Oil sands juniors on a roll

Gary Park

For Petroleum News

Assuming final regulatory approval and financing are in place, Southern Pacific Resource expects to start production at a C$430 million thermal oil sands project by mid-2012 and sustain output of 10,000-12,000 barrels per day for at least 30 years.

The Calgary-based junior is poised to start construction this fall, after putting a number of key pieces in place, including acquiring the 19 percent it did not already own of leases covering 193,000 acres; hiring Ron Clarke, a former key manager at Suncor Energy, as its chief operating officer; occupying a trading spot on the Toronto Stock Exchange; and recently concluding a bought deal financing that raised C$101 million.

Once regulatory clearance is received from the Alberta Energy Resources Conservation Board and the Alberta Environment Department, the company expects to fund the remaining portion of the project through public and private market debt.

Southern Pacific’s Chief Executive Officer Byron Lutes said the McKay project “is just around the corner,” now that a front-end engineering and design study has been completed and a detailed wellbore design and budget is on budget and on time.

The company reported it completed a successful 31 core hole exploration program over the past winter and indentified exploitable bitumen resources to support an additional 24,000 bpd of incremental bitumen processing capacity on the McKay block.

Analysts expects approval

He said the startup is distinct from its peers because of its cash flow from almost 4,500 bpd of thermal heavy oil production at its Senlac project in west-central Saskatchewan, after buying Senlac last fall for C$90 million and using techniques that underpin Alberta operations by oil sands major Cenovus Energy.

Lutes said Southern Pacific has no intention of using untried technology at the McKay project.

“We’re too small,” he told an investment symposium. “We’ll let the big guys test the new technology.”

He said the company plans to fund a C$505 million capital budget over the next 18 months, using C$60 million in cash, C$90 million from Senlac cash flow, a C$55 million existing bank line and C$300 million in a new debt facility.

Richard Wyman, an analyst at Canaccord Genuity, said debt markets are breaking out of the deep freeze that hit them in late 2008 and early 2009, giving him confidence that Southern Pacific will secure its debt facilities.

Petrobank also moving ahead

The bitumen recovery process, dubbed THAI, or toe-to-heel-air-injection, lights a fire in the reservoir to melt the bitumen and let it flow to production wells.

McDaniel and Associates Consultants, Petrobank’s reserves evaluator, issued an engineering report earlier this year that concluded the THAI process is working, noting that more than 250 bpd of production had been sustained at the Conklin site for at least three months.

Chris Bloom, Petrobank’s senior vice president, said he is confident that sustained commercial volumes will be achieved this year at Conklin and at a 50-50 heavy oil joint venture at Kerrobert in southern Saskatchewan, where the THAI technology is being applied.

Using fire rather than steam to heat the reservoir is seen by Petrobank as a way to eliminate some of the costly surface infrastructure needed to purify, boil and recycle water, lowering the cost of purchasing natural gas to fuel steam boilers, the biggest single cost element of thermal projects.

Although delayed by some production problems over the past two years, Petrobank is now targeting rates at its three Conklin wells of 1,500 bpd, expects Kerrobert to achieve commercial output in the next few weeks and is pressing ahead with plans for a 10,000 bpd expansion at the Conklin operation once it receives regulatory approval.

The company also plans to test THAI in the Bluesky formation bitumen through a 50-50 joint-venture at Dawson in northwestern Alberta.