Big Canadian miscible CO 2 EOR project, pipeline advance

Map of proposed route for CO [33357 bytes]₂ pipeline

Incremental oil output from the massive Weyburn pool in southeastern Saskatchewan stands to advance after 2000.

Ending a process that has been years in the planning stages, Weyburn unit operator PanCanadian Petroleum Ltd., Calgary, and 36 working interest owners plan to begin a $1.1 billion (Canadian) miscible carbon dioxide enhanced oil recovery project in 1999.

The project will use CO₂ that will be shipped to the field via a new 202-mile pipeline to be built by Dakota Gasification Co. (DGC), Bismarck, N.D. (OGJ, May 26, 1997, p. 18).

DGC will own and operate the pipeline, which will cost more than $100 million (U.S.).

The initiative will extend the producing life of the Weyburn unit by more than 25 years and recover at least another 122 million bbl from the field, said David A. Tuer, PanCanadian president and CEO.

Source, pipeline

The CO₂ source for the tertiary EOR project will be DGC's Great Plains coal gasification complex at Beulah, N.D.

The CO₂ to be used for the miscible flood-which will involve injection, recovery, and recycling in the producing reservoir-will be the byproduct of DGC's lignite coal-to-natural gas conversion process. The Beulah complex, operating since 1984, produces more than 54 bcf/year of gas from lignite coal.

The CO₂ will be provided under a 15-year contract with DGC.

During the life of the project, the total cost of the CO₂ will be $700 million (Canadian).

The U.S. segment of the 10-in. and 12-in. pipeline will be 12 in. and extend about 168 miles. It will cross the international boundary southwest of Estevan, Sask. PanCanadian will take possession of the CO₂ at a receiving terminal planned inside the southern boundary of Weyburn Unit.

Project specifics

The Weyburn EOR project-Canada's largest commercial CO₂ project and PanCanadian's largest-ever single capital investment-was recently approved by a majority of the unit's working interest partners.

Weyburn Unit encompasses 52,000 acres, southeast of Weyburn, Sask.

Construction of the pipeline compressors and surface facilities will begin in mid-1998, and the pipeline will be laid in summer 1999.

Cost of surface facilities will be $400 million (Canadian).

Injection will start late in 1999. First incremental oil is set for 2000.

PanCanadian will inject 95 MMcfd of CO₂ into the Midale reservoir to help boost declining production to nearly 30,000 b/d (gross) by 2008 from the present rate of about 22,000 b/d.

Current production will continue to fall to an anticipated low of about 18,000 b/d prior to injection start.

If the project is not implemented, PanCanadian said it expects the current production rate would drop by about half in 2000-01.

The Midale is encountered at an average depth of 4,655 ft. Production of 25-34? gravity oil averaged 22,694 b/d in 1996. Oil produced from the unit also includes small volumes of solution gas.

PanCanadian will use existing wells for the project, but some new wells will be drilled. Injection will also include horizontal wells.

As many as 75 injection patterns will be used in the miscible flood. Initially, injection will involve 17 patterns of nine wells each, representing about 25% of the total project area. It will be expanded to 36 patterns after injection is under way, ultimately reaching 75.

Weyburn Unit currently has 534 vertical wells, 115 horizontal wells, and 171 injection wells.

Another 146 are suspended or abandoned.

Weyburn background

Weyburn, one of the largest fields in Canada, was discovered in December 1954 by Central Del Rio Oils Ltd., which became a part of PanCanadian in 1971.

Weyburn field had 1.28 billion bbl of original oil in place at the time of discovery. It was unitized in 1962.

Cumulative production as of yearend 1996 totaled 328 million bbl, or about 25% of OOIP.

PanCanadian estimates 34% of OOIP could be recovered ultimately via waterflooding.

The field has been under waterflood for more than 30 years, and production peaked in the mid-1960s at more than 45,000 b/d.

To mitigate declining production rates, PanCanadian began infill drilling on closer well spacing using vertically drilled wells. That effort was followed by drilling single lateral horizontal development wells early in the 1990s, followed by multilateral horizontals.

"Each application of technology has rejuvenated production, but it's now time to apply a new technology," said Gerard J. Protti, PanCanadian's Operations group vice-president.

Larger issues

In addition to boosting unit output, officials said the project will yield significant environmental and economic benefits.

The CO₂ that will be used in the miscible injection project is now vented into the atmosphere at the Beulah plant.

The volumes to be injected at Weyburn are the equivalent of the annual exhaust emissions of 100,000 cars, according to PanCanadian.

"This project represents a major international effort by two countries to cut the emissions of carbon dioxide," said Protti. "It has the potential to become the world's largest joint-implementation project."

Protti said the CO₂ pipeline "sets the foundation for an international development that will not only help Weyburn but also other mature oil fields in Southeast Saskatchewan."

There is also potential to market CO₂ for oil fields in North Dakota and Montana, DGC officials said late in May.

DGC's board approved the project June 10, and PanCanadian approved it 10 days later.

PanCanadian said besides benefits to be gained by revitalized production and the environmental pluses, there are significant economic benefits to be derived from the $1.1 billion investment and the $600 million (Canadian) in operating expenses expected during the life of the project.

An economic study of the project by the University of Saskatchewan indicates that 1,400 direct and indirect jobs will be created as a result of the project by about 2010, the estimated peak activity period. Also, the capital investment is expected to generate $8.6 billion for Saskatchewan's gross domestic product during the life of the project.

Provincial support

To ensure the economic viability of the project, Saskatchewan approved major new incentives for oil extraction, including changing its oil royalty and tax structure on EOR projects.

The provincial government is foregoing its 7% sales tax on the purchase of the CO₂, and the remaining old oil in the unit will be reclassified as new oil. The province has a different royalty structure for oil based on its discovery date.

"By reclassifying old oil to new, we slightly lower the effective royalty rate," said Saskatchewan Energy and Mines Minister Eldon Lautermilch. "This rate will be applicable to oil in the unit being recovered by conventional technology."

Under the new EOR tax/royalty scheme, the project will be subject to a gross royalty rate of 1% as opposed to the standard 4%, prior to the point at which the project's capital costs have been recovered.

After payout, a 20% royalty will be applied to the project's operating revenues instead of the normal 30% royalty.

Lautermilch said, "We look upon these few concessions as an investment in the future of Saskatchewan...at the same time, our terms do not expose the taxpayers to any financial risk."

Lautermilch said, "The government will recover an estimated $585 million (Canadian) in resource royalties and taxes over the lifetime of the project, revenues that we would not have otherwise seen because the oil could not have been extracted by conventional means."

Lautermilch said, "The project will, hopefully, serve as an anchor for similar projects by creating the infrastructure...stimulating more resource recovery for the people of Saskatchewan and starting the resource-benefit cycle all over again."

Asset swap

In conjunction with project approval, PanCanadian and Shell Canada Ltd., Calgary, agreed to an asset swap.

On July 1, 1997, PanCanadian's 44% ownership in the Weyburn Unit increased to 69%.

Until the swap, Shell, with a 25% working interest, had been the largest working interest owner in the unit besides PanCanadian.

Shell gained PanCanadian's interest in the Shell-operated Jumping Pound natural gas field in Alberta (OGJ, June 9, 1997, p. 72).

PanCanadian said the swap is consistent with each company's long-term strategy to focus on core assets.

As a result, PanCanadian gains about 5,000 b/d (gross) of oil equivalent from Weyburn Unit, Shell gets about 3,500 boed from Jumping Pound, resulting in a net increase to PanCanadian of about 1,500 boed.