Alberta''''s Petroleum Industry and the Conservation Board pptx

Alberta's Petroleum Industry
and
the
Conservation Board
THE
UNIVERSITY
OF
ALBERTA
PRESS
«
DAVID
H.
BREEN
Alberta's Petroleum
Industry
and
the
Conservation Board
DAVID
H.
BREEN
First published
by
The
University
of
Alberta Press
Athabasca
Hall

Edmonton, Alberta
Canada
T6G
2
E8
Copyright
© The
University
of
Alberta
Press
1
993
ISBN
0-88864-
2
45-8
cloth
Typesetting
by
The
Typeworks,
Vancouver, British
Columbia,
Canada
Printed
on
acid-free
paper.
Printed

by
John Deyell
Company Ltd.,
Willowdale,
Ontario,
Canada.
CANADIAN CATALOGUING
IN
PUBLICATION
DATA
Breen, David
H.
Alberta's
petroleum
industry
and the
Conservation
Board
Includes bibliographical references
and
index.
ISBN
0-88864-245-8
I.
Petroleum
industry
and
trade—Government policy—Alberta.
2. Gas
industry—Government policy—Alberta.

3.
Alberta. Energy
Resources Conservation
Board.
I.
Title.
HD9574.C23A43
1
993
338.2728097
1
23
C92-O9I7I9-4
All
rights
reserved.
No
part
of
this publication
may be
produced,
stored
in a
retrieval system,
or
trans-
mitted
in any
forms

or by any
means,
electronic,
mechanical,
photocopying,
record-
ing,
or
otherwise,
without
the
prior permission
of the
copyright owner.
To
the
early
resource conservationists,
who
fought
for the
conscientious management
of
Alberta's natural
endowment
This page intentionally left blank
CONTENTS
Foreword
by
G.J. DeSorcy

xv
Preface
xvii
Acknowledgements
xxv
Introduction: Conservation, Reservoir
Characteristics
and the
United
States
Experience
xxvii
PART
I THE
CONSERVATION
MOVEMENT
IN
ALBERTA,
1908-1938
i
Turner
Valley
"Waste"
Gas and the
Early
Conservation Movement
3
2
The
Turner

Valley
Gas
Conservation Board
and
the
Failure
of
Alberta's First Proration
Program
77
3
Founding
the
Petroleum
and
Natural
Gas
Conservation Board,
1
937—
1
938
106
PART
II
PETROLEUM
AND
NATURAL
GAS
CONSERVATION

IN
ALBERTA,
1938-1959
4
Establishing
a
Regulatory Foundation,
1938-1947
151
5
The
Leduc Discovery
and the New
Regulatory
Environment
245
6 The
Natural
Gas
Export
Debate
318
7
Conservation
and the
Struggle
to
Expand
the
Market

for
Alberta Crude
Oil 420
8
The
Petroleum
and
Natural
Gas
Conservation
Board: Organization
and
Regulation
of
Field
Development,
1948—1959
491
PART
III
CONCLUSION
9
The
Petroleum
and
Natural
Gas
Conservation
Board
in

Retrospect
535
Appendices
APPENDIX
I
Board Chairmen, Deputy Chairmen,
and
Board
Members, 1938—1962
553
APPENDIX
II
Turner
Valley
Oil and Gas
Production
and
Disposition, 1922—1960
557
APPENDIX
III
Petroleum
and
Natural
Gas
Conservation Board
(PNGCB)
Summary
of
Expenditure

and
Revenue,
1938—1958
561
APPENDIX
IV
Petroleum
and
Natural
Gas
Conservation
Board:
Order
No. 63 565
APPENDIX
v
Province
of
Alberta,
Development
and
Exploratory
Wells
Drilled
or
Completed,
1900-1959
569
APPENDIX
VI

Summary
Tables
573
APPENDIX
VII
Alberta Milestone
Oil and Gas
Discoveries,
1897-1959
577
APPENDIX
VIII
Alberta Revenue from Energy Resources
and
Total
Provincial Expenditure,
193
8—1961
581
APPENDIX
IX
Board
Staff
Distribution
and
Professional
Recruitment
585
APPENDIX
x The

Conservation Board
and
Field
Management,
1948—1958
589
Chronology
of the
Petroleum
and
Natural
Gas
Industry
in
Alberta
650
Conversion
Tables
663
Glossary
665
Notes
678
Selected
Bibliography
752
Index
762.
ILLUSTRATIONS
MAPS

INT.I
Western Canada Sedimentary
Basin
xxxii
I.1
Shell
and
Imperial Concession Requests, 1917
19
1.2
Turner
Valley
Natural
Gas
Pipelines,
1921—1928
48
4.1
Provincial Reserves, 1941
195
4.2
Turner
Valley,
Brown Plan, 1942
203
4.3
Turner
Valley,
Weymouth Plan, 1943
210

4.4
Turner
Valley,
1938—1948
236
4.5
Producing
Oil and Gas
Fields
of
Alberta, 1946
237
5.1
Townships Containing Crown Acreage Acquired
by
Imperial
Oil, 1946
251
5.2
Petroleum
and
Natural
Gas
Reservations, Leduc
Area,
18
February 1947
257
5.3
Distribution

of
Petroleum
and
Natural
Gas
Rights,
Leduc Discovery Township
258
5.4
Distribution
of
Petroleum
and
Natural
Gas
Rights,
Woodbend Discovery Township
260
5.5
Distribution
of
Petroleum
and
Natural
Gas
Rights,
Redwater Discovery Township
261
5.6
Major

Oilfield
Discoveries
in
Alberta,
1947-1951
291
5.7
Location
and
Cross-section
of
Leduc-Woodbend
Field, Nisku (D-2) Pool
297
5.8
Location
and
Cross-section
of
Leduc-Woodbend
Field,
Leduc (0-3) Pool
298
5.9
Location
and
Cross-section
of
Redwater Field, Leduc
(D-3)

Pool
299
6.1 Oil and Gas
Pipelines Leaving Alberta, 1960
392
6.2
Alberta
Gas
Trunk Line Proposals,
1954-1955
404
6.3
Alberta
Gas
Trunk
Line
Company Limited Pipeline
System,
1958
418
7.1
Athabasca
Oil
Sands
to
1960
441
8.1
Alberta
Oil and Gas

Fields,
1958
493
8.2
Petroleum
and
Natural
Gas
Conservation Board Field
Offices
and
Districts,
1956
511
FIGURES
INT.I
Schematic Cross-section through
the
Alberta Portion
of
the
Western Canada Sedimentary Basin xxxiv
INT.2
Examples
of
Several Entrapment Conditions
for Oil
and Gas
xxxvi
I

NT.
3
Water-drive Reservoir xxxvii
INT.4
Solution-gas-drive Reservoir xxxviii
I
NT.
5
Gas-cap-drive Reservoir xxxix
1.1
Typical
Producing
Well
and
Production Facility,
Turner
Valley,
1920-1940
46
2.1
Turner
Valley
Production History,
1927—1936
102
4.1
Petroleum
and
Natural
Gas

Conservation Board
Organization Chart,
1939
158
4.2
Petroleum
and
Natural
Gas
Conservation Board
Organization
Chart,
1946
232
4.3 Gas
Production
and
Percentage Conserved, Turner
Valley
Field,
1922-1947
235
5.1
Atlantic
Oil
Company Petroleum
and
Natural
Gas
Lease, Summer

1948
273
5.2
Atlantic
No. 3
Relief
Wells, Summer
1948
274
5.3
Economic Allowance Chart, Schedule
No. I,
1950
Proration Plan
314
5.4
Proration
of
Crude
Oil to
Market Demand
315
6.1
Estimated
and
Actual Alberta Natural
Gas
Consump-
tion,
1951-1980

359
7.1
Canada Productive Capacity
Versus
Production
and
Refinery
Operations,
1950—1961
421
7.2
Alberta Productive Capacity
Versus
Production,
1950—1961
423
7.3
Comparison Between
1950
and
1957
Proration Plans
(Smoothed-out Data)
435
7.4 Oil
Sands Cross-section
442.
7.5
Richfield
Oil

Corporation Pony Creek
No. 3
Well,
Stratigraphy
of
9-kiloton Nuclear Blast
Location
451
8.1
Petroleum
and
Natural
Gas
Conservation Board
Organization Chart,
1948
507
8.2.
Oil and Gas
Conservation Board Organization
Chart,
1958
508
8.3
Locations
and
Durations
of
Board
Offices,

1938—1960
510
8.4
From Drilling Licence
to
Production
Oil
Well,
Regulatory
Procedures,
1957
515
8.5
Drilling
Rig 520
8.6
Blowout Prevention Equipment
52,1
8.7
Production
and
Disposition
of
Alberta Natural
Gas,
1949-1958
530
APP.X.I
Trends
in

Estimates
of
Alberta
Crude
Oil
Initial
Established
and
Remaining Established Reserves,
1948-1962
604
APP.X.Z
Production Battery Showing Required Equipment
Spacing,
1958
633
APP.x.3
Trends
in
Estimates
of
Alberta Natural
Gas
Ultimate
Potential
and
Initial Established Reserves,
1948—1962,
646
TABLES

1.1.
Alberta Lands,
30
September
1930
64
1.2
Petroleum
and
Natural
Gas
Rights Alienated
from
the
Crown
65
1.3
Annual Production
of
Natural
Gas and of
Naphtha
in
the
Turner
Valley
Field,
192.5—1930
65
2. 1

TVGCB
Gas
Flow Allowance
for
Naphtha-producing
Wells
of
Imperial Subsidiary Companies, Imperial
Contract Companies
and
Independent
Com-
panies
84
2,.2
Partial Schedule
to
TVGCB
Order
No. 1 85
4-1 Oil
Production
in
Alberta
by
Field
for the
Fiscal
Year
1938-1939

155
4.2
Wells
in
Alberta Capable
of
Producing Natural
Gas
for
the
Fiscal
Year
1938—1939
155
4.3 Gas
Consumption
for the
Fiscal
Year
1938-1939
156
4.4
Petroleum
and
Natural
Gas
Conservation Board
Staff,
31
December

1938-31
December
1939
157
4.5
Turner
Valley
Gas-cap
Raw Gas
Reserves
Estimates
222.
4.6
Turner
Valley
Crude
Oil
Reserves
Estimates—Rundle
Pool
223
5.1
Number
of
Wells Drilled Annually
in
Alberta,
1945-1952
247
5.2

Alberta Crude
Oil
Production,
1943-1951
247
5.3
Production
and
Distribution
of
Alberta Petroleum,
1945-1951
249
5.4
The
Petroleum
and
Natural
Gas
Conservation Board
Atlantic
No. 3
Well Trust Statement
of
Revenue
and
Expenditure
to 27
February
1953

288
5.5
Major Alberta Crude
Oil
Discoveries
and
Field
Prod-
uction,
1947—1951
290
5.6
Producing
Oil
Wells
in the
Turner
Valley,
Leduc-
Woodbend,
Redwater
and
Other
Fields,
1947-1951
292
5.7
Crude
Oil
Prices,

1947—1951
292
5.8
First Market Demand Order Issued
by the
Petroleum
and
Natural
Gas
Conservation Board
for
December
1950
316
6.1
Proven
and
Probable Natural
Gas
Reserves
in
Alberta,
April
1948
320
6.2
Alberta
Gas
Consumption
in

1948
and
Estimated
Requirements
in
1960
324
6.3
Estimates
of
Alberta's Disposable Natural
Gas
Reserve
Submitted
to the
PNGCB
Joint Hearing,
Oct
Nov.
1950
357
6.4
Estimates
of
Alberta's Natural
Gas
Requirements,
1
January
1951-31

December
1980
358
X
6.5
Evolution
of
Conservation Board Estimates
of
Alberta's Thirty-year Natural
Gas
Requirements
397
7.1
Alberta Allowable Monthly Production,
1956-1958
424
7.2.
Economic Allowance Schedules,
1957
Proration
Plan
433
8.1
Alberta
Oil and Gas
Fields,
1958
494
8.2

Board
Staff
and
Budget,
1948—1958
505
8.3
Comparison
of
Alberta
Oil and Gas
Conservation
Board
and
Texas Railroad Commission Annual
Bud-
gets, Number
of
Wells Drilled
and
Producing Wells,
1948-1958
513
8.4
Southern
and
Northern
District Field
Offices,
1958

518
APP.I.I
Board Chairmen,
1938—1962.
554
APP1i.2
Deputy Chairmen,
1938—1962
554
APP.i.3
Board Members,
1938-1962
555
APP.II.I
Turner
Valley
Oil and Gas
Production
and
Disposi-
tion,
1922—1960
558
APP.III.I
Petroleum
and
Natural
Gas
Conservation Board
(PNGCB)

Summary
of
Expenditures
and
Revenue,
1938—1958
562
APP.V.I
Province
of
Alberta, Development
and
Exploratory
Wells
Drilled
or
Completed,
1900-1959
570
APP.VI.I
Annual Production
574
APP.vi.2
Annual Disposition,
1938-1958
575
APP.vi.3
Oil and Gas
Well Completions
in

Year
Shown
576
APP.vi.4
Cumulative Summary
of
Total Wells Drilled, Produc-
ing
or
Capped,
1938-1958
576
APP.vi.5
Cumulative Summary
of Gas
Plants
Operated
in the
Province,
1938—1958
576
APP.VII.I
Alberta Milestone
Oil and Gas
Discoveries,
1897-1959
579
A
PP.
v111.1 Alberta Revenue

from
Energy Resources
and
Total
Provincial
Expenditure,
1938-1961
582
APP.IX.I
Conservation Board
Office
and
Field
Staff,
1948
and
1958
586
APP.IX.2.
Engineers
and
Geologists
Hired
by the
Conservation
Board,
1948-1955
587
APP.X.I
Turner

Valley
Unit Operations Act,
1958—1962
608
APP.X.2
Early Alberta Enhanced Recovery Projects,
1948—1960
619
APP.X.3
Alberta
Gas
Processing Plants, 1958
648
FOREWORD
THE
PETROLEUM
AND
NATURAL
GAS
CONSERVATION BOARD
Was
created
in
1938.
Its
responsibilities have since been expanded
to all
types
of
energy resources,

and it is now
known
as the
Energy
Re-
sources Conservation Board
(ERCB).
The
occasion
of the
organiza-
tion's
fiftieth
anniversary caused many
of us to
think about
the
significant
role
that
the
Board
has
played
in the
development
of the
province's energy industry.
We
also recognized

that,
even though
detailed
files on
Board business were
in
existence, little
had
been
done
to
ensure
that
the
information
on the
Board's role
was
com-
plete, properly preserved,
and
pieced together
in a
manner under-
standable
to
those
who
were
not

present
as the
events
had un-
folded.
This
led to the
history project,
an
undertaking
that
involved
many
current
and
former
Board
staff
members.
The
project
in-
cluded
not
only written material
but
also recorded interviews with
many
of the
capable

and
colourful people
who had figured
promi-
nently
in the
development
of the
organization
that
we
know today.
This book
is the
showpiece
of the
history project.
It
details
the
Board's early years, describes events, explains
why
they happened,
and
introduces
us to
many
of the
personalities
who

made them hap-
pen.
Dr.
Breen
has
employed
his
exacting standards
for
detailed
re-
search
and
analysis
in
preparing this work,
and he has
written
it in
a
style
that
informs while
it
retains
our
interest.
For
this,
the

Board
is
thankful.
Special thanks
are
also
due to
those individuals,
primarily
former Board
staff
members,
who
devoted much time
and
attention
to the
collection
and
synthesis
of the
mass
of
information.
This book deals with
the first two
decades
of the
Board's history.
The

efforts
of Dr.
Breen
and his
research assistants leave
a
record
that will
facilitate
additional detailed analysis
and
serious written
works
on the
Board's later history.
It is my
hope that this
will
occur
in
the
future.
There
is
little doubt that this work will take
its
place
as an
impor-
tant

part
of the
written history
of the
development
of
public policy
in
Alberta
and of the oil and gas
industry
in
North
America.
Those
—
XV —
xvi —
FOREWORD
interested
in
these subjects
will
find the
book
especially valuable,
as
will
those
who

worked
for the
Board throughout
the
years.
The
book
has the
potential
to
play another role
for
current
em-
ployees
of the
Board,
particularly
those
who
have joined
the
orga-
nization
in
recent years.
The
awareness
of the
important role played

by
the
Board
in the
early development
of oil and gas
policy
and of
the
problems
it
faced
will
undoubtedly increase their understanding
of
the
organization
and
their pride
in its
accomplishments.
I
expect
that
they
will
note
the
shift
in

emphasis
for the
organization
from
that
of a
regulator
and
policymaker
in the
early years
to the
pri-
mary
role
of
regulator
that
we see
today. This change
is
largely
be-
cause
of the
shift
in
society whereby
an
impartial arbiter,

at
arms
length
from
government,
is
required
to
make regulatory decisions
regarding energy developments.
Notwithstanding
the
somewhat
modified
role
of the
organiza-
tion,
employees
will
see in Dr.
Breen's assessment
of its
early his-
tory
the
emergence
of the
same basic principles
that

guide
the
Board
today.
They
are the
twin objectives
of
serving
the
public interest
of
the
province
and of
doing
so in an
efficient
manner based
on the
premise
of
working co-operatively with
other
involved
parties.
The
problems
and
stakeholders have changed over

the
years,
both
in
complexity
and in
number,
but
these early principles remain totally
relevant.
The
efforts
of
working towards these objectives, through
technical excellence
and
innovative approaches
to
regulation, have
resulted
in a
highly
respected regulatory agency.
This
book
chronicles
the
important role played
by one
organiza-

tion
in the
development
of
energy policy
in the
province
of
Alberta.
Many
of us
take
pride
in
that
organization.
We can
experience that
same sense
of
pride
in
this
book,
which
not
only describes
our be-
ginning
but

also improves
our
understanding
of why we
exist.
G.J. DeSorcy
October
1992.
PREFACE
ALTHOUGH
IT is a
provincial agency, Alberta's Energy Resources
Conservation Board
(ERCB)
is one of the
most important regulatory
bodies
in
Canada. Decisions
of
this agency have
had
profound con-
sequences,
often
beyond Alberta.
The
significance
of the
ERCB,

known
from
1938
to
1957
as the
Petroleum
and
Natural
Gas
Con-
servation Board
(PNGCB)
and
from
April 1957
to
1971
as the Oil
and Gas
Conservation Board
(OGCB),
stems directly
from
the key
role
that
it has
played
in the

Canadian energy sector. Curiously,
the
Board remains little known,
and
even
in its
home province
the
true
nature
of the
Board's
responsibilities
is not
well
understood
outside
industry
circles.
The
ERCB'S
importance
and its
prescribed role
are
largely
defined
by
the
unique characteristics

of the
resources that
it has
regulated
since
1938. Petroleum, including
its
associated by-products,
was
quickly
recognized
as
essential
to the
well-being
of
modern commu-
nities,
and
access
to
assured sources
of
supply
has
remained
a
cornerstone
of the
foreign policies

of
industrial
nations
since World
War I.
Even
the
United States,
the first
industrial nation blessed
with
an
abundant local supply, soon realized that
it was in the na-
tional interest
to
ensure that production
was
managed
so as to
ensure long-term maximum recovery.
1
The
idea
that
oil and
natural
gas
resources warranted special attention came
not

only
from
the
recognition that petroleum supply
had
become
a
matter
of
strategic
importance
but
also
from
the
growing awareness
that
the
peculiar
properties
of
this resource rendered traditional frameworks
of ex-
ploitation
and
development inappropriate.
Oil and
natural
gas are
migratory resources, which means that

the
reserves underlying
one
tract
of
land
can
often
be
produced
from
a
well located
on
another.
Therefore,
when
a
number
of
operators
are
producing indepen-
dently
from
the
same
oil
pool without
any

restrictions
or
regula-
tions,
the
rational response
of
each producer will
be to
drill
and
produce
as
rapidly
as
possible
to
avoid being drained
by his
neigh-
bours. Such
frantic
production
to
gain short-run advantage usually
has a
negative long-run
effect.
Most
oil

reservoirs
are
production-
—
xvii
—
XV111
—
PREFACE
rate sensitive,
and the
total
ultimate recovery
of oil
from
the
reser-
voir
will
be
reduced
if it is
produced
at too
fast
a
rate.
In
recognition
of the

fundamental importance
of
petroleum
and
the
difficulties
inherent
in its
exploitation, North American govern-
ments began about 1915
to
introduce legislation
to
protect
the
pub-
lic
interest
and to
bring some order
to the
chaotic relations existing
among contending
oilfield
interests. Alberta's Petroleum
and
Natu-
ral
Gas
Conservation

Board
was
established
in
1938,
and
like
its
counterparts
in
most oil-producing U.S. states,
it set out to
address
two
essential concerns. Empowered
to
prevent
the
wasteful
ex-
ploitation
of the
province's
oil and
natural
gas
resources,
the first
item
on the new

Board's agenda was,
to the
extent practical,
to
eliminate
the flaring or
burning
of
unmarketable natural
gas
from
the
Turner
Valley
oilfield.
Another problem
to be
faced
immedi-
ately
was
that
of
devising some appropriate
formula
that would
permit
the
sharing
of

production
fairly
among
all
those
who
pos-
sessed
the
legal right
to
produce.
In the new
Board's arsenal
of
pow-
ers to
deal with
the
twin problems
of
conservation
and
equity,
the
most important
was its
authority
to set an
allowable production

rate
from
each producing well.
The
Board's
influence
was
enhanced
further
when
it was
later assigned
a
critical role
in
determining
the
quantity
of
natural
gas
that could
be
removed
from
the
province.
The
essential
core

of the
Board's
story,
therefore,
is
about deci-
sions. Board decisions, especially
in the
cumulative sense, have
played
a key
part
in
shaping both
the
operating
framework
and the
character
of the
petroleum industry
as it has
evolved
in
Alberta.
Regulations
formulated
and
enforced
by the

Board have
affected
production
costs
and
discovery
and
development
rates,
as
well
as
the
relationship between producers.
Even
though
it is a
provincial
agency,
the
ERCB'S
decisions
and
regulations
affect
the
price
and
supply
of a

resource that comprises
a
vital
component
of the na-
tional economy.
Although
the
significance
of the
ERCB'S
regulatory role
in the oil
and gas
sector
of the
Canadian economy
is
apparent,
its
influence
in
the
narrower sphere
of
individual
corporations should
not be
over-
looked.

Depending
on the
ranking criteria,
six to
eight
of
Canada's
20
largest corporations
are oil and gas
companies.
2
Both
the
operat-
ing
environment
and the financial
well-being
of
these large
and
powerful
corporations
are
affected
directly
by
decisions emanating
from

the
ERCB
headquarters
in
Calgary.
Although
the
regulatory decisions
of the
ERCB
and its
predeces-
sors,
the Oil and Gas
Conservation Board and,
before
that,
the Pe-
troleum
and
Natural
Gas
Conservation Board, have
had a
far-
—
XIX
PREFACE
reaching local
and

national
importance,
this
has
been almost
ig-
nored
in the
literature
on the
petroleum industry
and
energy policy.
Among
the few to
present
a
general history
of
Alberta's petroleum
industry, Eric Hanson
is one of an
even smaller number
who
have
made more than passing
reference
to the
Conservation Board.
3

His
study
offers
a
useful
summary
of how the
Board operated during
the
1950s,
but
there
is no
attempt
to
understand
the
Board within
the
context
of the
political
and
economic
forces
that brought about
its
creation
and
shaped

its
evolution. Although
there
is no
discus-
sion
of
either alternative approaches
or
analysis
of the
con-
sequences
of
Board actions,
it
must
be
acknowledged
that
Hanson
was
writing
in the
midst
of the
boom
that
he was
describing

and
lacked perspective.
His
preoccupation
was
with
the
dramatic statis-
tics
of
growth
and
development.
Perhaps
the
best
of the
more recent studies
is
Prairie Capitalism:
Power
and
Influence
in the New
West
by
John Richards
and
Larry
Pratt.

4
They take advantage
of
their greater time perspective
to
ven-
ture well beyond
the
more descriptive commentaries
of
earlier
writers
and
offer
an
interpretive assessment
of
Alberta's postwar
oil
boom.
Although
the
focus
of
their study
is not
specifically
upon
Al-
berta's petroleum industry, they

do
acknowledge
the
significance
of
the
ERCB
and
draw certain conclusions regarding
its
regulatory role.
As
they
see it, the
Board
was the
centrepiece
of a
regulatory
frame-
work that
was
adopted uncritically
from
the
practice
in the
U.S. oil-
producing states that they believe fostered
the

interests
of the
large
oil
companies. Based more
on
apparent similarity
of
legislative
form
than
careful
research,
it is a
conclusion that nonetheless
has
found
favour
with subsequent commentators.
5
In
most popular accounts
and
nearly
all
company histories,
the
Conservation Board's
profile
is

almost nonexistent.
In
their haste
to
get
on
with
the
"real"
story,
most authors have quickly
passed
over
the
seemingly tedious landscape
of the
regulators
and fixed
their
gaze
upon
an
apparently more
colourful
topography peopled
by
roughnecks
and
entrepreneurs.
6

Such
accounts
of the
petroleum
in-
dustry
might have colour
and
drama,
but
they present
a
partial pic-
ture only. Along with
the oil
barons
and
politicians,
the
various
chairmen
of the
Conservation Board must
be
considered among
the
principal
players
in the
history

of the
Alberta
oil
industry. With
little
or no
attention focused upon
the
regulatory environment
or
upon
the
regulators,
the
written history
of the
petroleum industry
and our
understanding
of it
remain incomplete.
Given
the
singular importance
of the
Board's role, what explains
its
nearly nonexistent
profile,
even within

the
more serious
and
XX —
PREFACE
analytical
literature
on the
petroleum industry
or
regulatory
bodies?
In
part,
this might have
to do
with
the
remarkable political
stability
that
has
characterized
postwar
Alberta. Since World
War
II,
there
has
been

but one
change
of
government,
and
this essen-
tially
was a
change
from
one
conservative administration
to an-
other.
Moreover, opposition parties
in the
Alberta Legislature have
seldom mustered more than
a
handful
of
members. This
has
meant
that debate about development
and
regulatory policy
has
been
muted, perhaps with

the
exception
of the gas
export question
of the
early
1950s,
and
that continuity rather than change
has
typified
both
policy
and
personnel
in
government
and in the
senior
levels
of
the
provincial
civil
service. With
a
history unmarked
by
dramatic
change,

with
no
great
controversies
debated
in the
public
arena,
with
no
great scandals
or
outrageous personalities, there
has
been
little
about
the
ERCB
to
attract
the
casual observer
or the
writer
in
search
of a
"good"
story.

But
what
of the
more
serious
professional observers? Energy pol-
icy
has
been
an
area
of
often
embittered national debate
for
nearly
two
decades. Although
a few
scholars have been moved
to
address
topics
in
this area, without exception
the
focus
has
centred upon
policies, politics

and
institutions
at the
national level.
7
In
these
studies, Alberta's
ERCB
has
usually
received
but
passing mention,
even
though
it is the
initial point
of
regulation
in the oil and
natural
gas
sector
and has
played
a
principal role
in
shaping

the
regulatory
environment surrounding this
vital
resource area.
8
This oversight
is
unfortunate
but
understandable. Although
it is one of the
most
im-
portant regulatory agencies
in
Canada,
its
decisions have emanated
from
a
city
far
removed
from
the
familiar
path
of
national policy-

oriented social scientists preoccupied with institutions
in
Ottawa.
That
a
full
and
serious study
of
Alberta's Conservation Board
is
long overdue
is
readily apparent,
but not
just
to
derive
a
more
balanced understanding
of
national
energy policies
and the
dynamics
of the
Alberta
and
federal

relations
from
which these pol-
icies emerged. Such
a
study,
as has
been suggested earlier,
is
also
one of the
critical elements
of any
comprehensive history
of the Al-
berta
petroleum industry.
The
organization, pattern
and
pace
of the
industry's development
in
Alberta over
the
past
half
century have
been

influenced
by the
policies
of
this Board. Moreover,
the
impact
of
Board decisions
has
extended well beyond
the
immediate con-
fines
of the
petroleum industry.
It is
clear that this agency
is one of
the
most important institutions
to
have shaped Alberta's postwar
development.
A
careful
look
at the
political environment
and

pro-
cess that created
and
subsequently
refined
the
legislation that gov-
—
XXI
PREFACE
erned
the
Board's activities, along with
an
examination
of the
forces
that
influenced
the
Board
in its key
decisions, would seem
therefore
to
offer
promising rewards.
The
history
of the

ERCB
is
also worthy
of
study
in a
more theoreti-
cal
sense. Much
effort,
particularly
in the
United States,
has
been
expended studying
the
behaviour
of
national regulatory bodies.
The
consensus
that
emerges
from
the
more recent literature
is
that
regulatory

agencies have
not
been particularly
effective
in
protect-
ing
the
public interest
in the
long run.
Not
long
after
its
creation,
it
seems that
a
typical agency
is
inevitably
co-opted
by the
industry
it
was
designed
to
regulate.

9
Professional regulators
soon
come
to see
and
interpret
the
world through eyes similar
to
those
of the
regu-
lated industry.
Differences
come
to be
more
of
detail than sub-
stance. Does
the
history
of the
ERCB
lend confirmation
to
this recog-
nized
pattern?

It
must
be
asked
how
successfully
the
Board
has
fared
on
behalf
of
Albertans
in the
face
of the
variety
of
private
in-
terests that
frequently
clamour
for
special consideration.
In the
name
of
resource conservation,

has
this regulatory agency
func-
tioned ultimately,
as one
writer recently asserted,
as a
client
of the
major
oil
companies
to
establish
"a
producers' cartel
that
eliminated
price competition
to the
detriment
of
Canadian con-
sumers."
10
The
purpose
of
this study therefore
is to

examine
the
ERCB
with particular attention
to the
legislation that
defined
the
Board's role,
the
important issues
that
the
Board
has had to ad-
dress,
the
process
by
which
it has
come
to
important policy deci-
sions,
and the
leadership role
of
Board chairmen. Policy decisions
rest upon

the
judgements
of key
individuals,
and to
clarify
the
fac-
tors
that shaped
and
motivated these judgements
the
Board
and its
activities
must
be
considered within
the
political
and
economic set-
ting
in
which
it was
created
and
functioned. Advantageous perspec-

tive
on the
Board
and its
activities
is
also
to be
gained through
refer-
ence
to an
outside measure,
and for
this reason some comparison
with similar U.S. agencies will also
find a
place
in
this study.
Finally,
it
must
be
stressed
that
this
is a
historical study
and not an

economic analysis.
The
long-term economic implications
of
certain
policies
or
decisions must remain
an
indeterminate question, per-
haps
to be
pursued more appropriately
in a
specific
or
specialized
examination.
This study
of the
Conservation Board begins with
a
review
of es-
sential
geological, engineering
and
legal concepts, followed
by an
examination

of the
U.S. experience
from
which early petroleum
and
natural
gas
conservation emerged.
The
subsequent discussion
is
divided
into
two
naturally
defined
periods. Part
I
reviews
the
dis-
XX11
-
PREFACE
covery
phase
of
petroleum development
in
western Canada, with

particular attention
to
Turner
Valley
and the
problems there
that
gave
rise
to the
conservation movement
in
Alberta. Close examina-
tion
is
given
to the
debate
on
petroleum
and
natural
gas
conserva-
tion
and to the
1938 legislation that established
the
Petroleum
and

Natural
Gas
Conservation Board.
Part
II
begins with
a
close look
at the
regulatory foundation
es-
tablished during
the
Board's formative years
before
the
Leduc
oil
discovery
in
1947. This discussion
is
followed
by an
examination
of
the
Conservation Board's role during
the
critical

first
decade
of Al-
berta's
post-Leduc
oil
boom,
when
the
Board moved through
youthful
trial
and
adjustment
to
become
a
mature technically com-
petent conservation authority. Special consideration
is
given
to the
natural
gas
export
decisions
of the
1950s,
the
surplus

oil
prod-
uction capacity question,
the
development
and
enforcement
of
Board
regulations,
and the
changing technology
of oil and gas
con-
servation.
A
central theme here
is how the
Board, confronted
by in-
dividuals
and an
industry
often
preoccupied
by
short-run perspec-
tives emanating
from
constant

focus
on the
yearly
balance sheet,
managed
to
promote
long-range conservation policies.
In
1959,
Conservation Board Chairman
Ian
McKinnon
left
Alberta
for Ot-
tawa
to
chair
Canada's
new
National Energy Board,
and
petroleum
and
natural
gas
regulation
at
both

the
provincial
and
federal
levels
entered
a new
phase.
All
relevant documentary sources
for
this period
at the
Board's
Calgary headquarters were made available
for
this study. These
in-
clude
Board minutes
from
1938, letters
to oil and gas field
oper-
ators
from
1932., minutes
of
meetings with industry groups, inter-
nal

correspondence
and
numerous reports
on
topics
of
timely
con-
cern.
The
transcripts
of
evidence presented
at
Board hearings,
which, along with
the
Board's "decision
Reports,"
are
part
of the
public
record,
have been used extensively. While the Board's court-
of-record
status
has
ensured
the

preservation
of
most records
of
his-
torical importance,
the
great wealth
of
information
at the
Board
nonetheless
is
compromised
by the
regrettable loss
of its
chairmen's
correspondence
for the
1940s
and
most
of the
1950s
and
1960s.
To
some extent, this

deficiency
can be
made
up
through consultation
of
the
premiers'
papers,
especially
those
of
E.C.
Manning,
available
at the
Provincial Archives
of
Alberta
in
Edmonton. This collection
contains most,
and
perhaps all,
of the
written communication
be-
tween
the
various Conservation Board chairmen

and
Premiers
Aberhart
and
Manning. Other correspondence between
the
premiers
and
fellow
politicians,
at
both
the
provincial
and
federal
-
XX111
PREFACE
levels,
private citizens
and oil
company executives,
on
matters relat-
ing
to the
Conservation Board
and its
activities,

offers
helpful
back-
ground
in
many areas. Deputy ministers' correspondence
and
other
relevant documentation
from
the
Alberta Department
of
Lands
and
Mines, later
the
Department
of
Mines
and
Minerals,
as
well
as
from
the
Department
of
Intergovernmental

Affairs
at the
Provincial
Ar-
chives,
also allow important insights into
the
formulation
of
poli-
cies governing
the
administration
of
Alberta's petroleum
resources.
The
extensive tape-recorded commentary prepared
by
Ernest Man-
ning
at the
University
of
Alberta Archives
was
similarly
helpful.
At
the

Public Archives
of
Canada
in
Ottawa,
the
C.D.
Howe
Papers
and
various
files
from
the
collection
of the
Department
of the
Inte-
rior
and its
successors,
as
well
as the
Department
of
Munitions
and
Supply

and the
National Energy Board, contributed important ele-
ments
of the
national
context.
The
transcripts
of
certain commis-
sions, particularly Alberta's McGillivray
and
Dinning commissions,
as
well
as
Canada's Borden Commission, provided another rich
source upon which this study relied. Tape-recorded interviews
un-
dertaken
by the
Glenbow Archives
in
Calgary
as
part
of the
"Petroleum Industry Oral History Project," plus
the
numerous

in-
terviews with
former
Board members
and
employees,
and
industry
officials,
carried
out
expressly
for the
preparation
of
this
history,
have
added
a
further
important dimension
to the
foundation
of
sources upon which this study rests.
The
"Scrapbook
Hansard"
record

of
debate
in the
Alberta Legislature;
the
popular
press,
par-
ticularly
the
Edmonton dailies,
the
Bulletin
and
Journal,
and
Cal-
gary's Herald
and
Albertan;
and the
main trade journals,
the
West-
ern
Oil
Examiner,
the
Daily
Oil

Bulletin
and Oil in
Canada, have
been
used
to
shed light
on the
political, economic
and
technical
environment
in
which Alberta's
oil and
natural
gas
legislation
evolved
and
which
the
province's Conservation Board reflected.
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