Osum Oil Sands makes bold moves

Gary Park

For Petroleum News

Osum Oil Sands, a privately owned startup with big plans, is taking advantage of Shell’s push to unload about US$15 billion worth of assets.

Chaired by former Suncor Energy Chief Executive Officer Rick George, Osum is paying C$325 million for Shell’s Orion project, a steam-driven operation that delivered an average 6,700 barrels per day in the first quarter.

If the transaction goes through, Osum will have some cash flow to fuel its lineup of six other projects that have potential production capacity totaling more than 500,000 bpd and are scheduled to come on stream over the next six years.

Orion is located about 10 miles southwest of Osum’s 35,000 bpd Taiga project which recently gained regulatory approval in Alberta’s Cold Lake region and is due on-stream in 2016.

Osum Chief Executive Officer Steve Spence said the two operations will eventually be linked up “to build a significant production platform” in the Cold Lake area.

Osum’s only existing bitumen production comes from its Saleski joint venture with Laricina Energy in the Grosmont carbonate play, in which it has a 40 percent working interest. The JV is designed to yield a net 115,000 bpd for Osum.

To help pay for the deal, Barclays and Goldman Sachs have committed credit facilities of US$225 million, with the balance of the purchase coming from cash on hand and from existing shareholders.

The company is backed by such private equity players as Warburg Pincus, Blackstone Group, BlackRock, Kern Partners, Korea Investment Corp. and the investment arm of the Singapore government.

Shell reducing footprint

It sought buyers two years ago, but pulled the offering a year later when none of the bids matched its view of the value.

Shell announced plans early this year to reduce its footprint in Western Canada by half, starting with the sale in May of conventional gas producing properties in western Alberta to Qatar Petroleum for C$50 million. Other potential divestitures could involve the Groundbirch Montney properties in northeastern British Columbia and the Deep Basin/Fox Creek assets in western Alberta.

Shell is also scaling back its interests in offshore Nova Scotia by reducing its capital costs in the deepwater Shelburne basin.

It has farmed out non-operating stakes of 30 percent to ConocoPhillips and 20 percent to Suncor, while retaining an operated 50 percent working interest in six exploration licenses, which cover 180 miles offshore in water depths of 1,600-11,500 feet.

Shell obtained four of the licenses in 2012 and the other two in 2013 - all of them carrying a six-year term - for a combined work commitment of C$998 million.

It conducted a 3-D seismic shoot last year cover 7,662 square miles and plans to further assess potential drilling locations through a seabed survey this year.

Pending regulatory approval, the first two wells are scheduled for spudding in the second half of 2015.