Changes afoot in oil sands project

Gary Park

Petroleum News Calgary Correspondent

The Surmont oil sands project in northern Alberta is facing a reserves writedown and the loss of Devon Energy as a partner.

ConocoPhillips Canada, the 43.5 percent operator, said Jan. 6 it is about to lower the crude oil reserves at the lease, blaming unusually low Canadian bitumen prices at the end of 2004.

Separately, Devon announced Jan. 6 it was auctioning off its 13 percent stake in the C$1.4 billion venture. Total holds the remaining 43.5 percent.

Construction started on Surmont in 2004 and initial production is expected in 2006, starting at 27,000 barrels per day and climbing to about 100,000 bpd by 2012.

The leases have an estimated 15 billion barrels of bitumen in place, of which 5 billion barrels are thought to be recoverable using steam-assisted gravity drainage technology. ConocoPhillips did not indicate how large the reserves revision would be, but said Surmont remains a valuable asset in its portfolio.

Although Devon is auctioning off its Surmont holding, with Waterous & Co, acting as financial advisor, it is not pulling out of the oil sands.

Although faced with environmental opposition from the Alberta-based Pembina Institute for Appropriate Development, the large U.S. independent is pushing ahead with plans for Jackfish — a C$500 million project that is targeted to come on stram in 2007, grow to full production of 35,000 bpd in 2008 and have a 25-year operating life.

There was no immediate indication whether ConocoPhillips or Total would bid for the Devon stake and neither was given the opportunity to buy the holding, although both have the right to match any offers that are made.

However, Total E&P Canada President Jean-Luc Guiziou said last fall that his company is looking at opportunities to expand its oil sands presence. He said that having another project of Surmont’s size “is of interest” to the French oil giant.

Total has a major role in Venezuela’s heavy oil plays and is eager to develop its expertise in so-called in-situ operations that use steam-assisted gravity drainage rather than the traditional oil sands mining projects.

The bidding closes March 7. For now, the betting among analysts is that ConocoPhillips and Total will end up as 50-50 partners, so that neither is calling the shot.