Search goes on for technology that can retrieve deep bitumen reserves

BY GARY PARK FOR GREENING OF OIL

It’s estimated that 70 percent of the 172 billion barrels of recoverable bitumen lying in the Alberta oil sands are too deep for conventional mining and can only be extracted using wells that suck up the sticky substance.

The leading-edge and most advanced thermal method in those wells involves the use of steam-assisted gravity drainage, or SAGD.

Companies drill a pair of wells horizontally through the bottom of the bitumen-rich deposit. High pressure steam is injected through the top well, causing bitumen above it to melt and drip into the bottom well, where it is forced to the surface.

The pros: Companies can access deeper oil sands deposits with a reduced footprint compared to the vast open-pit mining operations—owned by companies such as Suncor Energy, Syncrude Canada and Royal Dutch Shell—that have scarred the landscape of northern Alberta and given the oil sands a global black eye.

The cons: SAGD consumes large amounts of natural gas and water to produce steam.

But SAGD in various forms is the most advanced of the next-generation technologies. Given the complex, costly and protracted efforts needed to develop other alternatives and the modest investment in R&D compared to other industries, it’s the only viable alternative, short of shutting down the sector altogether.

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Wedge wells cost less, reduce environmental impact

Newly created, pure-play oil sands producer Cenovus Energy is not about to sacrifice its goal of applying lessons learned in SAGD to advance its full suite of projects, which includes goals of 210,000 barrels per day by 2017 from each of the Foster Creek and Christina Lake project.

However, John Brannan, Cenovus president of integrated oil, said his company is piloting the use of a so-called wedge well at Foster Creek, which is estimated to cost about half as much to drill as a SAGD well pair.

In January, 24 of 31 wedge wells were drilled and producing at Foster Creek, with 30 more planned this year. Project-wide volumes averaged 112,000 bpd in February.

“We believe wedge wells have had—and will have—the most success at Foster Creek, because of the reservoir’s bitumen properties. Wedge wells will improve our economics, lower our environmental impact … and produce additional oil with no additional steam, effectively reducing our steam-to-oil ratio,” he told investors in New York.

“In addition to Foster Creek and Christina Lake, we have 10 other potential bitumen projects identified. A strategic priority is assessing and ranking these projects. We plan to share more information at our Investor Days in June.”

‘Gobi Desert’ gap between research and commercialization

Wedge wells are getting a pilot workout at Christina Lake this quarter, with one wedge well in operation and being monitored.

In SAGD, the best projects boast a steam-to-oil ratio of 2.5, which means 2.5 barrels of water must be converted to steam and injected into the reservoir to recover 1 barrel of oil. However, most SAGD projects have steam-to-oil ratios of three or more. (It is currently estimated that recovering 1 barrel of bitumen requires 1,000 cubic feet of natural gas).

With the pressure building on the oil sands sector to continue to green up its act (oil sands greenhouse gas emissions declined 33 per cent per barrel between 1990 and 2008), development of new technologies to address environmental concerns is gathering pace.

Tom Harding, a chemical and petroleum engineering professor at the University of Calgary, said there are “some very exciting and promising new technologies that would help us a great deal in (reducing) our carbon footprint and the water issues.”

He said these efforts have the potential to reduce fuel and water consumption as well as greenhouse gas emissions, but noted there is a “Gobi Desert” gap between research and commercialization.

The priority now is to conduct more large-and small-scale field demonstrations, Harding said.

He said the use of solvents and non-condensable gases to the injected steam to lower the steam-to-oil ratio rates serious consideration, although the additives are expensive.

Solvent-aided process, or SAP, not yet commercialized

Despite several years of research, the method known as solvent-aided process, or SAP, has yet to be commercialized.

Cenovus has filed terms of reference for an environmental impact assessment of its plan to use SAP at the Narrows Lake enhanced oil recovery project.

Harbir Chhina, the company’s executive vice-president of enhanced oil development and new resource plays, said the process, which involves the injection of butane in Narrows Lake’s case, might have application at Foster Creek and Christina Lake.

“A good SAGD reservoir is going to be a good SAP reservoir,” he told analysts. “The fundamental mechanics are the same.”

Chief executive officer Brian Ferguson said Cenovus has been injecting butane at Christina Lake over the past three months and has a SAP pilot project at its Senlac property where results are encouraging.

He said that if Christina Lake results are positive, SAP will be implemented at Narrows Lake.

The options include going directly to three phases at SAGD at Narrows Lake to achieve 130,000 bpd, or two phases of SAP, or a combination of the two. The project has a projected operating life of 40 years.

Cenovus expects to make a regulatory filing for Narrows Lake this summer and is hoping for approval within 18 months.

A project application for the Borealis project is before regulators and is designed for initial production of 35,000 bpd.

Costs way up from five years ago

Chris Feltin, co-author of a Macquarie Capital Markets Canada report, put the latest numbers on the capital cost of SAGD projects.

The report said the most recent projects are being built for C$30,000-C$35,000 per daily flowing barrel, compared with C$20,000 less than five years ago.

“With the majority of announced new projects utilizing SAGD, the question is whether costs can be sustained at this level, or whether increased oil sands activity will drive up costs as we have seen in recent years,” Macquarie said.

But Feltin does not expect operators will return to the same frenzied pace of expansion that set off a cost spiral a few years back.

“I think operators are very focused on cost this go-round and I don’t think any of them want to be the first to jump into the pool again and drive up costs,” he said. “It’s been a lesson learned.”

Oil sands minnow has big ideas

Excelsior Energy is the latest of the trail-blazers, whose innovations have contributed so much to squeezing profits from Alberta’s oil sands.

Describing itself as an “early stage” company, Excelsior is working on a better mousetrap to unlock the riches in its 37,000 operated acres on two contiguous blocks in the Hangingstone and West Surmont area of the Athabasca oil sands region.

It is touting a proprietary in-situ combustion technology—combustion overhead gravity drainage or COGD—which it is confident can improve the economics of developing and recovering heavy oil and bitumen, reducing the environmental fallout in the process.

Excelsior estimates its technology can recover 65 percent of the molasses-like oil, or double the industry-standard recovery rate from steam-assisted gravity drainage, SAGD.

In addition, COGD uses practically no water and only 20 percent of the industry consumed by SAGD operators.

The method involved drilling injection wells down the middle of the bitumen deposit, pumping in steam to break down the bitumen. That is followed by an air injection that triggers an ignition.

Vent wells gather the ignition gases and a long horizontal well at the bottom of the deposit collects the slow-moving bitumen.

No water, and only a third of the energy required for SAGD

Excelsior has been assisted by Petrobank Energy and Resources, whose own patented research has lowered the economic risks, said Excelsior engineering vice-president Robert Bailey.

Petrobank is running tests in various bitumen deposits, using its toe-to-heel air injection, or THAI, pilot that is approaching commercialization.

THAI involves air injection. When oxygen makes contact with the bitumen, it sets off spontaneous combustion, similar to what occurs in a diesel engine.

That burns 10 percent of the bitumen, but generates a high temperature in the reservoir, causing the remaining bitumen to flow into a horizontal collection well.

Proponents believe THAI can produce valuable, upgraded crude, without consuming water and using only a third of the energy required for SAGD.

Others are concerned that accurately controlling combustion could pose problems.

Excelsior has hired CIBC World Markets as its strategic advisor to identify and secure a major joint venture partner to proceed with its pilot at the Hangingstone property, which has been assigned 172 million barrels of best estimate contingent resources by McDaniel & Associates Consulting.

The company said in a statement that its anticipated improved economics through enhanced recovery and substantial reductions in the required amounts of water, gas (for fuel), and diluents compared with SAGD will translate into a potential 50 percent reduction in West Texas Intermediate supply costs for bitumen extraction.

The project application is before the Alberta Energy Resources Conservation Board and Alberta Environment, with approval hoped for by mid-2010 and commissioning of the pilot set for the first quarter of 2011.

Excelsior has also filed a patent application for the proprietary process associated with COGD technology.

The company is also operator with a 64.3 percent working interest in 12,160 gross acres of West Surmont, where contingent bitumen resources have been evaluated at 11 million barrels.

Through its 75 percent owned subsidiary ENS Energy, it has two licenses in the British North Sea and plans to acquire and reprocess seismic over the next two years to evaluate the resource potential.

Contact Gary Park via publisher@greeningofoil.com