November 1, 1949 (21st Parliament, 1st Session)

PC

Arthur Leroy Smith

Progressive Conservative

Mr. A. L. Smith (Calgary West):

I intend, Mr. Speaker, to discuss the question of oil in Canada, its history, its growth, and finally its markets. I want to make it plain that I am speaking entirely on my own, because on the question of markets I know I shall be in disagreement with many members of the house, and perhaps even with members of my own party.
But before proceeding to do this, conscious as I am of the latitude which I have in the budget debate, I want to pay a well-deserved tribute to some men whom I do not know. In the newspapers last week I noticed a report that two old friends of mine had been elected to the hockey hall of fame. The

trustees, or whoever control that organization, must be fairly old, because they have elected as one of their executives Mr. Donald H. Bain, of Winnipeg, familiarly known as Don Bain. In the days when I was a boy he was the greatest hockey player that western Canada ever produced. He then formed the Winnipeg skating club, and today at seventy-five he is one of the best figure skaters in Canada. The other man who was elected is an old friend and opponent of mine, Mr. Art Ross, of the Boston club. I can assure you, sir, that he was the fastest stick man I ever came in contact with. He has done much for the present game. The net that is now used in hockey games was an invention of his.
Having spread this kind of oil, probably I had better turn to the oil in the province of Alberta with which it is my intention particularly to deal. It is only in recent years that oil production in Alberta has been quite active, but the history of it goes back fifty years, to two old-timers, Lafayette French and Kootenay Brown. Near Pincher creek they found some Indians around a slough. They were skimming from it an oily substance which they were using internally as a purgative and rubbing on their old and withered joints to loosen them up. These men drilled a shallow well from which nothing came; but it will be remembered that that well was on the site on which the Gulf Oil Company have now discovered what is easily the largest wet gas field ever discovered in Canada, and perhaps the largest ever discovered in the world.
In 1914 a company which had been organized locally drilled in the Turner valley. They went down to only 2,700 feet, because in the banks of the Sheep river was a seepage of gas. The promoter of that little company was the smartest man I knew then, because he took greenhorns there to look into the oil situation, shoved a stick into the ground on the edge of the river, lit the gas flare with a match, and fried a couple of eggs. That was his first step in the promotion of this company. It is a well known fact that in the early days of the round-up on this particular seepage the old cow hands did their cooking without the aid of wood or other fuel of the kind.
Later a company incorporated in Calgary found oil near this same Sheep river. They drilled to 2,700 feet and found oil and gas in what became known as the Dalhousie sand. A few years later a local company, now known as the Royalite company-it was local capital-with the assistance of Imperial Oil, which owned Royalite, drilled a well and found wet gas. So far as we in southern Alberta were concerned they found it just in time, because we were running out of
The Budget-Mr. A. L. Smith natural gas. For years, from this old No. 4 Royalite well, that whole southern area was supplied with gas. It was a wet gas-which simply means a gas holding a liquid in solution. After the liquid was removed it was known as a white product. In other words, it was as colourless as the purest water you can find. We are still getting some of the white product from that area.
In 1924, I think it was, Bob Brown and George Bell went down the flank, as they said; and that was the first discovery of crude oil in western Canada. That field reached its peak in 1942, when it produced
30.000 barrels a day. From that discovery the field has already yielded 100 million barrels of crude oil and 1,500 billion cubic feet of gas. I do not know what these tremendous figures mean. A ten-dollar bill is the limit of my thinking in a financial way. I have difficulty in understanding millions and billions.
That field is now pretty well gone. It is estimated to hold 25 million barrels of oil and 500 billion feet of gas. The house might be interested in knowing just what the operation is down there now. Up at the top the first well was drilled to roughly
6.000 feet. There gas was found. Brown went down the slope and found crude oil. Other people have gone further down the slope and have found salt water, which is not much good to anyone. The point is that in order to get your oil to the surface, gas is your major if not your only motive power. What they try to do is to hit that crude oil by going down from the top. Remember, the surface of the ground is all level; what I am speaking of is in the rock underneath. There they found what is called Madison limestone, and it contained crude oil and gas. Therefore you see mother nature working. There is salt water at the bottom, oil next, and above that the lighter material, shall I say, in specific gravity; this is at the top. It is put there at a pressure of perhaps 2,000 pounds to the square inch. Therefore with the gas pressing on the oil on top, and the water pushing from the bottom, up the pipe comes the oil, and that is how they get it up. It is later refined into gasoline. That is the standard way in which all oil comes to the surface. Of course when the motive power is gone you can put it on the pump and make a considerable recovery in that way.
Perhaps ninety per cent of the oil wells in California are now pumping in the old way. It is the same principle as the operation of your water pump at home, but on a larger scale; and it is operated by a walking beam which simply goes up and down. It is
1324 HOUSE OF
The Budget-Mr. A. L. Smith the same walking beam which drills the hole. In other words, in the old days all holes were drilled by what were called standard tools or standard equipment. This simply means that you have a great long piece of sharpened steel-and when I say sharpened I do not want hon. members to think of a knife; it is wrinkled as it were on the end, and it pounds, pounds on the rock. That is the way all oil wells were drilled prior to the discovery of the rotary machine, which simply means that you have what is called a rotary table put in, and your works above, and that spins the pipe in the centre, called the drill pipe. At the end of the drill pipe away down you have what is known as a bit, and it whirls away and grinds up the rock rather than simply pound, pound. It is infinitely faster. Now that they have caught up with their equipment I do not know of any standard rigs that are working in the oil fields in the province of Alberta to get the oil to the surface.
Then they put on what we call a Smith separator. I may say, Mr. Speaker, that it is not named after me. The principle is very simple. It is by the quick expansion of this gas that the liquid is thrown out. It goes down into the bottom of the separator, while gas comes out the top. The gas which is expelled, still containing some oil, is then taken to what is called an absorption plant. That plant takes the remaining liquid from the gas, and it too is a white product or distillate. That gas then goes to what is called a scrubbing plant, where the sulphur is scrubbed out of it. The gas in that area is not sweet; it is sulphurous. By this treatment the sulphur is removed from the gas, which is now dry. It then goes into the pipe line on to Calgary or other points. But it cannot all be used. They pipe it back into the ground with the remaining oil, by the use of compressors, and then it serves two purposes: it maintains the motive power in the ground to lift the oil, and it also is the cheapest storage you can get in order to use it again. Then it comes back to the city of Calgary to be burned in furnaces.
I may say, sir, that I built my first house in Calgary in 1912, and although we live on a coal bed, I have never since burned a pound of coal for cooking or heating or anything of that kind.
After that an intensive search was carried out, but it was all on the eastern slope of the rockies, either in the foothills or in the eastern mountains themselves. To give you an idea of costs, sir, there is one hole that was drilled sixty miles north of Jasper, in connection with which a company, or several companies joining in drilling the one hole, spent $1,250,000 cash and got nothing. I mention that to show the cost of drilling wells.
[Mr, Smith (Calgary Westl.l

Gulf Oil drilled down in the Pincher creek area at this great cost, and discovered two wells. Both are between 12,000 and
13,000 feet deep

over two and a half miles. Both cost over $1 million. Therefore I say- and this is fairly good proof of it-that people who hazard capital in this way are entitled to a good return in the mining business; they regard oil as a mining business, and so do I.
In the meantime a comparatively new instrument has come into use; I refer to the seismograph. It is the instrument that is used to record an earthquake in Turkey, for instance, or in the middle of the Pacific ocean, or the Argentine, or some other place. But in oil operations it is used in a different way.
Science has advanced this business very appreciably and very fast. You have a seismograph crew who go out with a small derrick on the back of a truck, and you drill down to bedrock. In most parts of Alberta that is not very far. Then down that hole you put a charge of dynamite. You explode the charge; and on your instrument, which perhaps will be a couple of hundred yards away-it is an electrical affair-you find that the noise of the charge striking the various strata of rock has been recorded. The result is that you know roughly where the Devonian limestone is. That is where our production comes from now. With this instrument the prospector can record to a matter of two or three inches, for a mile deep in the earth, the depth of the rock they are looking for. Then they will go out laterally, and in that way they can find whether the Devonian is deeper there or at some other point. It will be kept in mind that the surface is flat. They find whether the Devonian is deeper, or higher. If it is higher, they keep going that way, because they are looking for what they call a "high", because the oil and gas, the lighter products, will be at the highest place in whatever structure you have below.
So they keep going in various directions until they will say, "Here is a structure where the high is so-and-so. We have taken it so many miles. There is the low; that is probably where you will get your water." Then you drill. You get something, because that is a rock which has small interstices in it, and it will hold something-it may be salt water, or it may be oil. If it is oil you are in luck; if it is salt water, you are out of luck. But you do know you have been drilling toward a basin or container which may contain oil.
Today, therefore,, all the large United States companies are in there with seismograph crews, and many Canadian companies are doing the same thing. Some people think we are giving our birthright away to the United States. I noticed a few days ago in

a Calgary paper that the Calgary firm of Tanner Brothers paid something over $980,000 to the provincial government for one quarter-section of land. That is Canadian money; it has no reference to any big shots from the United States who go in there. This represents the highest price ever paid for so-called oil lands in that area.
Perhaps I should now say something I had intended to say later. The provincial government get that money in cash, as a bonus for signing the lease. They also get, for the lifetime of the use of the property, a dollar an acre in rental. They get 12J per cent gross out of everything produced from that land. So that the province of Alberta is not going to go broke so long as we have a continuation of discoveries anywhere within range of the base which has been set from time to time.
I should like to go back to the question of discovery. The Leduc field was discovered in 1947. It will be recalled that up to that time we had what might be described as showings of oil, some of which were perhaps slightly commercial, in various parts of the country. This indicated that the discovery of oil was moving north. Leduc is twenty miles from Edmonton, and now there are many people in the world who know where Edmonton is but who, before the discovery at Leduc, did not know that Edmonton was even a place on the map.
This is the centre of the discoveries now being made, and it has proved to be a very large commercial field. It was the discovery of Leduc by Imperial Oil which caused them to sell their ownership of the company which operated under the name of International Petroleum, in order to get development money for this Alberta situation. This they did to an extent somewhere in the neighbourhood of $90 million.
This development has gone on. The drilling at Leduc is comparatively shallow-roughly a mile. If hon. members will just think of a mile in distance they will understand fairly well where production is coming from at the present time. Then they found this bend in the Saskatchewan river just west of Edmonton. They went on north and east some forty or fifty miles and found Redwater. Since then they have made a number of discoveries. For instance, Golden Spike has the largest depth of saturated sand that has yet been found in Alberta, and I believe almost as large as any which has been found in any part of this continent.
Hon. members will see that the situation is now looking up. I should like to mention one field discovered since we came to Ottawa to attend this session. I refer to the Normand-ville field, which is about thirty miles south of Peace river, in the constituency of the
The Budget-Mr. A. L. Smith hon. member for Peace River (Mr. Low). This field is away by itself; there is nothing near it, and it is brand new. By the amount of porosity that is indicated-and porosity is simply another way of referring to the interstices in the rock in which of course the oil is found-the prospect would look good for this discovery. It has good porosity; and the tests already made would seem to indicate that it should go to at least a thousand barrels a day. The wells to which I have been referring are thousand-barrel wells.
The oil people have learned, as other people have learned, that there is only so much beer in a barrel. You can turn a beer barrel upside down and take the beer all out, but you cannot turn an oil field upside down and get all the oil out. In fact it is considered an excellent recovery in any oil field to get 60 per cent of the oil that is there. So these wells are operated on what is known as oil-gas ratio, or gas-oil ratio, whereby they will have the longest life, and whereby this motive power will not be drained away quickly, leaving too much oil underground. This oil, of course, will never be recovered once the motive power is gone.
Today Alberta is producing about 70,000 barrels of oil a day. Someone may ask: How much is that? Well, it is enough to supply western Canada. When I say that I am not including British Columbia, I refer only to the three prairie provinces. Strangely enough the prairie provinces consume more than what one would normally expect to be their share, judging by population. But they absorb more per man than any other part of Canada, owing to the fact that in those provinces farming has become so completely mechanized. It is not the motor cars and trucks which use these large quantities; it is the farm machinery which uses the greater part of it.
The oil is taken from the ground, and is of no use to anyone in its natural state. It is of different gravities; I think the correct term is "Baume". The higher the degree your measuring apparatus indicates is, the more light oil there is in it and therefore more gasoline and less of the heavy ends or heavy products which are not nearly as valuable and which today are a drug on some markets close to the refineries in western Canada.
What is refining? It is a matter of heat. I know they have done excellent things and made many improvements, but refining simply means to take the crude oil and heat it to a certain degree when it begins to give off a gas. That gas is separated and you obtain lighter or more volatile products. One of the top products now obtained is propane.
1326 HOUSE OF
The Budget-Mr. A. L. Smith
I am sure the farmers of Alberta were glad when they began to bottle this propane gas under pressure a couple of years ago. It is now used in hundreds and hundreds of farmsteads in Alberta. I speak with positive knowledge of that province, but I understand that a good deal is used in Saskatchewan as well. Instead of the farm wife having to get out the poker to stir up the coals and bring in some more wood to burn, she simply turns a tap the same as a housewife in Ottawa would if she is burning gas. It is not particularly expensive, and, with normal use, one bottle will last a small household for a couple of months.
You increase your temperature and you obtain other things, including gasoline, the most valuable product that we have. As you go higher and higher you get your distillates and diesel and fuel oils. Last of all you get down to the road oil, and if your crude has an asphaltic base you get quite a lot of almost pure asphalt. This is not much good to you, because there is no market available near the refineries.
In other words this process is similar to that carried out with the old copper still. A man would get his mash ready and go into the bush. He would light his fire, cook his mash, and run the vapour through the little curlicue and produce a product which perhaps many of you have drunk as bootleg whiskey. That is exactly the same process as is carried out in an oil refinery.
How are we fixed for refineries? Two have been operating in Calgary for some years, and they have proved to be a good investment. British American Oil have one in Moose Jaw, and Imperial Oil have one in Regina. There is a small co-operative plant at that place, which incidentally has gone into the production of oil, as they have several producing wells in Alberta. In Brandon there is a fairsized one; in Winnipeg there is a small one, although this is known as a skimming plant which in the true sense of the word is not a refinery. Then there is one in Edmonton, and McColl-Frontenac are building a second refinery there.
Hon. members might be interested in the history of the Imperial refinery in Edmonton. It was first erected at Corpus Christi on the gulf of Mexico. It was then moved to Whitehorse. Hon. members will remember that during the war the United States put a pipe line across the mountains from Norman Wells to Whitehorse, and this refinery was moved up there to refine the crude oil to meet the needs of the army. After the war that pipe line was junked and Imperial Oil bought the refinery and moved it by truck 1,600 miles down the Alaska highway to Edmonton. They re-erected it there, and they di dnot have one

piece of steel over. So this refinery has been moved from Corpus Christi to Whitehorse and finally to Edmonton, where many fine things from Calgary finally come to rest. They are now apparently robbing the north of what little they have.
What are we going to do with our oil? This is where I may be in disagreement with certain people. I have consulted the producers of oil in Alberta on this matter. I hope I shall not be out of order if I say a word or two about the pipe line froim Edmonton to Gretna, Manitoba. I make the simple statement that I am all in favour of it. We in Alberta are looking for markets for our oil, and I am doing my best to represent here the interests of the people of Alberta.
I know that sound economics means that you must get your goods to the nearest available market. We are told that this oil could be sent to the Canadian head of the lakes for another $10 million, with a half million per year additional upkeep cost. I think those figures are right. I know all the arguments about having this Canadian product disposed of in Canada, and I am not going to repeat them. But if in the development of this field we can send our crude oil to nearby points in the United States while you people in the east are getting your oil to Sarnia from nearby fields; in other words if Alberta can achieve a balance in crude oil, then the Alberta oil industry will have made a greater contribution to the welfare of the Dominion of Canada than almost any other industry I can think of.
I am far from saying that this product should not be used in this country. I note that special Canadian tankers are being built to move the oil from Superior to Sarnia or other areas. If refineries are built where there are no markets for your finished product, you are bound to have the heavy ends as a drug on the market. There will be no use for them. The Lloydminster field on the border between Saskatchewan and Alberta produces a heavy grade of crude, but that field has suffered a terrible set-back. Why? They have no market for many of their products. The Husky Company have the refinery there, and while they obtain some lighter ends and some gasoline from their heavy crude, they are under a considerable handicap because there is no market for the heavier products.
Remember that oil will not flow all the time; it must be helped. You can readily see that if it is of the consistency of molasses, there will be certain mechanical difficulties in your way. I take a back seat to no one in believing that we should produce all the oil we can in this country, but I do not carry my patriotism or my sentimentality to the point where I contend that we should cripple

the sale of a product in competition with other products because with this all-Canadian scheme you are going to have an increase of two or three cents in the price. Who is going to pay it? There are only two sources from which the money can come, namely, the producers of the oil in Alberta, or the consumers wherever the gas may be sold. Referring to other forms of transportation, some may ask: Why not have the refinery in Alberta and ship by rail? But the cost of transportation by rail is at least 150 per cent more than the cost by pipe line.
It must be remembered, however, that you cannot send all these different products through the pipe line. Some of them simply will not go. Strangely enough, in the pipe line running from the Turner valley to the refinery in Calgary you can send crude oil, and then you can turn in the white product. It will travel in the same pipe line to Calgary, and the admixture of one with the other at the end of the line will not cover a matter of fifty feet in the twenty-five mile line. It is an amazing thing. It is done by controlling the pressure of the flow, thereby maintaining the consistency.
There is only one more thing that I wish to say about oil, and it has to do with the matter of foreign exchange. I have said that at the present time we are producing, refining and selling about 70,000 barrels of oil per day. Multiply that figure by roughly $3 and you have at least $200,000 a day that the people of Canada as a whole are saving in United States funds. Formerly we got our crude oil from the United States. It is true we got some from the South American republics, but the South American oil was owned by United States companies. Therefore a dollar saved is a dollar gained in that business. Within an appreciable time we may strike a balance between oil for eastern Canada coming from nearby fields to Sarnia, and oil from Alberta-and I hope from Saskatchewan-moving into the United
States.
I will go even further than the Minister of Trade and Commerce (Mr. Howe). He spoke about oil for Sarnia as the reason for the pipe line. I know perfectly well that pipe line is aimed at the Chicago area, and I am glad to admit it, because we want the best market we can get. In that way we can certainly do ourselves more good so far as United States dollars are concerned.
I am out on a limb now. There is no question about that so far as I am concerned. I speak only personally, but I know I am speaking for the oil producers of Alberta. I hope that production will increase-and it shows every sign of doing so-to such an extent that before this session of parliament 45781-85
The Budget-Mr. A. L. Smith is over we shall have enough oil coming up every day to supply the whole of the Dominion of Canada, and a market already established for our surplus. I think that is a realistic view of the whole oil situation, and I do not want there to be any doubt about where those who come from Alberta stand. Somebody will say: Smith, you are looking after your voters. But if they are all United States citizens they have no vote in Canada, and at any time I will take my chance with the Canadians who have.
I apologize, Mr. Speaker, for taking up so much time on one subject. I have not mentioned gas, but I will have a shot at that tonight. I have made these remarks because I believe oil is a matter of great interest to the members, and of tremendous interest to the country at large. I have spoken only of the oil which we bring up in pipes. In the region of the Athabasca river-and I was up there only recently-there are the tar sands which many authorities have pronounced the greatest reservoir of oil in the world. As a Dominion of Canada enterprise we have had bad luck with the project. While I have been a member of parliament I believe we have built two extraction plants, and by the time they were ready to operate them they were destroyed by fire. The province of Alberta is spending a good deal of money in that area today, and they say they are making some progress with the extraction of oil. It is not that the oil is not there in tremendous quantities. The difficulty seems to be to separate it from the sand. That is where we have fallen down. Water transportation is available there. Granted that the scientific problem is solved, it seems to me that in the future we may expect that there will be continuous development not only in Alberta but in Saskatchewan, and certainly in the Peace river district of British Columbia. They are now discovering oil in the region extending south from the old Norman Wells.
It seems to me that all these things added together mean that we have a basic product with which science is doing and can do much. The future, not only for that part of the country but for the whole dominion, as a result of the discovery and development of this great industry, is something that no one here can contemplate. My imagination simply is not good enough to envisage it.
In my office some time ago the most prominent chemical engineer in Canada was speaking to a geologist of a company for whom I was acting, and he asked him if he could find some salt. The chemical engineer laid down certain conditions as to the finding of the salt. In the same hole there had to be natural gas, and the find had to be beside a railway track. The geologist said that he thought it could be

The Budget-Mr. Decore done, and asked the chemical engineer how much he needed. The answer was that he needed a bed of at least six feet of salt. My friend was in Ottawa the other day-he is interested in pipe lines-and he not only found the natural gas right beside the Willingdon line in northern Alberta, a little east of Edmonton, but he also found a great quantity of salt. I saw pieces of it in my office, and it was as clear as the clearest of window glass. He found not only six feet of salt but a thousand feet. My chemist friend tells me that salt and natural gas are two of the most important elements in the making of many things such as plastics, and so on. This is something that is not merely in its infancy; it is in swaddling clothes.
I close with the thought that I am happy to live in Canada. I think we shall be contributing our share, in a land we love so much, if we contribute as much as some of these private enterprise people; and if we do, we shall not need to worry about the future.

Topic:   THE BUDGET
Subtopic:   ANNUAL FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
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