Petrobank sheds assets

Canadian oil sands player Petrobank Energy and Resources has sold one of its leases amid its struggles to perfect a new technology to develop its heavy oil and bitumen deposits.

It has sold the May River lease to privately owned Grizzly Oil Sands for C$225 million four years after filing a regulatory application for an initial phase of 10,000-15,000 barrels per day, targeting an eventual 100,000 bpd.

But Petrobank’s ambitions have been stalled by hitches with its so-called THAI, or toe-to-heel air injection system, to recover and partially upgrade its resources underground.

As a result, its test facility in northeastern Alberta was closed last fall.

Alan Knowles, principal at Haywood Securities, said that despite Petrobank’s confidence in the THAI process the system has not yet been “clearly demonstrated” at its Kerrobert lease in Saskatchewan.

He said the deal with Grizzly removes the “perceived risk from the marketplace” and allows Petrobank to divert the proceeds into more conventional heavy oil plays.

Petrobank had planned to spend C$10 million of its C$34 million capital budget for 2012 at Kerrobert, with another C$10 million-$12 million earmarked for its Dawson heavy oil demonstration project in northwestern Alberta.

The company recently laid off more than 20 employees in a corporate realignment to curb rising costs.

Grizzly said the deal adds about 45,000 acres to its 800,000 net acres of oil sands leases and 3 billion barrels of reserves and resources, which it plans to develop with more conventional steam-assisted gravity drainage technology.

Grizzly Chief Executive Officer John Pearce said in a statement that once the transaction closes, Grizzly will prepare a regulatory application for “full field development.”

—Gary Park