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Oil sands action in overdrive Syncrude Canada brings possible C$15B expansion back to life; France’s Total bails out of thermal-recovery pilot; Shell hikes costs Gary Park For Petroleum News
Turn your back for a minute these days and you’re bound to miss some action in the Alberta oil sands.
In the space of 48 hours, starting Feb. 24, the news came in a torrent.
• Syncrude Canada pumped fresh life into a 200,000-barrel-per-day expansion of the world’s largest synthetic crude operation, the consortium’s leading partner Canadian Oil Sands Trust disclosed.
The phased additions are expected to raise total bitumen production capacity to 600,000 bpd by 2020, resulting in net synthetic crude output of 425,000 bpd after upgrading, COST said.
But COST said the price gap between synthetic crude and bitumen is too narrow for the partnership to proceed with a fourth upgrader. It currently runs three upgraders, which can produce 350,000 bpd of light sweet synthetic crude.
COST, which owns 36.74 percent of Syncrude, said expansion work is expected to start in 2012 on the first 100,000 bpd mining train at Aurora South, with a second train taking six years from 2014 to add another 100,000 bpd.
COST Chief Executive Officer Marcel Coutu said current economic conditions mean the expansion carries less project execution risk and will yield better returns than building greenfield upgrading facilities, leaving Syncrude to find other processing and refining outlets for its incremental output.
He said Syncrude’s resource base is sufficient to grow beyond the 600,000 bpd productive capacity.
Cost estimated at C$15 billion Although COST did not put a price tag on the expansion, William Lacey, managing director of institutional research at FirstEnergy Capital, estimated the cost at up to C$15 billion based on development of the Kearl oil sands mine by Imperial Oil and ExxonMobil — an C$8 billion project targeting 110,000 bpd, or about C$72,000 per flowing barrel.
That boosts spending on new and revived oil sands projects to more than C$50 billion.
It is not yet clear if all of Syncrude’s partners — Imperial 25 percent, Suncor Energy 12 percent, ConocoPhillips 9.03 percent, Nexen 7.23 percent, Mocal Energy 5 percent and Murphy Oil 5 percent — will give the unanimous support needed to proceed.
ConocoPhillips has indicated it is open to bids for its stake, which analysts estimate would be worth up to C$3.5 billion, as part of its strategy to unload $10 billion of assets over the next two years. Suncor and Nexen both have their hands full with their own oil sands developments.
Reliability an issue Syncrude, under pressure from Imperial, has been striving to achieve production reliability, reaching 360,000 bpd in December, but averaging 330,000 bpd for 2009, down 8,000 bpd from 2008 because of extended work on a coker and related units.
• Total E & P Canada, a wholly owned unit of France’s Total, is scrapping a troublesome thermal-recovery pilot project, one of its hopes to attain oil sands production of 500,000 bpd by 2020.
Alberta’s Energy Resources Conservation Board announced Total has applied to quit the Joslyn site after suspending its steam-assisted gravity drainage project in June 2009.
The pilot was last producing 3,500 bpd, far short of the targeted plateau of 10,000 bpd, “due to constraints on the pressure of steam being injected,” after the ERCB reduced Total’s maximum allowable steam pressure because of a blowout in May 2006 that resulted in four well pairs being shut in by the regulator.
Following an investigation of the incident, the ERCB issued a 1,140-page report Feb. 23 that said although no one was injured and no harmful gases were released, the blowout caused a surface disturbance covering an area of 125 meters by 75 meters, with some rocks being thrown 300 meters horizontally from the main crater.
The ERCB blamed the breach on Total for operating at steam pressures that exceeded the board’s approved levels.
However, Total said many factors were involved in the decision to “dismantle and decommission” the project, mostly involving economics.
SAGD to dominate Steam-assisted gravity drainage is expected to dominate oil sands development as companies move from open-pit mining to extracting bitumen from deeper deposits.
The technology involves twin wells, one injecting steam to melt the bitumen and force it to the surface through the second well. Although now being used at Total’s 50-50 Surmont venture with operator ConocoPhillips and by EnCana, SAGD is still viewed as an evolving system.
Calgary-based consultant StrategyWest has estimated that although SAGD projects avoid the extensive landscape damage caused by mining operations, they produce 65 kilograms of greenhouse gases per barrel of bitumen by using natural gas to generate steam, compared with only 15 kilograms for mining and extraction projects.
Total still has plans for a Joslyn North Mine, which could produce 200,000 bpd of bitumen from two equal-sized mining phases, with an initial capital outlay of C$9 billion. It has indicated a final investment decision is not likely before late 2011.
Total gained an 84 percent interest in the Joslyn assets in 2005 by taking over Deer Creek Energy for C$1.6 billion, but has reduced the stake to 74 percent. Occidental Petroleum holds 15 percent, Japan’s Inpex 10 percent and Laricina Energy 1 percent.
On becoming chief executive officer of the Canadian division last September, Jean-Michel Gires told reporters oil prices of US$80-$85 per barrel would be needed to yield an acceptable return from the company’s estimated 3 billion barrels of oil sands reserves.
Even at $80 per barrel, the cost structure would have to be lowered by a “pretty significant fraction” to yield the required economic benefit, he said.
Other setbacks Total has experienced other setbacks in northern Alberta, failing last year in a bid for UTS Energy, which owns 20 percent of the stalled Fort Hills project, now operated by Suncor Energy, and has withdrawn a regulatory application for its Northern Lights mine, with China’s SinoCanada Petroleum as a 40 percent partner.
However, the ERCB will start hearings on March 16 into an application for an oil sands upgrader designed to come onstream at 150,000 bpd, pending approval of the Joslyn Mine, then double capacity.
Along with ConocoPhillips, Total has also revived plans to boost Surmont production by 83,000 bpd to 110,000 bpd, with first production possible by late 2014, then to 250,000 bpd by 2020-25 at a cost of C$15 billion toC$20 billion.
• The cost of Royal Dutch Shell’s planned 100,000 bpd addition to its Athabasca project has been hiked by US$600 million to US$14.3 billion, said Chevron, which is a 20 percent partner.
Chevron said the expansion will raise total output at the operation to 255,000 bpd.
Shell’s earlier cost estimates for the project started at US$10 billion-$12.8 billion in 2006 and was raised a year ago by Chevron to US$13.7 billion.
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