Saskatchewan just got another new thermal heavy oil project

Image: BlackPearl Resources

BlackPearl Resources Inc. is now up and running with oil production at its new Onion Lake thermal expansion in Saskatchewan.

The project was completed approximately one year after receiving corporate go-ahead, months ahead of the original schedule that would have seen completion in mid-2018.

BlackPearl says the project was also completed under budget, with total capital costs of $178 million compared to expectations of $180 million to $185 million.

The 6,000 bbl/d project doubles capacity at the company’s existing 6,000 bbl/d Onion Lake facility, which has been operating since 2015. BlackPearl reports that Onion Lake Phase 1 has produced nearly five million bbls and has operating costs below $10/bbl.

The first pad of sustaining wells for the project is expected later this year.

There are now multiple thermal heavy oil operators in Saskatchewan, dominated by Husky Energy, which currently has 10 projects operating and four under construction. The company has identified 14 additional project locations for future Saskatchewan thermal development.

BlackPearl is considering sanctioning a third phase at Onion Lake in mid-2019.

Production at Phase 1 was 5,860 bbls/d in the first quarter of 2018, down from 6,182 bbls/d in the prior year period. That represents about 60 percent of BlackPearl’s total production, which was 9,927 boe/d in Q1/2018, down from 10,753 boe/d in Q1/2017.

Production was lower in the first quarter of 2018 in part as a response to the wider heavy oil differential during the period.

“We elected to defer certain typical well servicing activities on our conventional heavy oil program until differentials and takeaway capacity improve,” the company said. “Thermal oil production was also temporarily impacted during the quarter as a result of integrating the phase 2 operations at Onion Lake into the existing phase 1 project.”

The challenges from the differential in the first quarter have eased somewhat, but industry is not out of the woods, BlackPearl CEO John Festival indicated.

"It reiterates the importance to the energy sector and the Canadian economy that additional pipeline capacity is built," he said.

With Onion Lake Phase 2 now online, BlackPearl expects to exit 2018 at approximately 14,000 bbls/d, a 40 percent increase from the start of the year.

BlackPearl reported a net loss of $8.8 million for the first quarter of 2018 compared to net income of $7.8 million in Q1/2017. The company says this is primarily a result of unrealized losses of $9.8 million on risk management contracts that are required under its long-term debt covenants.

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