What is a 'junior' oil and gas company?
There is no dictionary definition of what constitutes a 'junior' oil and gas company. The most commonly used size benchmark in the industry is based on the amount of daily production converted to barrels of oil equivalent per day (boed). For example a junior company might produce 5000 barrels of oil equivalent per day (boed). The 'equivalent' in the definition allows companies which produce crude oil, natural gas or a combination of both to be compared on a total production basis measured by barrels of oil equivalent. The natural gas portion is converted on an energy content basis to an equivalent volume of crude oil.

Juniors are generally considered to range up to anywhere from 15,000 to 25,000 boed production size. Companies larger than this are called 'intermediates' or eventually 'large intermediates' and 'majors'. The majors in Canada would be around 500,000 boed and larger.

Are these smaller companies a new niche in the oil and gas industry?
The presence of small companies in Canada's petroleum industry goes back to the first Turner Valley discovery in 1914 when hundreds of small oil and gas producers started up. Almost all of these disappeared over the following decades but left behind a legacy of risk-taking and entrepreneurship that is a defining characteristic of Canada's junior sector today. Canada's junior oil and gas industry is unique in the world, incorporating hundreds of private and publicly traded companies.

What is SEPAC?
SEPAC, Canada's Oil and Gas Entrepreneurs™ is legally incorporated as the Small Explorers and Producers Association of Canada. The Association was established in 1986 to provide a focus and a voice for the emerging and junior oil and gas producers in the conventional oil and gas industry in Canada.

SEPAC has a current membership of more than 400 companies. About 80 percent are oil and gas producers and the remainder are associate members who supply products and services to the upstream petroleum industry.

Most of our membership is centred in Alberta, North East British Columbia, Saskatchewan and Manitoba. Some are active internationally and a few have operations in Eastern Canada.

Our mandate from our members and board of directors can be described in three parts:

1. Advocate to governments at the federal and provincial level including regulators and policy makers to encourage a business and fiscal framework that will support a healthy and prosperous junior oil and gas industry;
2. Educate the public and the news media about the important role our sector plays in finding and developing Canada's domestic energy supply and the huge positive economic impact flowing from the billions of dollars invested in Canada by the junior sector each year, most of which benefits small towns and rural areas; and
3. Communicate to our members important industry news and analysis of changing policy and regulation.

Why are SEPAC members "Canada's oil and gas entrepreneurs"?
Our members, the emerging and junior oil and gas companies, are the "hands-on business owners" of the oil and gas sector. Most operate with just a handful of employees - the median headcount is less than ten.

The typical junior oil and gas company consists of a team of experienced industry professionals: engineers, geoscientists and financial people who can find oil and gas, develop the reserves and raise the capital to make it all possible.

These companies have been founded by individuals who have invested a great deal personally - in terms of money and in terms of their lives overall - to try to succeed. Despite their relatively small size, the junior sector makes a tremendous contribution to the search for and production of oil and natural gas energy for Canadians.

How do junior oil and gas companies contribute to Canada's energy industry?

Canada's junior oil and gas companies:

• In recent years have invested as much as $6 billion annually in Canada to find and develop new reserves of oil and gas. That figure does not include the large sums these companies spend on royalties, income taxes, municipal taxes (much of this to rural counties and districts) operating costs, financing and administration costs
• Are drilling over half the licensed exploration wells seeking new reserves of oil and gas in Western Canada
• Are increasingly active in in situ (underground) oilsands startups and are often the leaders in new technology applications to reduce the environmental footprint

About 70 per cent of the energy production of the junior sector as a whole is natural gas; the cleanest, cheapest and most environmentally friendly fuel.

How do junior oil and gas companies contribute in other areas?
Our members make a huge financial contribution to the provinces they operate in through payment of royalties, taxes, purchasing of goods and services and payment of wages and salaries. In Canada's three westernmost provinces the energy industry is usually the top industry sector measured by dollars paid into provincial revenues.

Just as important, much of the spending takes place in rural areas and small towns where the oil and gas industry is often the leading economic sector and provides the mainstay of the municipal tax base.

The Canadian Energy Research Institute has calculated that each active drilling rig supports 135 direct and indirect jobs in the economy of Western Canada. SEPAC estimates that each producing oil or gas well generates spending in the adjacent economy of $20,000 to $25,000 per year.

As a sector we are playing a pivotal role in supporting the current strong Canadian economy and, most importantly, we are helping ensure Canadians have the energy they need from domestic sources to heat their homes, power their businesses and supply their transportation needs.

Are you any different from "big oil"?
Our members have a lot in common with the larger oil and gas companies. We all find and produce supplies of natural gas and oil to meet the growing demand for energy, and we are committed to producing that energy in a responsible manner. We do differ from the larger companies, however, and not just in numbers of employees.

While many of the larger companies have interests and operations offshore or internationally, SEPAC members are largely concentrated on projects here in Western Canada.

Junior companies are also actively engaged in the development of the many smaller pools of oil and gas in western Canada - pools too small to fit with the operations of the larger oil and gas companies. The juniors can make these smaller pools work, adding much needed reserves to Canada's energy supply.

How do financial circumstances for junior oil and gas companies differ from those of the larger firms?
There are several financial distinctions between junior companies and the larger oil and gas companies.

First, the major companies have greater diversification of assets so they can shift investment dollars to jurisdictions where they can obtain a more attractive rate of return on their investments. Most juniors are focused in just a few locations, often in a single province where they have expertise in the local geology or development process.

Second, the largest companies are not as reliant on external capital markets to fund their growth. Juniors will often invest two or three times their own cash flow in the hunt for more reserves. This capital is raised in the equity and debt markets on a much more frequent basis than very large companies. The major companies often are able to fund their investment plans with their own internal cash flow.

A third distinction is that the major companies have the benefit of massive oil and gas reserves and infrastructure developed at much lower costs decades ago. Their situation is similar to that of someone who bought their house lot in 1978 at 1978 costs and is able to sell the house in 2008 for a large profit.

In contrast, most junior companies are less than five years old. It has cost them much more to acquire their land base and they have been operating their entire corporate lives in a much higher cost environment. The result for the junior sector as a whole is a much more fragile profit picture. There are no 'billion dollar profits' among junior companies: in fact 70 per cent of the publicly traded juniors report losses in 2007.

Is the junior oil and gas sector doing enough about the environment?
Our members are very concerned about the environment. We live here with our families too. Our members take the responsible development of the resource very seriously and incorporate a number of activities into their operations to protect the environment.

Alberta, for example, probably has the most stringent environmental regulatory system in the world for petroleum development. Our members comply with these standards. As an example, our Association participates on behalf of our members in the Alberta Clean Air Strategic Alliance which has been instrumental in contributing to policy and regulatory changes that have reduced flaring and venting from gas wells enormously over the last decade.

The oil and gas industry also reduced its use of fresh water by some 12 per cent from 2001 to 2005, and companies are constantly investigating ways to use less and re-cycle the water that is used. (Source: CAPP).

It's clear, however, that there remain some concerns about the industry's environmental performance. As an industry we need to make sure we understand those concerns and we need to continue to work toward improving our performance in this area.

How do you respond to concerns that the current pace of growth in Alberta, largely driven by the energy sector, is too fast?
There's no doubt that the energy sector is having a large, positive effect on the economy, not only of Alberta, but of Canada overall.

We also acknowledge, though, that not everybody is participating in this growth and that government has to make sure that everyone benefits from the tremendous growth the energy sector has brought to Western Canada.

Our members are aware of the concerns raised about rapid population growth, high costs, labour shortages and increased competition for use of Crown land by various groups, and as a sector we will work to find ways to address the concerns while continuing to ensure industry can operate effectively to meet the ongoing demand for energy.