenda. They are, after all, farmers — people used to more than their fair share of disappointments. No one around here is counting their chickens before they hatch.

That includes Ken Martin, who already has 11 oil wells on his farm. More wells are scheduled to be drilled, and on land where he owns mineral rights.

“(The wells) will make it awkward working in the fields, but it pays better than farming,” he said.

The entire community will benefit, directly or indirectly.

“I was in Virden the other day at a car dealership. The money all spreads around,” said Martin, whose son Kevin, 41, has also had oil discovered on his farm.

“This definitely gives the community a boost,” Caldwell said.

bill.redekop@freepress.mb.ca

TOMORROW:

Life in Manitoba’s oilpatch