Alberta premier baffles industry

Stelmach halts seismic testing at northern Alberta lake granted to privately owned OSUM Oil Sands, over-ruling his own regulators

Gary Park

For Petroleum News

Alberta Premier Ed Stelmach has left the industry groping around in a policy fog after halting seismic testing at a northern Alberta lake, over-ruling his own government’s regulators in the process.

Faced with strong public opposition, including demands that the province either buy back or exchange the lease, he suspended a seismic license granted to privately owned OSUM Oil Sands to run tests at Marie Lake, 180 miles northeast of Edmonton, in hopes of establishing a 30,000 barrel per day operation.

In the wake of Stelmach’s decision to suspend the seismic work, the government had difficulty explaining what direction it was taking.

The premier said that because the bitumen recovery technology proposed by OSUM was unproven. “I have decided that seismic testing at Marie Lake will not proceed,” he said.

The Ministry of Sustainable Resource Development approved the testing procedures in August, including the use of underwater air guns to evaluate a bitumen deposit under the lake, while attaching a long list of conditions.

OSUM promised to post an C$80,000 environmental security deposit and agreed to make a 30 percent reduction in the planned use of the air guns for an echo-sounding seismic survey.

GLJ Petroleum Consulting has estimated the net recoverable resources at 1.1 billion barrels as a result of winter drilling and preliminary seismic activities, but no reserves can be booked until a commercial project is approved.

Area residents complained

“This shows I’m keeping my word and trying to find a balance between continued economic growth, developing our resources and the environment,” said Stelmach, who was elected premier nine months ago.

The Canadian Association of Petroleum Producers was troubled by the turn of events. It is not certain whether Stelmach is more concerned about the marine seismic testing or the steam-assisted gravity drainage technology OSUM planned to use in removing bitumen from under Marie Lake.

David Pryce, vice president of Western Canadian operations, told reporters that if the decision is a precedent it could affect the continuity of Alberta’s regulatory process, leaving oil and gas companies uncertain whether there is a new “risk factor” when they bid for mineral leases.

A spokesman for Energy Minister Mel Knight told reporters OSUM’s seismic testing will be suspended only until the government establishes a new policy for mining bitumen beneath water bodies.

But he was unable to say when that policy would be released, saying “this is very early in the process.”

Open for business?

He noted that the oil and gas industry has conducted seismic testing on more than 30 lakes in Alberta “without negative impact.”

In corporate presentations, OSUM said its version of SAGD is proven, referring to pilot projects carried out by the former Alberta Oil Sands Technology and Research Authority.

OSUM President Peter Putnam said in a statement that the SAGD recovery mechanism is similar to methods used “throughout the oil sands” except that the wells for Marie Lake would extend from a tunnel far below ground rather than from pads on the surface.

He told an investment symposium in June that technology would cut well costs by 60 percent and make production of the Marie Lake bitumen profitable with oil prices at US$40 per barrel.

Putnam said the proposed method involves access to upper tier reservoirs that are currently viewed as inaccessible, impractical or uneconomic; reduces lifting costs; improves thermal process efficiency; and minimizes environmental impacts.

OSUM’s property is alongside three major oil sands ventures — Imperial Oil’s 160,000 bpd operation at Cold Lake, Husky Energy’s 30,000 bpd Tucker project and the initial 13,500 bpd phase of Shell Canada’s Orion oil sands project.