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Oil sands ride out storm Tight capital, cash flow pressures and pipeline uncertainty fail to deter ongoing investments in thermal recovery oil sector Gary Park For Petroleum News
A profusion of emerging junior producers and a powerful line-up of established operators are spearheading Alberta’s thermal-recovery oil sector, keeping the industry functioning through the downturn in conventional natural gas and oil activities.
They are shrugging off uncertainty over pipeline plans, wide crude-price differentials and lower benchmark prices that have seen conventional producers slash capital budgets and shut in dry gas.
The common message at a TD Securities energy conference in Calgary earlier this month was captured by Nick Olds, senior vice-president of oil sands at ConocoPhillips Canada.
“This year we’re investing C$2.3 billion in our assets” which currently produce 67,000 barrels per day, he said.
“We’ll double that production in five years and double it again in five years from there.”
TD analyst Menno Hulshof, who moderated some of the panel discussions, said most oil sands players have the balance sheet strength to continue building, despite tight capital markets and cash flow pressure, although he said mid- and smaller-cap companies may be a “bit constrained.”
Juniors still enthusiastic However, a parade of juniors laid out plans for their own steam-assisted gravity drainage (SAGD), indicating they are on the verge of joining senior producers in the ranks of commercial scale operations.
BlackPearl Resources reported that its Blackrod project is producing more than 400 barrels per day only 10 months after starting steam injection on its property in the Athabasca region of northeastern Alberta.
The pilot is scheduled for expansion in early 2013 as BlackPearl pursues its goal of a three-phase project, starting at 20,000 bpd and adding two more stages of 30,000 bpd each.
Regulatory approval is expected within 18 to 24 months and construction of the first phase is estimated to last 12 to 18 months, with peak production targeted for 2016.
Although commercial development will need external financing, BlackPearl is funding its current activities from cash flow, with 70 percent of its output coming from a 6,700 barrels of oil equivalent per day Onion Lake project in Saskatchewan.
Sunshine Oilsands, nearly half of whose shares are in the hands of Asian investors, has budgeted C$215 million this year towards construction of a 10,000 bpd initial phase of its BlackGold SAGD project, which is expected to deliver first oil in 2014.
The company’s array of Asian stakeholders includes Sinopec (8 percent), China Investment Corp. (8 percent), Bank of China (7 percent), China Life Insurance (5 percent), Hong Kong private equity firm Cross-Strait Common Development Fund (3 percent) and Orient International Resources (10 percent).
Those investments along with an initial public offering have provided a C$400 million bank balance for Sunshine.
Longer term, the company is confident it can produce 100,000 bpd from its West Ells lease and 50,000 bpd each from Thickwood and Legend Lake.
Regulatory approval of West Ells has raised Sunshine’s proved reserves to 80 million barrels, while its aggregate proved-plus-probable holdings are 445 million barrels. In addition, the company estimates it has 1.345 billion barrels of recoverable bitumen resource in various carbonate rock formations.
“We are particularly encouraged to see progress in our carbonate reservoir resource recognition, since we have captured large trends of this resource type and we are progressing our examination of suitable technologies for extraction,” said Sunshine chief executive officer John Zahary.
Other projects ongoing Grizzly Oil Sands is counting on its first bitumen production in 2013 from its 10,000-12,000 bpd Algar Lake SAGD project and expects to file a regulatory application this quarter for a separate 10,000 bpd SAGD facility.
Earlier this year, the company acquired the May River lands of Petrobank Energy and Resources for C$225 million and plans to file a regulatory application within the next year for a full-field project to produce 70,000 bpd.
Cavalier Energy, created late in 2011 by Paramount Resources as a thermal oil developer is on track to file a regulatory application in the fourth quarter for a C$450 million, 10,000 bpd SAGD project at the Grand Rapid formation, aiming to start production in 2016.
SilverWillow Energy, another newcomer, has drilled 72 core holes, conducted mini-frac tests and is now working on the engineering and design of processing facilities in preparation for a regulatory filing for a 12,000 bpd SSAGD operation to come on stream in 2016.
Ivanhoe Energy filed with Alberta regulators in November 2010 and hopes for approval this year to bring a 20,000 bpd first phase project onstream in 2015.
One of the most watched plans is by PetroChina which bought out all of Athabasca Oil’s McKay property in two stages and anticipates a SAGD project at the site, making it the first Chinese operator of an oil sands venture.
Athabasca itself hopes for regulatory approval this year of an initial 12,000 bpd conventional SAGD project, pointing to an eventual operation of 80,000 bpd.
Outside of the Athabasca region, Royal Dutch Shell is hoping to break new ground in the Peace River region of northwestern Alberta after facing a marathon regulatory process that has stretched over two and a-half years.
Its Carmon Creek thermal project is designed to have two phases of 40,000 bpd each, making the first use of a vertical steam drive (VSD) technology, rather than the SAGD and cycling steam stimulation (CSS) processes other thermal producers are using.
It chose VSD, which is estimated to have a recovery factor of more than 50 percent, after testing a whole range of methods since the 1960s to unlock the massive Bluesky bitumen formation.
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