NormanBates1960 wrote: Don’t count out growth in the oilsands—Imperial and MEG haven’t
https://www.jwnenergy.com/article/2016/5/dont-count-out-growth-oilsandsimperial-and-meg-havent/#axzz4ABsFUTaU
Those predicting that the current downturn has signalled the death knell for oilsands growth in the future need to take another look at this resource and its players—particularly the two that have launched the regulatory process for new major projects in the midst of depressed WTI.
Last June, Imperial Oil initiated the regulatory timeline for a 55,000-bbl/d solvent-assisted SAGD project at Cold Lake. The project is expected to cost $2.2 billion in initial capital, which based on the general characterization of projects over $1 billion, makes it a megaproject. It may not be a massive mine, and it is likely that cost estimate will come down as Imperial works on its design and vendors, but it is a major investment in the oilsands, full stop.
It’s not a surprise that Imperial would do such a thing during a down period in the market considering that in 2009, during the Great Recession, Imperial sanctioned the construction of its Kearl oilsands mine.
“We try not to get too excited when the market looks strong and not get too conservative when the market looks weak,” Imperial president and chief executive officer Rich Kruger told Oilsands Review last year.
“I don’t mean to minimize the environment that we’re in because we’re certainly not immune to it, but I would say that, as a company, the word ‘panic’ doesn’t enter our minds. If the game has changed, what do we do to be the best competition on the field in this game?”
That means technology development like the solvent assist on SAGD and also new supply chain strategies. At Kearl, for example, the company was recently renegotiating two new contracts projected to cost about $160 million in total over a couple years based on prevailing rates. Imperial initiated a “reverse auction” in which it put out a work scope, and contractors made bids anonymously. The company ended up spending only $60 million on those contracts based on what was anticipated.
So that’s the Imperial story. Then there’s MEG Energy’s.
In mid-April, MEG launched the regulatory process for a new phased 160,000-bbl/d SAGD project at May River, south of Fort McMurray. The first phase will be 40,000 bbls/d, and while the expected capital cost was not disclosed, one can expect it will be in the same range as Imperial’s new Cold Lake facility.
As an intermediate oilsands producer, it is perhaps a bit more surprising that MEG would take this step in a sub-$50-WTI market. But it is evidence of what can be achieved in the oilsands with the right resource and strategy—MEG is in the unique position of not only successfully achieving production and maintaining ownership of a SAGD facility as a junior producer, it has also been very successful in improving performance and reducing costs.
In the fourth quarter of 2015, MEG achieved record production of 83,500 bbls/d at its Christina Lake SAGD project (nameplate capacity is 60,000 bbls/d), as well as record-low net operating costs of $8.52/bbl. That’s compared to an industry average of about $13/bbl.
“Our operating performance throughout 2015 met or exceeded our targets,” MEG president and chief executive officer Bill McCaffrey said in announcing the company’s fourth-quarter results.
“Our low cost structure is enabling MEG to weather the low commodity price environment seen over the past year.”
Right now that low cost structure is largely attributable to MEG’s RISER program, which incorporates debottlenecking and brownfield expansion at the plant as well as infill drilling and non-condensable gas co-injection in the reservoir.
With results like that, it’s easy to see how MEG could be as confident as a major player like Imperial in its future in the oilsands.
MEG director of external communications Brad Bellows says about May River, “We are several years out, but when I look at what we have accomplished at Christina Lake, we have learned a lot and refined our technologies, improving our efficiencies as we go, and we expect that process is going to be ongoing, and that we can bring that knowledge and expertise to any new development.”
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