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Cenovus hikes Canada oil sands, conventional output

Cenovus Energy Inc., Calgary, reported a 15% increase in its western Canadian oil production in the quarter ended Mar. 31 on strong performance by its Christina Lake oil sands project.

The increased crude oil output was offset by a 27% decline in the average crude oil sales price the company received compared with the same period a year earlier, but the lower oil prices benefited refining operations, Cenovus noted.

Combined oil sands production at Foster Creek and Christina Lake averaged 100,347 b/d, up 22% from the 2012 first quarter. Christina Lake output rose 79% to an average 44,351 b/d net while Foster Creek was down 2% on greater than expected downtime on some production wells.

Conventional oil production, including Pelican Lake, averaged almost 80,000 b/d in the quarter, a 7% increase.

The company is operating five phases at Foster Creek and four at Christina Lake, and expansions continue at each project. A combined 85,000 b/d of gross production capacity is expected to be added before the end of 2014.

Meanwhile, Cenovus has begun moving wells at Foster Creek into blowdown, the final phase of production. This is a first at a major commercial steam-assisted gravity drainage project.

As SAGD wells are prepared for blowdown, steam injection is reduced and pressure is maintained with the coinjection of methane. In full blowdown, the well continues to produce without steam, which lowers operating costs. The steam is redirected to a newer well pad. One well pad at Foster Creek entered full blowdown mode in the first quarter and two more are being converted.

Cenovus has also begun work on the Narrows Lake oil sands project. Cenovus owns its oil sands projects 50-50 with ConocoPhillips.

The company said it continues to achieve among the lowest steam-oil ratios in the industry. The first quarter SOR at Christina Lake was 1.9, down from 2.1 in the same period a year ago, due to increased production.

Foster Creek’s SOR was 2.4, compared with 2.1 in the first quarter of 2012, due to slightly lower production. The SOR at Foster Creek is expected to decrease once production returns to anticipated rates and the company sees the benefits that are anticipated from moving to blowdown. The combined SOR for Cenovus’'s oil sands operations was 2.2 in the first quarter of 2013.

The predictability of Cenovus’s oil production growth, combined with its financial strength, gives the company the confidence to consider support for all proposed major pipeline projects that would provide greater access to existing markets and potentially add new ones. Without pipelines to new markets, Cenovus said, Canada’s oil industry will continue to leave billions of dollars in lost revenues on the table every year to the detriment of all Canadians.

Cenovus drilled 315 gross stratigraphic test wells in the first quarter, primarily to support the expansion and development of the company’s oil sands projects.

Cenovus said its first quarter natural gas production in Alberta was 545 MMcfd, down 14% from the same period last year, and that it expects to manage declines of 10-15%/year targeting a long-term level of 400-500 MMcfd to match the company’s future anticipated internal consumption at its oil sands and refining facilities.

Oil sands expansions

Cenovus updated expansion progress on its oil sands projects in northern Alberta.

The Christina Lake phase E project is about 90% complete, and first production is expected in the third quarter of 2013. Procurement, plant construction, and major equipment fabrication continue for phase F. Engineering work continues for phase G.

At Foster Creek, overall progress of the combined F, G, and H expansion is 46% complete, while the phase F central plant is about 73% complete. First production at phase F is expected in the third quarter of 2014. Module assembly and piling work continues at phase G, while site preparation, piling work, and major equipment procurement are underway for phase H.

Combined capital investment at Foster Creek and Christina Lake was $385 million in the first quarter, up 30% from the same period in 2012. This includes spending on the expansion phases, stratigraphic test wells, and maintenance capital.

During the first quarter, Cenovus submitted regulatory applications and environmental impact assessments for Christina Lake phase H and Foster Creek phase J, with regulatory approvals anticipated in the fourth quarter of 2014 and the first quarter of 2015, respectively.

Emerging projects

Cenovus also updated the status of emerging 100% owned oil sands projects at Grand Rapids and Telephone Lake.

An SAGD pilot is under way at the Grand Rapids project in the Greater Pelican region, and first production from a second well pair was achieved in February.

The regulatory application and environmental assessment for a 180,000 b/d commercial project are filed and proceeding, and Cenovus anticipates regulatory approval for Grand Rapids by the end of 2013.

Grand Rapids capital investment was $18 million in the first quarter of 2013, down from $34 million a year ago mainly because a stratigraphic test well drilling initially scheduled for the first quarter of this year was advanced into the fourth quarter of 2012.

Regulatory approval is expected in 2014 for the Telephone Lake property in the Borealis region of northern Alberta.

Cenovus is continuing its dewatering pilot project designed to remove a layer of nonpotable water that is sitting atop the Telephone Lake oil sands. Dewatering is not essential to the development, but Cenovus believes it could improve the project’s SORs by as much as 30%.

Consistent with the development plan, capital spending in the first quarter was $53 million, down from $91 million a year earlier.

Pelican Lake conventional oil

Cenovus’s oil sands segment manages its 100% owned Pelican Lake operation, which produces conventional heavy oil from the Wabiskaw formation 300 km north of Edmonton.

Cenovus has been injecting polymer since 2006 to enhance production from the reservoir, which is also under waterflood. Based on reservoir performance of the polymer program, the company has a multiyear growth plan for Pelican Lake with production expected to reach 55,000 b/d.

Pelican Lake averaged 23,687 b/d in the first quarter of 2013, up 14% from the same 2012 quarter due to the expansion of infill drilling and polymer injection.

In the first quarter, production response from the company’s infill drilling and polymer flood program was slower than expected for some of the well pads as it is taking longer to build reservoir pressure. Stronger production growth is expected later this year and in 2014 in response to the polymer injection.

Cenovus invested $143 million at Pelican Lake in the first quarter but has decided to delay some capital investment originally planned for 2013 to align spending with the current polymer response. It is trimming four drilling rigs to two but still plans to drill about 1,000 more production and injection wells in the next 5-7 years to expand the polymer flood.


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