Alberta company commercializes "green" process for extracting shale oil and gas

By Debbie Lawes

A Calgary company is capturing the attention of resource companies, environmentalists and landowners across the US with a propane-based system that offers a "green" alternative to hydraulic fracturing — a controversial practice that uses significant amounts of water and chemicals to harvest gas and oil from depleted wells and tight geological formations. GasFrac Energy Services Inc has spent millions of dollars researching, testing and patenting the technology, and this year plans to invest $150 million to double its capacity to meet growing demand in Canada and the US.

It recently began working with the Canadian Consulate in Dallas TX to identify collaborative R&D opportunities in Canada.

"We want to learn more about the technology capabilities and expertise in Canada because that's where we're interested in doing the research," says Robert Lestz, GasFrac's chief technology officer, based in Kilgore TX. "One of the drivers is the tax credits associated with the R&D in Canada. It's just much more favourable to work in Canada."

GasFrac's disruptive technology appears almost too good to be true. It has 10 patents pending and seven others filed for equipment and processes that inject a gelled liquefied propane gas (LPG), instead of water and chemicals, to shatter the rock and release the natural gas and/or oil. Not only is 100% of the propane typically recovered, according to the company, but LPG also produces 20-30% higher yields than hydraulic fracturing.

"We're making wells produce where they never produced before," says Lestz. "The cost structure also allows us to take on smaller jobs than may not be economically feasible using water. We can take a job that is 40% smaller and get four times the production. It's those types of results that have really changed the game."

Hydraulic fracturing — or hydrofracking — has become a growing environmental concern in several countries. According to the Environmental Protection Agency, a horizontal well in a shale formation can use between 7.5 million to 19 million litres of water, of which 15-80 % is recovered, stored in settling ponds and then treated. This results in lower production and potential contamination of local groundwater supplies.

Although the upfront costs for LPG are higher, GasFrac says customers save in the end on clean up, water and trucking costs, and the propane can be recovered and then re-used or sold. There is also negligible gas flaring, the wasteful and polluting practicing of burning off gas released during production. The company has developed a prototype system to completely eliminate flaring, which it hopes to deploy commercially this year.

US investment analyst and blogger Jeff Aronson has written extensively about GasFrac and is bullish on its future prospects.

"(GasFrac's) LPG process does away with essentially every major complaint that the environmentalists raise about hydro-fracking," he writes in an April 23 posting on Connecticut Comments. "There is no excessive water use. There is no need to get rid of supposedly contaminated waste water after the process is complete. Underground radioactive minerals are not dissolved in the fracking media and brought to the surface."

GasFrac has worked with about 40 companies to complete some 700 fracs at more than 300 wells, mostly in Alberta, Sask-atchewan and British Columbia. It recently began operating in Texas, Oklahoma and New Mexico and will expand to other US markets as more equipment and personnel are brought on board. It currently employs 141 people in Canada and 53 in the US.

Growing opposition to hydrofracking in the US led the federal government to launch a major study of the impact of hydrofracking on groundwater. New York state imposed a moratorium on water-based fracking in 2008. In Canada, Quebec recently banned new hydrofracking wells pending an environmental assessment of the practice. Such concerns explain the positive reception the company received following recent presentations to residents groups in New York state. An April 14 article published in the Star-Gazette newspaper reported that the local Tioga County Landowners Group is on board.

"(LPG), because it doesn't involve harmful chemicals and has considerably less environmental issues and truck traffic, offers a very interesting and appealing alternative (to hydrofracking)," said Nick Schoonover, chair of the Tioga group and the state chapter of the National Association of Royalty Owners.

GasFrac is betting that America's insatiable appetite for oil and gas, combined with environmental concerns, will create a lucrative niche market for LPG. The company's revenues have grown from $23.5 million in 2008 to $96.9 million in 2010. GasFrac executives are forecasting "significant growth" over the coming years, with at least one investment analyst suggesting 2011 revenues could surpass $225 million.

Despite slow market adoption in the US, GasFrac is expanding operations to clear a surge of back orders. It plans to have four Canadian crews and two US crews in place by May 31 working on about 1,000 wells this year, up from 136 in 2010. Even with the expansion, it will only serve about 1.25% of the total US fracking market. As Aronson writes, "GasFrac does not have to take the field by storm and dominate fracking in order to become extremely profitable."

Lestz attributes the slow market adoption to inertia in an industry that continues to make money from hydrofracking. He says companies are reluctant to abandon their major investments in water-based infrastructure, despite the potential for longer term profits from LPG.

"We consider LPG a proven and very successful technology, but we still have to continue demonstrating it to potential customers and educating the marketplace," says Lestz. "We've found the uptake much better in Canada where there has been more willingness to consider a novel technology."

GasFrac says it is the only company in the world offering LPG as an alternative to hydrofracking.

Who invented LPG?

The key technologies involved with LPG)were developed independently by Chevron and Halliburton in the US. Chevron had no interest in commercializing the technology so licensed it to Dwight Loree of Alberta, a veteran of the well fracturing business and GasFrac's founder.

"Chevron had developed the chemistry for using LPG as a fracturing fluid, but we needed specialized equipment that would allow you to do it safely, efficiently and reliably. That's where Dwight came in," says Lestz, a former Chevron engineer who holds patents associated with LPG. Patents are also held by Audis Byrd, a former Halliburton engineer who now heads GasFrac's US operations.

Loree took equipment he had developed to pump carbon dioxide for fracturing and adapted it for LPG. GasFrac's research team also further refined the chemistry.

"We were able to marry the two pieces — the operational piece with the fracturing fluid piece — to create a viable service business," says Lestz.

He adds that GasFrac is looking for collaborative R&D opportunities in Canada in the areas of organic chemistry, nanotechnology, high energy x-ray analysis and mechanical engineering. "We want to do more R&D but a lot of our technical expertise has been focused on addressing day-to-day issues," says Lestz. "There's a real commitment to grow the company through technology and not to just take what we have today and sell it."

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