CALGARY -- Sometimes, John Dielwart has learned, a colossal failure can be transformed into a stunning success.
Mr. Dielwart, president and chief executive officer of ARC Energy Trust, has just made a $462-million acquisition of aging oil fields, catapulting his company into a major strategic shift. The deal, which closed yesterday, positions ARC at the edge of one of the hottest prospects in the oil patch: using carbon dioxide to rejuvenate elderly oil fields where conventional production techniques have run their course, and wring millions more barrels of oil from supposedly near-empty wells.
The process is similar to rolling up a tube of toothpaste to squeeze out every last drop: The CO{-2} is pumped deep underground, where it turns to a liquid under pressure and pushes the oil from one side of a reservoir toward a wellhead, allowing more crude to be extracted.
But Mr. Dielwart has a confession to make. ARC's entry into the world of CO{-2} is founded on a failure -- a really, really big failure.
Three years ago, ARC was "incredibly close" to buying into the oil sands. The trust had bid for a stake in one megaproject, but that offer was squashed by a company that exercised its right of first refusal.
He won't divulge any names, but there is really only one candidate: The Surmont project now owned by Total SA and ConocoPhillips Co. ARC had gambled that its bid was high enough to deter anyone from elbowing its way into the deal. But the determination of the larger company to keep outsiders from entering the project convinced Mr. Dielwart that the oil sands were closed to all but the biggest players. "This is their sandbox, and we're not being allowed in."
The overall goal -- find big, stable reserves -- remained the same, but the path there would have to change. Over the following 18 months, ARC's attention began to turn to enhanced recovery using carbon dioxide.
This spring, ARC commissioned a study of the existing major oil fields in Alberta, asking for a ranking of which were best suited for an enhanced-recovery effort. A field called Redwater was at the top of the list. Discovered six decades ago, Redwater is the biggest conventional oil discovery in Western Canada, and once a major source of production. Not any more.
With the field now far past its prime, Imperial Oil Ltd. (with partner ExxonMobil Canada) put it up for sale, along with similarly aging Pembina oil fields.
Its study in hand, ARC lunged at the chance to buy assets that the entire industry thinks are 30 years past their prime. "We were poised, we were ready," Mr. Dielwart says.
The rest of the oil patch may be convinced that Redwater is 96-per-cent empty, but he believes it just might be half-full -- with a prize of up to 600 million barrels of oil if ARC can find a way to use CO{-2} to boost recovery rates.
He's not worried that many peers disagree. In fact, he's counting on it as the foundation for his acquisition strategy. "The trick is, what more do you see? What can that property become? You've got to have a vision for what the asset can become."
At first glance, ARC seems to have won only the booby prize: The fields produce more water than oil -- 167 barrels of liquid have to be pumped to come up with one barrel of crude -- and the purchase price barely makes sense even at today's high commodity prices.
The study was the final touch in a strategy that ARC had been assembling for two years -- a direction it struck off in after striking out in the oil sands. A few years ago, the bitumen deposits of northern Alberta seemed a perfect fit for ARC's goal of obtaining long-lived reserves to lend stability to its production.
During that time, two things became clear to Mr. Dielwart. The first was that the rapid increase in commodity prices was pushing the prices of oil and gas wells so high that there was little chance of wringing extra value out of any conventional acquisition. The second was that CO{-2} technology could rewrite that equation in ARC's favour.
There was no thunderclap moment of realization, just the gradual accumulation of happenstance and experience that combined to create a new ambitious strategy.
First, the happenstance. In 1997, ARC acquired a small stake in one of the few CO{-2} projects in the world, in Weyburn, Sask. The trust made the investment to add to its production, but it ended up giving ARC a front-row seat on the evolution of CO{-2} technology. Equally serendipitous was the timing of Mr. Dielwart's tenure as chairman of the Canadian Association of Petroleum Producers. He was plunged into the middle of the wrestling match with Ottawa over the Kyoto Protocol, forcing him to focus on the likelihood that the federal government would force companies to limit greenhouse gas emissions - making it much more likely that there would be a ready supply of CO{-2}.
Then came foresight born of experience. As oil prices have risen, much of the new supplies that have come on stream are heavy grades of crude oil. Prices for that type of oil have fallen, while lighter grades -- like the kind found in Redwater -- are much more profitable.
Taken together, the pattern was clear. The economics of an effort to wring more light oil out of an aging reservoir are about to change dramatically. "The planets are all aligning," Mr. Dielwart says.
The key was to find fields with the right geological characteristics, where ARC could turn its belief in the promise of CO{-2} into reality. Mr. Dielwart is convinced Redwater is that field.
"There has to be opportunity there. There just has to be."
John Dielwart, president and chief executive officer, ARC Energy Trust
Age: 52. Married, with four children.
Education: Civil engineering degree, University of Calgary
Mentor: Mac Wielingen, founder, vice-chairman and director of ARC Energy Trust.
Biggest leadership lesson: "Relationships are essential. Nurture relationships."
On where that philosophy came from: "I grew up on welfare," he says. He was just 2 when his father died of cancer, with his mother raising four children by herself in 1950s Alberta. "We relied on the goodness of others to get by."
Hobbies: An avid reader, he belongs to a men's reading club, a counterpart to his wife's group. Air travel means time to relax with a mystery potboiler -- preferably the latest John Grisham.
Most important leadership book: Lance Armstrong's It's Not About the Bike: My Journey Back to Life. The book chronicles the Tour de France champion's triumph over cancer and "the goodness of people," he says.
On the decision that transformed his family life: As a seven-year-old, eldest son Jared declared he wanted to play hockey. He and two siblings played collegiate-level hockey -- and the fourth, older sister Raelee, married a German hockey player who was billeted at the Dielwarts. "That changed our lives in a very positive way. For his kids, hockey meant scholarships, a passion for the game, and a spouse. For Mr. Dielwart, his career as a hockey dad opened his eyes to the idea that leadership takes many forms. "Everybody is a leader. Some are CEOs, some are coaching hockey teams , some are leading church groups."
© The Globe and Mail
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