The PEGG

January 2002

An Engineer Keeps Climbing

Steve De Maio, P.Eng., Brings the Skills of a Mountaineer
To Generation of Electricity From Stranded Gas Sites

An ironman who once devised his own “ultramarathon,” Steve De Maio, P.Eng., was lured from Burlington, Ont., to Calgary in 1986, by the ready access to the Rockies. The muntainclimbing enthusiast stayed, earning mechanical engineering and MBA degrees from the University of Calgary — and now he’s reached a new kind of summit, a corporate one, as president of Efficient Energy Resources Ltd.

During his 19-hour, one-man quadrathon in 1998, he scaled a 300-metre frozen waterfall at Mount Rundle, made a 200-metre solo rock ascent on the south face of Mount Yamnuska, then inline skated 80 kilometres back to Calgary to hop on his bike for the return to the
Rockies to fetch his vehicle.

Not bad – for a day off. His job at Renaissance Energy Ltd. was manager of facilities and development engineering. Mr. De Maio supervised 19 technical staff and a $100-million annual construction budget. He also oversaw applied R&D. In the process, Mr. De Maio caught wind of the potential for generating electricity with sweet natural gas from shut-in sites or solution gas otherwise flared or vented. Like an inaccessible peak, the gas was
there but hard to reach. Using portable, gas-fuelled installations, in effect mini-gas-plants delivering their energy by the kilowatt-hour rather than the thousands of cubic feet per day,
Renaissance by 1998 had an installed capacity of 6,000 kW. It sold electricity into the grid even before deregulation opened the door wider for small electricity producers.

A New Mountain
When Husky Energy Inc. acquired Renaissance in the fall of 2000, the new owner asked Mr. De Maio to stay. But, he explains, it wasn’t to be. “I had always wanted to go out and start a new venture and the timing was right.” He packed along some ideas about transforming
dormant gas into saleable electrons. Now his Efficient Energy Resources Ltd., founded in 2000, is carving a niche of its own in the conversion business, selling electricity through the Power Pool of Alberta. And the 37-year-old Mr. De Maio applies to business the attention to detail and calculated risk-taking that have made him a mountaineering and rockclimbing
legend.

Using private capital, Efficient Energy soon teamed up with Ketch Energy Ltd. to install a five-pack of 60-kW generators at a site west of St. Albert. Shut in for 15 years, distant from pipelines but only 350 metres from power lines, this well proved an ideal prototype Mr. De Maio and his colleagues continue to search out stranded assets with the care of mountaineers plotting their ascent. Information on well production, geology and mineral rights leases
available through Calgary-based AccuMap EnerData Corp. provides an important starting point.

Efficient Energy staffers also prowl back roads casing out prospective sites. Well and battery locations are correlated with the proximity of three-phase, 25,000-volt power lines. Then follows the number crunching. Reserve estimates and royalty charges (some otherwise flared gas enjoys a royalty holiday) are factored in, along with costs of stringing power lines
at $25,000 a kilometre.

The Number Crunching
In the absence of ready markets for the shut-in gas, the electricity prices are critical
to project viability. At 10 cents a kWh, the there’s interest, negotiations begin. Sometimes, producers make the first move, inviting a search of their asset base by Efficient Energy. By early in 2002, the company expects to have 6,000 kW of installed generating capacity, much of it near Red Earth in north-central Alberta. Opportunities don’t end there. A 1999
study by the private consulting firm Optimum Energy Management Inc. counted 6,000 shut-in gas wells in Alberta (excluding run-down or solution-gas sites) located within two kilometres of threephase power lines. Further prospects await in Saskatchewan.

Farm-In Model Used
Efficient Energy is not alone in using flare or solution gas for electrical generation. Several large and medium-sized oil and gas producers, among them PanCanadian Petroleum and Northstar Energy Corporation, have installed microturbines in conjunction with gas-gathering systems.

Power is either used on-site or sold. Another Calgary company, Mercury Electric Corporation, which bills itself as an independent power producer, has installed, owns and operates numerous 75kW microturbines in Alberta. However, Mr. De Maio believes his firm
straddles the gas/power fence in a unique way. While Efficient Energy will project-manage
and operate generators, the deal structures are mirrored after oil and gas farm-ins. That is,
they capitalize the project, produce the gas to the generator, sell the power and then share the revenues from these sales. Use of industrialized 8.1-litre V-8 reciprocating preserve these volumes for the host companies and create a cash flow for them without any outlay of capital or manpower on their part,” explains Mr. De Maio.

Efficient Energy offers more than a financial lifeline, particularly as producers face increased pressure from the Alberta Energy and Utilities Board to curb flaring and venting. Often gas-gathering systems may be distant but power lines close. Some older wells don’t produce enough to warrant collecting the gas but still yield enough to run a generator. Energy and
Utility Board regulations limit a producer’s inactive wells to half its total. Keeping
wells in production or opening shut-in ones provides more leeway for drilling programs.
Still, for most oil or gas producers, electrical generation is unfamiliar territory, a realm they reluctantly enter without a guide. “We bring to the table the fact that we’ve been there, we’ve done it,” says Mr. De Maio. “We’ve got leading ideas that most people don’t know a lot about.

They don’t have to proceed on the same learning curve as we did.”

Others On the Team
This is not a solo climb for Steve De Maio. (He still tries, by the way, to get in at least one actual mountain climb a week.) He has gathered an impressive management team of mostly Renaissance veterans. But the ranks also include a close mountaineering colleague.

These former Renaissance hands now with Efficient Energy are Rick Marshall, chief operating officer; Kelly Horan, manager of corporate administration; Tim Martindale, P.Eng. (a De Maio classmate from U of C), manager of engineering and operations; and Roy Smitshok, an expert in reservoir engineering and property acquisition, who is executive vice-president and
chairman of the board. Other directors besides Mr. De Maio are lawyer Jay Park; Rex Kary, a climbing partner and former president of Continental Gas Marketing; and Lyle Houston, a successful entrepreneur from outside the oilpatch. Treasurer Allison Earl, CA, rounds out the officers team.

The particulars between climbing and succeeding at business may differ. But the principles of teamwork and risk assessment that come to the fore when dangling between a hard rock and thin air are certainly similar.

“I go back and leverage off my rockclimbing and mountaineering experience every day,” says Mr. De Maio. “We have a team of people that trust and respect each other and everyone has a tremendous amount of fortitude. That’s as important in a company’s start-up as when you’re out on a rock face, 10 miles from the nearest road and 2,000 feet up a rock wall. The people you align yourself with in risk management are important both in climbing and starting a new venture. I consider myself fortunate to have pillars of experience with me both in the mountains and downtown Calgary.”