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The bigger they are … Major oil sands players jittery about impact of tax, environmental changes, but Oilsands Quest, Enerplus Resources Fund and Value Creation take bold strides Gary Park For Petroleum News
On the mega-scale, these are uneasy times for Alberta’s oil sands operators.
At the minnow end, there is no sign of dwindling ambitions.
For the large companies, on edge as they await the Canadian government’s regulations on greenhouse gas emissions, the latest federal budget is an added source of concern.
The government’s decision to remove a 10-year-old tax break for “major construction” in the oil sands left them unsure where the dividing line exists.
The budget said cancellation of the Accelerated Capital Cost Allowance, that offered a tax break until project capital costs were paid off, would be phased in for those who have “commenced major construction” before release of the budget on March 19.
Companies unable to meet the definition of “major construction” have until 2010 to claim the ACCA before facing a schedule that will reduce the tax break from 100 percent to 25 percent over the 2011-2015 period.
Several companies finalizing plans
Petro-Canada, Imperial Oil and Synenco Energy are among the oil sands developers finalizing plans for large-scale operations.
But they don’t know where they stand in the phaseout schedule and will likely have to seek direct government rulings, especially if their plans involve extensions to existing facilities.
There is no consensus among analysts over the impact of losing the ACCA. UBS Securities Canada, Tristone Capital and Raymond James think it will be only minimal, while RBC Dominion Securities said project economics after 2010 could take a heavy setback as “unrisked net asset values decline by as much as 3.5 percent to 17.5 percent. The phaseout of the ACCA results in oil prices needing to be $0.50-$3 per barrel higher than prior to the new legislation.”
Such projections have set off rumblings that the budget will be just another cost-inflation factor resulting in some projects being shelved.
Oilsands Quest moving ahead But not everyone is retreating from the uncertainties over changes to tax and environmental legislation.
Oilsands Quest, formerly CanWest Petroleum, is continuing to push the oil sands horizons into eastern Alberta and Saskatchewan.
It spent C$25 million at the mid-March Alberta government land sale rounding up 67,000 acres, immediately west of its Axe Lake discovery in northwestern Saskatchewan.
After two winters of drilling, Oilsands Quest said March 26 it has put a “best preliminary estimate” of 600 million to 750 million barrels of original bitumen in place, with 50 percent recoverable. Its high estimate is 1.25 billion to 1.5 billion barrels.
The company is now engaged in pre-commercialization studies and planning summer laboratory tests to assess the best recovery method.
Oilsands Quest Executive Chairman Murray Wilson told a conference call that the data is needed to start negotiating with prospective joint venture partners and achieve “optimal terms.”
Chief Executive Officer Christopher Hopkins said that in addition to what the drilling program is establishing on the Axe Lake discovery lands, seismic surveys on both sides of the Alberta-Saskatchewan border earlier last winter “strongly supported” purchase of the Alberta leases.
Its successful bids at the Alberta auction involved the highest prices for the two single parcels sold and accounted for one-third of the C$70 million spent on oil sands parcels.
Oilsands Quest made its debut as a private company in 2004 before merging with Colorado-based CanWest Petroleum in summer 2006.
It completed 120 wells during the winter in Saskatchewan, reaching its target of 100 wells at Axe Lake, and eight rigs are still at work as the focus moves to exploration areas north and south of Axe Lake.
Hopkins said the drilling results will help identify locations for next winter, while the company expands its exploration effort.
Oilsands Quest recently announced the initial closing of a private placement of C$30 million with a syndicate of underwriters on a bought-deal basis.
Others also investing Other oil sands developments include:
• An investment of C$183 million by Enerplus Resources Fund for a 90 percent stake in the privately held Kirby Oil Sands Partnership, which controls 43,360 gross acres of leases deemed suitable for steam-assisted recovery southeast of Fort McMurray.
The trust said the leases may hold as much as 244 million barrels of resources, giving it a quality long-term asset.
Enerplus will be operator of the site, expanding its role from a 15 percent stake in the Joslyn project operated by France’s Total.
The Joslyn plan has been modified to come on stream in 2013, three years behind the original target, at 100,000 bpd instead of two stages of 50,000 bpd each.
Enerplus also has a working interest in leases with privately owned Laricina Energy.
The trust expects the Kirby project to cost C$320 million and start producing 10,000 bpd in 2011. Additions could push that total to 40,000 bpd, but starting small allows the trust to better manage labor and equipment costs.
• Privately held Value Creation plans to combine a steam-assisted production operation with its “tailor made” upgrading technology to develop a new oil sands project it hopes to bring into service at 40,000 bpd in 2011 and grow to 80,000 bpd at a cost of C$3.5 billion-$4 billion.
The company said integration of its upgrading technologies will eventually require only minimal amounts of natural gas, while in-situ recovery will yield cost advantages and higher bitumen recovery.
Value Creation Chairman Columba Yeung said his company’s wholly owned resource base gives it a foundation to become a “major oil sands player.”
BA Energy, an affiliate of Value Creation, is currently building its Heartland upgrader with approved capacity of 260,000 bpd, starting at 77,500 bpd in 2008.
He said the upgrader will “commercially prove our ‘breakthrough’ upgrading technologies.”
• Synenco Energy reported a 12 percent hike to 1.67 billion barrels of its in-place resource estimates for its Northern Lights project leases.
Synenco, with a 60 percent interest, is the managing partner and operator of Northern Lights, with the balance held by a wholly owned Canadian subsidiary of China’s Sinopec.
The project is aiming to produce 100,000 bpd of synthetic crude over 30 years, with the first phase budget for a mining and extraction facility set at C$4.4 billion. The first crude is due to flow by mid-2011.
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