Start-up sequence begins at Utah oilsands project

Image: US Oil Sands

The on-again/off-again construction of the PR Spring Project in Utah, is complete and a nine-phase start-up plan that is expected to see US Oil Sands Inc. produce first oil “soon” has been initiated.

“As we work through this carefully staged start-up plan, we look forward to soon achieving first oil on this first commercial oilsands mining and solvent extraction process.” US Oil Sands CEO Cameron Todd said in a statement.

The start-up process will test and calibrate equipment and systems. Water, clean solids and mined oilsands will be successively introduced.

“As first oil is produced, plant and material balances will be monitored and throughput will be gradually increased,” the Calgary-based company said.

Operations are expected to be optimized in the second quarter, “targeting a safe and efficient recovery of bitumen, the recycle of water and solvent, and the deposition of clean solids back to the mine for reclamation.”

US Oil Sands has been advancing a biodegradable solvent extraction technology for mined oilsands production without tailings since 2011, when it bought Earth Energy Resources, the previous Calgary-based promoter of the 2,000 bbl/d PR Spring Project.

Private equity-backed Earth Energy, at the time, said it needed to raise $35 million for the project but faced a “skittish” funding environment after the 2008 economic meltdown.

When TSX Venture-listed US Oil Sands took over, it acquired additional acreage, conducted a 180-well well coring program and raised $12.6 million in 2011.

A private placement of $11 million in 2012 followed, and an $81 million private placement closed in 2013.

Work on the project heated up in 2014, which “was without a doubt the busiest ever for the company,” according to Todd at the time.

“In early 2014, we assembled a team with world-class expertise in project and construction management and we have continued to add to that team as the project accelerates. Now that all major equipment has been ordered, our attention is now squarely focused on the modular fabrication and skidding of this equipment followed by shipment to the field in mid-2015.”

Then came the collapse of oil prices, and US Oil Sands was forced to conduct a detailed review of its project in early 2016. Project construction was already 85 per cent complete. Costs were coming in below budget. But its previously announced US$10 million royalty financing hadn’t come through.

That money was needed for commissioning, start-up and validation of the extraction technology.

Then in May 2016, an equity rights offering raised C$12.8 million and construction was back in full swing.

But by October 2016, additional completion costs and rework pushed the PR Spring Project four per cent over budget to a new total of $62.5 million. Construction was now 98 per cent complete. A mere $1.2 million was needed for mechanical completion.

US Oil Sands rounded up its funding as to between US$3 million and US$4.5 million, delayed an additional work and “temporarily” laid off most of its Canadian and U.S. employees in order to preserve capital.

"This has not been an easy period for all our stakeholders. We have made considerable efforts in sourcing additional capital and ultimately are fortunate to continue to have ACMO [its major shareholder] provide the financing,” Todd said at the end of last year.

But in January 2017, with a new US$7.5-million financing in hand, US Oil Sands is restarted construction, which led to the current nine-stage start-up sequence in April.

The big question now will be whether the technology will actually deliver on its promise of 75 per cent lower capital intensity than current oilsands mining projects, 90-plus per cent bitumen recovery with 95 per cent water recycling and 50 per cent less energy consumption than other oilsands projects, leading to GHG emissions that are “lower than some conventional oil and gas projects.”