11 recent oilsands project updates​ show restarts, cancellations and a new kind of growth

Image: Cenovus Energy

Oilsands producers have been making moves with their projects as the lower-for-longer oil price environment stabilizes into the new normal.

Some are pushing forward with facility projects that were well advanced before the price collapse, while others are choosing to cancel and still others are moving ahead with a new approach to growth that focuses on optimization.

Using the Daily Oil Bulletin's Canadian Oilsands Navigator, Oilsands Review publishes the latest industry news on a regular basis. Here are 11 recent project developments.

1. Restarted: Cenovus Energy Christina Lake phase G

Cenovus Energy plans to resume work on the phase G expansion at its Christina Lake SAGD project in the first half of 2017, the company announced in December.

Since deferring phase G in late 2014, Cenovus says it has successfully reworked the construction plan and rebid contracts for the project to reduce costs.

“After realizing more than $500 million in project cost savings, the company anticipates the expansion can be completed with go-forward capital investment of between $16,000 and $18,000 per flowing barrel. Phase G is about 20 per cent complete and has an approved design capacity of 50,000 bbls/d gross. First oil from the expansion is expected in the second half of 2019.”

Cenovus also plans to spend capital to progress engineering work on deferred projects at Foster Creek and Narrows Lake, and says it will provide an update on these projects in the middle of 2017.

2. Restarted: Canadian Natural Kirby North

Canadian Natural Resources in November became the first company to restart development of an oilsands growth project that was put on hold during the current downturn.

The company says it will restart work on the 40,000-bbl/d Kirby North SAGD project, an expansion to its 40,000-bbl/d Kirby South facility that started operating in late 2013.

Engineering and procurement commencing will commence in 2017, with a focus on finding opportunities to continue to reduce construction costs to completion, Canadian Natural says.

Kirby North will be targeted to deliver first steam-in in 2019, with first oil targeted in 2020.

"Kirby North project capital spending in 2017 is targeted to be $28 million as the company optimizes its execution strategies in order to continue the reduction in project capital costs," Canadian Natural says.

"Approximately $700 million of project capital has been invested to-date at Kirby North and the remaining project costs are targeted to be approximately $650 million, more than $100 million less than originally expected."

3. Restarted: US Oil Sands in Utah

With a new US$7.5-million financing in hand, Calgary-based US Oil Sands is ready to restart construction on the Utah project it suspended in early December.

The company says it is now able to rehire the employees and contractors that were temporarily laid off in order to complete and operate the 2,000-bbl/d mining project, called PR Spring.

Project commissioning will resume as employees and contractors are brought back to site in a staged basis to allow for a coordinated and safe return to operations, US Oil Sands says.

First oil is expected early in 2017. (Updated December 2017: US Oil Sands did produce first oil at the project, in August 2017, but appointed a receiver one month later).

4. Proceeding: MEG Energy eMSAGP roll out

Successful implementation of MEG Energy’s eMSAGP production enhancement system is now going to be further applied at the company’s Christina Lake oilsands project starting this year to the tune of a 20,000-bbl/d production increase, the company says.

About 55 per cent of MEG’s $590 million 2017 capital budget will be directed to eMSAGP growth. The full production increase is expected in early 2019, with 80 per cent of the associated $400 million capital spend to come this year. Volumes are expected to start coming online in the second half of 2017.

eMSAGP involves non-condensable gas co-injection, infill well drilling, new well pairs and facility debottlenecking, which increases production as well as reduces costs and greenhouse gas emissions.

5. Planned: New SAGD infill wells at Firebag

Suncor Energy is targeting increased production and reduced steam to oil ratios at an existing well pad at its Firebag SAGD project by way of a package of new infill wells.

The company has filed a regulatory application for 14 infill wells at Pad 105 at Firebag. The pad started operations in 2012, the seventh to produce at the project since start-up in 2004.

Suncor started operating its first SAGD infill wells at Firebag in mid-2011. The strategy is designed to take advantage of heat in the reservoir to produce bitumen that isn’t easily accessed by the producer wells.

No pad expansion is required to accommodate the infill wells, Suncor says; however, an additional motor control centre building for infill variable frequency drives and control systems will be needed and constructed on the existing pad.

The incremental recovery factor from the proposed wells is predicted to be about 5.5 per cent.

6. Planned: JACOS Hangingstone restart

Japan Canada Oil Sands (JACOS) has filed an application with the Alberta Energy Regulator (AER) to restart the SAGD project it suspended last spring due to market conditions.

The JACOS Hangingstone SAGD pilot is one of the oldest thermal projects in the oilsands, having started up in 1999.

The company suspended operations at the 6,000-bbl/d project in May 2016, a process that was put in motion before the Fort McMurray wildfires but accelerated due to the regional emergency. Hangingstone was expected to be idled for 10–12 months, and JACOS has initiated the process to get it back up and running.

“JACOS requires AER approval such that we are able to react quickly when market conditions support a restart of the demo project,” JACOS regulatory director Enzo Pennacchioli wrote to the AER.

The company continued in its submission that bitumen prices have “recovered to the point where restarting the project is being considered. JACOS, and parent company JAPEX, are currently assessing whether or not the economic climate is suitable for approval to restart.” Timing on the restart is uncertain, JACOS said, but indicated that it would take about four months following regulatory and corporate approval to return to operations. (Updated December 2017: JACOS made the decision not to restart the original Hangingstone pilot at the start-up of the 20,000 bbl/d Hangingstone expansion in May 2017).

7. Cancelled: Murphy Oil Seal project

Murphy Oil has filed a letter with the AER requesting the application for its Seal thermal project, located in the Peace River region, be rescinded.

The company had filed the Seal regulatory application in early 2015. The 12,450-bbl/d project, which would have deployed horizontal cyclic steam extraction technology, was pegged with a capital cost of $624 million.

The Seal lands are part of the $65-million asset package that Baytex Energy announced it was acquiring in November 2016, from a seller later confirmed to be Murphy Oil.

“Murphy has confirmed with Baytex that they do not have an interest in continuing with this application,” Murphy said in its December letter to the AER.

8. Ramp-up update: Sunshine Oilsands West Ells

Operations are off to a good start in 2017 at the West Ells SAGD project, according to a statement from Sunshine Oilsands.

Production at the 5,000-bbl/d SAGD project north of Fort McMurray has been bumpy since start-up in late 2015, hampered by low oil prices and the Fort McMurray wildfires in spring 2016.

Sunshine says that as of January 3, the project has achieved production of 2,200 bbls/d.

This is a significant jump from previous production rates. According to data from the Alberta Energy Regulator, between January and October 2016 the highest volume the project achieved was in August, at 266 bbls/d.

Sunshine called the 2,200-bbl/d milestone “very favourable to the project in moving towards its full production capacity in the near term.”

9. Cancelled: Koch Muskwa

Koch has asked that the AER rescind approvals for the proposed Muskwa SAGD project, citing economic and regulatory uncertainty for the decision.

The company received regulatory approval for the 10,000-bbl/d project in June 2014.

“Koch Oil Sands Operating ULC does not believe the current nor medium-term economic environment in Alberta will provide opportunity to generate an adequate return on the required capital for construction of the Muskwa SAGD project,” Koch vice-president Byron Lutes wrote in a letter submitted to the AER.

“The longer-term risk of the project is further burdened with regulatory uncertainty around the Climate Leadership Program and its potential impacts on the project, from carbon tax to the emissions cap, both recently legislated by the Alberta government.”

Koch views the costs to maintain the approvals in good standing to be excessive when measured against the risk to the project.

In 2016, Koch also withdrew its application for another proposed SAGD project, a phased 60,000-bbl/d facility called Dunkirk.

10. Planned: Koch/Pengrowth Selina JV

Koch Oil Sands has filed an application with the AER for a new 12,500-bbl/d SAGD project owned jointly with Pengrowth Energy.

The project, called Selina, would be located near Pengrowth’s high-performing Lindbergh SAGD project, south of Bonnyville, within the Elizabeth Metis Settlement.

Koch’s application estimates a $512-million capital cost for the project, which is an investment of about $41,000 per flowing barrel.

The application says that construction is expected to take 12 months, starting in late 2018.

11. Proceeding: Lindbergh SAGD optimization

Pengrowth Energy says it will spend $60 million on optimization work at the Lindbergh SAGD project, which is expected to increase production to 18,000 bbls/d by the end of this year, compared to 15,654 bbls/d at the end of 2016.

This includes drilling seven new well pairs and two infill wells, as well as expanding the associated infrastructure.

The $80 million also includes $10 million at Lindbergh on engineering and design for the 17,500-bbl/d Phase Two expansion. By the end of the year, Pengrowth expects the design work to be approximately 70 per cent complete and to be ready to execute on Phase Two as funds become available.