Oil sands startup on a roll

UTS Energy, an oil sands startup with a 20 percent stake in Petro-Canada’s Fort Hills project, has scored hits on two fronts over the past month.

Independent evaluations estimate the three leases it jointly holds with mining giant Teck Cominco in the Wood Buffalo region of northeastern Alberta hold at least 2.4 billion barrels of bitumen resources.

UTS says that is sufficient to support development of at least 300,000 barrels per day.

Earlier, UTS said its net cost for the first stage of Fort Hills will be a net C$61,363 per flowing barrel of synthetic crude, while its two partners, Petro-Canada (60 percent) and Teck (20 percent), have provided guidance for their portion at C$100,000 per barrel.

Having farmed into the project, Petro-Canada and Teck face higher carrying costs.

The bitumen evaluations are tied to only two of the three leases, with mineable bitumen posted at 400 million barrels and 2 billion-2.8 billion barrels for a combined area of 34,000 acres. In-place resources for the third lease are expected to be disclosed at a later date.

UTS President Will Roach said his company has a “significant discovery on the west side of the Athabasca River,” based on results from the 2006-07 drilling program.

The partners plan to conduct extensive core-hole drilling this winter, aiming to determine contingent resources by the end of 2008.

UBS Securities analyst Andrew Potter said that although the resource base for the largest of the two leases is “lower than we had assumed, it still confirms a massive new bitumen deposit.” Roach said that of the 10 core holes drilled last winter, six encountered oil sands and three are potentially mineable.

Although there are a number of potential options to produce bitumen from each of the leases, no decisions have been made on a number of aspects, including marketing and transportation, or joint development with other area operators.

Meanwhile, Roach said the UTS share of Fort Hills’ first phase is C$1.89 billion of a total cost of C$15.2 billion, while it will claim 30,800 bpd of total output of 154,000 bpd. Front-end engineering for the project is due for completion in the third quarter of 2008, with initial production due in 2011.

—Gary Park