​​Sunshine Oilsands to complete capacity-doubling SAGD expansion with $50M investment

Sunshine Oilsands' West Ells SAGD project. Image: Sunshine Oilsands

Sunshine Oilsands is preparing to double production capacity at its new West Ells SAGD project at a surprisingly low capital cost, but it's because the expansion is already nearly finished.

West Ells Phase 1, which has production capacity of 5,000 bbls/d, was completed in late 2015 after being delayed twice due to discouraging market conditions. First oil was achieved in the first quarter of 2016.

At last public estimate, the project carried a capital cost of $525 million. Now, Sunshine says the completion of its 5,000 bbl/d Phase 2 expansion will cost just $50 million. That’s because the main surface facilities already exist and all eight SAGD wells have already been drilled.

A total capital cost of $575 million would leave the project with capital intensity of $57,500 per flowing barrel. According to the Canadian Energy Research Institute, average SAGD capital intensity was $40,000 per flowing barrel in 2015.

Sunshine, which is traded on both the TSX and Hong Kong Stock Exchanges, said it has signed an MOU with China Petroleum Engineering & Construction Corporation to explore completion of the expansion.

“CPECC intends to work as the contractor and undertakes the engineering, procurement, construction and operation maintenance work,” Sunshine said in a statement.

“Additional works required for the project expansion include reviewing and refining of some of the designs, completion works for the wells, and surface facility construction.”

Sunshine said that average production cost per barrel is expected to be “significantly reduced” after the Phase 2 expansion as the fixed costs that account for a significant portion of the production cost will be shared across both phases.

In late February Sunshine announced that West Ells was officially considered commercial, satisfying criteria including steaming for more than one year, all eight well pairs on production for a certain period of time, and the plant running as intended by management.

The most recent data from the Alberta Energy Regulator says that West Ells averaged 1,439 bbls/d in January 2017.