Wavefront coaxes more oil out of aging fields

April 28th, 2011
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My “Open Range” column from the March 2011 issue of Alberta Venture magazine:

Of Necessity and Invention

What would you prefer: being a young star athlete, child actor or one-hit pop-music wonder who flames out into bitter decades spent flogging real estate? Or first toiling in obscurity for what seems like multiple lifetimes before finally finding acceptance? I’ve often thought older actors like Joe Pesci and Bob Hoskins – or that Scottish singer who lived poor all her life until bursting onto the scene – have it far sweeter than those who peak in their 20s and spend the rest of their lives knowing their best years are past.

Wavefront Technology Solutions Inc. (TSXV:WEE) is a bit like the proverbial aging grinder with biblical endurance; the company has something good and is ever-hopeful that someday somebody will notice. Unlike some new technologies that drive an instant paradigm shift, it has taken 15 years for the oil patch to apply Wavefront’s “Powerwave” production-boosting downhole tools on an industrial scale. What seems like a sure winner has been a tough sell in an industry normally obsessed with new gadgetry. But perhaps 2011 could bring Wavefront’s defining moment.

“Wavefront is a child of the Western Canada Sedimentary Basin,” says Brett Davidson, Wavefront’s CEO, who co-founded the firm with two colleagues. “People here are very innovative. They’re willing to take the risk. That drive comes from the challenges we face in producing the type of oil and gas we have. For example, bringing multi-stage hydraulic fracturing to oil reservoirs in Canada was pioneered by a handful of guys in a couple of little companies.”

Powerwave centres on a tool inserted into an existing water-injection well in an oil-producing field that’s already under “waterflood.” Used all over North America, including at dozens of Alberta fields, waterflooding adds water to a known oil pool to maintain reservoir pressure and sweep more oil towards other wells that pump the oil-water mix to surface. Powerwave’s downhole tool (plus a small surface equipment array) transforms the normally steady injection into nearly 100 pulses per second. This forces water into the reservoir’s harder-to-reach pathways. The rock in nearly all reservoirs is uneven, and in many waterfloods water takes the easiest routes, leaving a lot of oil behind. Powerwave helps the water reach more of the stranded oil pockets, letting it push more oil towards the producing wellbores.

Managing aging oilfields is a tough juggling act between capital investment in new wells and water sources, water injection rates, energy usage, production rates, operating costs, decline curves and reserve evaluations – all at the mercy of volatile commodity prices.

Davidson says Powerwave delivers across-the-board benefits: a 25 to 100 per cent boost in production (over a well group’s base decline curve), slower production decline, an increased ratio of oil to water at surface, reduced energy requirements per barrel produced, and a higher ratio (one to 10 percentage points) of the oil known to be down there being ultimately brought to surface – all for only $2 per barrel in extra operating costs. In some of Alberta’s big, historical light oil fields, each one-percentage-point recovery is 20 to 50 million barrels.

While it sounds conceptually simple, Powerwave consumed years of research starting at the University of Waterloo in 1996, then further years of prototype building and testing, plus another decade of “show me” industry skepticism. During this time, Davidson – who has a background in mining, nuclear and petroleum research – and his colleagues amassed an impressive 21 patents in three countries, took their company public and burned through tens of millions in investors’ capital, including an $8.6-million net loss in the last fiscal year. As of 2007, Wavefront had just three Powerwave tools at work in the ground.

Now, at last, Powerwave appears to be breaking through: it has 109 units deployed in Canada, the United States and abroad, each earning $3,000 per month in licensing fees, and contracts have been signed for another 227. Revenues have surged 240 per cent in two years. Davidson, who was on the road 200 days last year, can at last conceive of Wavefront generating positive cash flow.

His optimism is undiminished by the long haul. “It’s true people line up for a new iPod, even if it has bugs,” Davidson says. “But in the oil patch, waterflooding is almost a century old. You have a lot to prove to demonstrate that you’re better than the old approach. ” In Davidson’s view, “Technology acceptance is a 10-to-15-year window. You have early adopters amid more general skepticism, and eventually a growth phase begins.” Indeed, it took one stalwart company a solid decade’s grind to prove that natural gas could be efficiently drawn out of the Barnett Shale in Texas – which became the grandfather of every shale gas play across North America.

Davidson’s next goal is to build the company’s working fleet, which is manufactured and serviced in Edmonton, up to 500 tools. “We have a global technology,” he says. “It’s not a magic pill, but a valuable optimization tool in a company’s toolbox. There are 250,000 waterflood injection wells worldwide. We want to grow our company as large as we can.”

I love stories like this, not just because Davidson’s enthusiasm is infectious and one wants him to succeed, but because it’s yet another example of what an amazing industry we have in this province. We only have it thanks to visionary policy decisions taken decades ago – crucially, provincial resource control, competitive mineral leasing without favouritism and open sharing of well data. Powerwave simply wouldn’t happen in Nigeria, Venezuela, Saudi Arabia or Russia, where ideas like Davidson’s would be crushed before they got beyond the napkin-on-a-barroom-table stage.

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By George Koch