OILSANDS PLAY LARGER ROLE IN CANADIAN OIL PRODUCTION

Sweet synthetic crude from vast bitumen deposits in northern Alberta is playing an increasing part in Canadian oil production. That's largely because conventional crude reserves in Alberta, by far Canada's biggest producing province, are in steady decline.

Alberta oilsand deposits hold an estimated 1.7 trillion bbl of oil in place. Athabasca sands, the largest deposit where two large commercial recovery and processing operations are sited, hold an estimated 870 billion bbl of bitumen. The bitumen, a thick mixture of oil-impregnated sand in sandstone and carbonate formations, must be processed to extract the oil.

As much as 307 billion bbl could be recovered from all oilsand deposits in the Athabasca, Cold Lake, and Peace River regions by in situ technology in use or under development.

The Alberta Energy Resources Conservation Board (ERCB) estimates remaining reserves of crude bitumen from deposits under development by surface mining as of December 1992 at 2.734 billion bbl. It estimates remaining reserves at in situ recovery programs at 304 million bbl.

Only a small fraction of oilsand assets is being worked. ERCB figures show the two commercial operations in the Athabasca sands produced a combined 88 million bbl of light crude oil in 1992.

The National Energy Board says combined production from oilsands and heavy oil operations could account for more than 50% of Canada's total crude oil production by 2010.

COST REDUCTION

New technology and increased operating efficiency have steadily reduced the cost of bitumen production at Alberta's two major commercial oilsand operations in the Fort McMurray region, 300 miles north of Edmonton. Executives of both operators-Syncrude Canada Ltd. and Suncor Inc.--forecast that costs are close to and will reach levels competitive with new conventional crude production.

Eric P. Newell, Syncrude president and chief executive officer, said his company's unit operating cost of about $15/bbl (Canadian) is competitive with new sources of conventional oil. He said a survey by Powerwest Financial, an industry analyst, estimated finding costs for new conventional oil at $8-12/bbl.

"Our finding costs, of course, are zero because we know where the oil is," Newell said.

"When you add production costs to finding costs, new conventional oil in Canada costs $10-15/bbl to find and produce, which is very close to Syncrude's unit production costs."

PRODUCTION VOLUMES

Oilsand production from commercial plants in the Athabasca deposit in the Fort McMurray region accounted for more than 16% of Canadian oil production in 1992.

Surface mining and processing plants operated by Syncrude and Suncor produced a combined average of 240,000 b/d in 1992. That is forecast to rise to 256,000 b/d this year.

Sun Co. Inc. is the majority shareholder in Suncor.

Syncrude, a combine of private companies and the Alberta government, is the world's largest synthetic crude producer.

Group members include Alberta Energy Ltd., Alberta Oil Sands Equity (the Alberta government), Canadian Occidental Petroleum Ltd., Gulf Canada Resources Ltd., Imperial Oil Resources, Mocal Energy Ltd. (a unit of Japan's Mitsubishi), PanCanadian Petroleum Ltd., Petro-Canada, and HBOG-Oil Sands Ltd. (Talisman Energy Inc.).

Amoco Canada Petroleum Ltd., owner of a 3.75% interest in Syncrude through HBOG, disclosed last month it will sell its interest to Alberta Energy, which will jump its stake to 13.75% when the deal closes in September.

The Syncrude joint venture group produced an average 180,000 b/d in 1992 and reached a production milestone of 600 million bbl last September since beginning operations in 1978. The production of 65.4 million/bbl of light synthetic crude accounted for 12% of Canadian oil production in 1992.

Syncrude reckons it is on track to reach a target of 68 million bbl this year, or an average 188,000 b/d.

It processes about 325,000 metric tons/day of oil sand to produce 390,000 b/d of diluted bitumen, making it the largest mine operation in the world in terms of ore processed. The total is 600,000 metric tons/day if overburden and other materials handled by draglines are included.

The average overburden at the Syncrude mine is 62 ft, and the oilsand formation averages a depth of 137 ft.

The company is Canada's third largest crude oil producer behind top ranked Imperial Oil Ltd. and Amoco Canada Petroleum Ltd.

Syncrude has made more than $1.1 billion in payments to the Alberta government, and the government's 16.74% share has earned more than $530 million in profits on equity.

Unlike many ventures involving industry and government, the Syncrude combine has turned a profit every year since its inception. It currently pumps more than $1.1 billion/year in operational and capital funds into the Canadian economy.

Syncrude and Suncor have experienced shutdowns of processing that caused production delays.

Suncor had an electrical power failure last December that disrupted production. The plant resumed operation Jan. 6 and was back to average production of 60,000 b/d by mid-January.

Syncrude and eight other plaintiffs are involved in a $600 million lawsuit against Stearns Catalytic Ltd. and its parent Air Products Co. Inc.

The plaintiffs allege they are entitled to damages from a massive fire in 1984. They say Stearns used the wrong material in a pipe carrying superheated bitumen under pressure that could not withstand corrosion.

The Alberta government, one of the plaintiffs in the case, said the fire in one of two coker units shut down production for 31 days at a cost of $104 million to Syncrude and lost royalty and equity interest to the government of more than $280 million.

PRODUCTION LANDMARK

Syncrude and Suncor set another landmark last fall when their combined cumulative production topped the 1 billion bbl mark. That total makes oilsand operations Canada's second largest cumulative oil producer, outranked only by Alberta's Pembina field with more than 1.2 billion bbl.

While synthetic crude production is steadily increasing, reserves of conventional crude have been on a steady slide for a number of years as existing pools deplete and major new discoveries become more scarce.

As of Dec. 31, 1991, ERCB said Alberta's remaining established reserves of conventional light crude were 2.9 billion bbl, a decline of 8% from the previous year and a continuation of a downward trend. In a decade, the life index of remaining oil has declined to 9 years from 12.3 years.

The board, however, estimates Alberta's remaining but vet to be established reserves at 3.6 billion bbl, subject to favorable economics and improvements in technology.

Syncrude's Newell points out that Alberta's conventional light crude production has declined to about 760,000 b/d while oilsand production has doubled in the past decade. He said if current trends continue Alberta production of conventional crude will be 50% less by 2002.

OTHER DEPOSITS

In addition to major operations in the Fort McMurray region, a number of companies are developing oilsand operations in other deposits. A large number of pilot production and experimental projects are under way.

Syncrude and Suncor are the only surface mining operations classified as commercial by ERCB, but most major companies operating in Alberta are involved in pilot and experimental programs for primary bitumen recovery programs or in situ recovery schemes.

ERCB currently lists 37 pilot and experimental projects and in situ commercial schemes in oilsand areas by operators such as Petro-Canada, Shell Canada Ltd., Chevron Canada Resources Ltd., Imperial Oil Ltd., Murphy Oil Ltd., PanCanadian Petroleum Ltd., Husky Oil Ltd., Norcen Resources Ltd., Koch Oil, Texaco Canada Inc., Gulf Canada Resources Inc., Bow Valley Industries Ltd., and Esso Resources.

A number of independents also have interests in oilsand projects.

Shell Canada, Calgary, operates a 10,000 b/d commercial in situ oilsand plant in the Peace River area of western Alberta. Shell acquired full ownership of the operation in 1992 with a buyout of the 50% interest of Pecten Canada Ltd., a unit of Shell Petroleum Inc.

The purchase included Pecten's 50% interest in 123,500 acres of oilsand leases in the Athabasca area and 197,600 acres in the Peace River area. Shell estimates its Peace River lease, about 311 miles northwest of Edmonton, has 14 billion bbl of bitumen in place.

Amoco Canada bought an operation at Wolf Lake in northeast Alberta from the former BP Canada Inc. and Petro-Canada. The project produced about 5,000 b/d in 1992.

Chevron Canada Resources Ltd. began a 5 year field test in 1990 on a 49,000 acre lease northeast of Fort McMurray. Chevron acquired the lease from Texaco Canada Inc. and hopes to develop a 10,000 b/d commercial operation. The project is based on a heated annulus steam drive system tested at the Alberta Oilsands Technology and Research Authority (Aostra) underground test site.

Aostra operates a number of research programs with private partners. This includes a large underground test program running pilot tests on various techniques of horizontal drilling and steam recovery operations.

J. Cameron O'Rourke, Aostra project manager, said a pilot operation using a combination of horizontal tunneling, steam injection, and production wells may hold the key to competitive exploitation of oilsands.

In an underground test site in the Athabasca region, wells are drilled through an average 500 ft overburden into an oilsand deposit. With steam injection, the test is producing more than 2,000 b/d. This underground mining technique recovers about 60% of bitumen, compared with about 95% by surface mining operations.

Suncor achieves an 80% yield of crude oil from bitumen with its delayed coking upgrader operation. Syncrude has a yield of 84% of oil from bitumen with its current fluid coking/hydrocracking operation.

O'Rourke estimates the cost of bitumen extraction for a 10,000 b/d project at $10.88/bbl.

He said a 50,000 b/d operation has a projected cost of less than $7/bbl. Exploration and production costs for conventional light crude range from about $14 to $27/bbl. O'Rourke figures the cost of upgrading bitumen into synthetic crude with an existing plant can be as low as $7/bbl.

A commercial project based on the underground method could be launched as early as 1996. The current $79 million pilot program is backed by eight companies that can each earn an 8.33% share in the reserve.

Aostra spent $71 million on an earlier phase of the program that began in the mid-1980s. It continued the research when commercial partners dropped out.

Aostra pegs the cost of producing heavy oil at Alberta's Cold Lake deposit at about $11.28/bbl extraction at an oilsand surface mining operation such as Syncrude at $10-12/bbl. The agency wants Syncrude and Suncor to become regional upgraders that would process more bitumen from underground mining operations.

Shell Canada is drilling two horizontal wells at its Peace River lease based on the steam injection and gravity drainage system tested by Aostra. The agency will pay 50% of the cost to a ceiling of $6.5 million for four wells. The two pairs of horizontal wells on the Shell lease are expected to produce about 1,000 b/d.

Aostra believes the project could lead to Shell production of as much as 30,000 b/d at Peace River.

EXPANSION PROGRAMS

Syncrude and Suncor are poised to spend large sums of money for equipment to step up production.

Syncrude last year delayed a plant expansion first approved in 1988. Suncor recently obtained approval for more leases that will give it access to enough bitumen to operate until 2042.

Syncrude took delivery of six 240 metric ton trucks from three competing manufacturers last summer for 2 years of trials. It will then decide which make of truck to buy.

Syncrude will use the new vehicles to replace a fleet of 170 and 181 metric ton trucks but will continue to use a dragline system to mine bitumen.

While Syncrude will increase production through improved operating efficiencies, it has delayed plans for an expansion of its operations.

Last fall, Syncrude unveiled plans to increase production at the existing plant to 217,000 b/d from a current average of 167,000 b/d through operating efficiencies.

The company recently filed an application with Alberta regulators for a number of changes to its operations. ERCB will conduct a hearing on the matter in September.

Requests include a 5 year extension to Dec. 31 1997, to begin plant construction to increase production to 258,000 b/d. Syncrude originally received approval for a $4 billion expansion in 1988. The original approval for an expansion program expired in December 1992.

The group said the expansion is on hold because of low oil prices. The delay also is designed to allow it to take advantage of new technologies becoming available.

Syncrude also wants approval to continue production at its Athabasca leases until Dec. 31, 2025, from a current cutoff date in 2018., to process bitumen from off-lease sites, and to ship bitumen from its current Mildred Lake operation, 25 miles north of Fort McMurray to other future processing operations.

Al Hyndman, Syncrude general manager of development, said amendments to current operating permits will allow long term planning and assist in implementing extensive land reclamation projects.

Suncor is spending about $400 million on a package of initiatives designed to reduce its production costs, expand its leasehold, ind substantially cut sulfur dioxide emissions. It is spending $100 million for two sizers, two cable shovels, and a fleet of eight 240 metric ton trucks to replace its aging bucket wheel excavator system that surface mines bitumen and moves it to a processing plant.

Delivery of the trucks has begun, and Suncor said the new mining system is on schedule for Start-up Oct. 1. The system is expected to shave $3/bbl from production costs.

The company also is building a $270 million utilities plant designed to reduce SO2 emissions 75% and trim $1.50/bbl from costs. The plant, to be complete by 1996, will burn coke and limestone to produce electrical power and steam.

Suncor agreed with Canadian Utilities Ltd., a unit of Atco Ltd., Calgary to build the cogeneration plant as a 50-50 venture.

Suncor also acquired two more oilsand leases in the Fort McMurray area with reserves of more than 1 billion bbl of recoverable light crude. Executive Vice Pres. Dee Parkinson said the leases will give Suncor an estimated 50 years of bitumen reserves to process at current production rates. Lease 19 was acquired from Petro-Canada and Amoco, and Lease 23 was acquired from Chevron. Both are south of Suncor's present operation.

An economic evaluation will select Suncor's next mine site with a target of site preparation in 1996.

Suncor Pres. Rick George said the package of changes represents a fundamental change in the structure of the company's oilsand business and will make its production cost comparable with Canada's conventional crude.

Suncor has reduced staff 17% in 1992-93. About 350-400 of the job cuts are related to new technology being put in place. The company aims to reduce current production costs of $19/bbl (Canadian) by $5-7/bbl and increase production to 68,000 b/d by 1994 from a current average of 60,000 b/d.

OSLO PROJECT

Weak oil prices delayed projects such as Syncrude's proposed expansion and have indefinitely shelved another project to develop leases in the Fort McMurray region.

Partners in the proposed $4.8 billion OSLO project said any future development likely will involve a smaller operation and development of new technology,.

OSLO, which stands for Other Six Leases Operation, is a combine of companies involved in the Syncrude operation that had planned to develop additional leases in the area covering 124,000 sq miles. It included plans for a $2.4 billion bitumen upgrader at Redwater, Alta. Leases run until 2001.

Partners are Canadian Occidental Petroleum Ltd., Gulf Canada Resources Ltd., Imperial Oil Ltd., Petro-Canada, and PanCanadian Petroleum Ltd.

Gordon Willmon, OSLO chairman and Imperial executive, said last fall when the project was shelved he was optimistic an OSLO project will be developed eventually, but the timing is uncertain. He said the days of $4-5 billion megaprojects may be over.

Imperial is looking for less expensive extraction techniques than the hot water bitumen separation technology OSLO was based on.

Ottawa withdrew support of as much as $1 billion for OSLO in 1990 as part of a federal budget cutting exercise. A preliminary study by the National Energy Board said even under a positive price outlook a start of production from such a project is not expected until 2004.

Meantime, low oil prices and marginal industry returns on capital invested prompted several Syncrude partners to put their shares on the market or review their investments.

Imperial Oil Ltd., the lead partner with 25% interest, has said it has a strong commitment to oil sands and no plans to sell. However, Petro-Canada reduced its 17% share to 12% in a sale of a 5% interest to Mitsubishi last year. The Alberta government, with a 16.7% interest, also said it will consider bids.

Amoco withdrew from Syncrude by its 5% interest sale to Alberta Energy in return for $26.4 million and rights covering 10 townships in the Burnt Lake area of the Primrose heavy oil region in Northeast Alberta.

EMPLOYEE TRAINING

Syncrude, with 4,400 employees, speeds about $15 million/year--about 7% of its payroll costs--on training and skills upgrading for employees.

Syncrude's Newell has preached the doctrine of giving workers increased initiative and responsibility. He calls the program an important factor in the company's record of increasing production by 26% in the past 3 years while cutting its work force by 10%.

Suncrude also has reduced production costs to about $14.76/bbl from $30 when it began operations in 1978.

The operating program is based on a concept of continuous learning for all employees where skills upgrading is considered an economic necessity for the company's progress.

UNIFIED PROGRAM

An Alberta government study unveiled last December called for a unified research program by industry, universities, and governments on commercial oilsand recovery.

Study author Clem Bowman said a coordinated effort should include moving 50 federal scientists to a central research site in Edmonton. Bowman was the founding chairman of Aostra and a president of the Alberta Research Council.

The study said the prosperity of Alberta depends on a coordinated industry-government effort involving joint programs and funding for research.

The Bowman report recommended formation of three allied research groups to focus on surface mining and extraction, in situ recovery, and bitumen upgrading. The report pointed out that bitumen recovery costs have dropped substantially, but upgrading costs have remained at about $15/bbl.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.