Major Existing Producing Projects

Syncrude

Syncrude Canada Ltd. is the world’s largest producer of synthetic crude oil from oil sands and the largest single source producer in Canada. It supplies about 15 percent of Canada’s oil requirements, with a production capacity of 350,000 bbl/d (56,000 m³/d).

Syncrude has approximately five billion barrels of proven and probable reserves (with an additional 2.2 billion barrels of prospective reserves) situated on three leased sites. By 2016, Syncrude expects to extract 185 million barrels (29,400,000 m³) of oil per year, the equivalent to 500,000 bbl/d (79,000 m³/d). Taking into account fully realized prospective reserves, such a production level could be sustained for well over the next 40 years.

The company is a joint venture between seven partners, including Canadian Oil Sands Limited, Imperial Oil, Suncor Energy, Nexen, ConocoPhillips, Mocal Energy (a subsidiary of Nippon Oil Exploration), Murphy Oil and Sinopec (China’s state-controlled China Petroleum & Chemical Corp.) who purchased ConocoPhillips’ 9.03-percent interest for US$4.65 billion in April 2010.[1]

Suncor

Suncor Energy Inc. is an integrated energy company that pioneered the world’s first commercially successful oil sands operation in 1967 near Fort McMurray, in northeastern Alberta. On August 1, 2009, Suncor merged with Petro-Canada and became Canada’s largest energy company by market capitalization. The combined company’s current upstream production is approximately 710,000 barrels of oil equivalent per day (boe/d). Existing upstream production is supported by 7.5 billion barrels of proved and probable reserves.

In the oil sands, Suncor’s mining and in situ leases cover over 1,800 sq. km and contain nearly 13 billion barrels of bitumen resources. The company has 2,600 employees working on oil sands projects.

Suncor’s mining operations are currently located east of its main oil sands facility at Steepbank and Millennium. With the merger of Suncor and Petro-Canada, the Fort Hills Oil Sands Project has been added to Suncor’s mineable oil sands assets. The project, in which Suncor has a 60-percent interest, is estimated to contain more than four billion barrels of bitumen resource. Voyageur South – a proposed project to extend Suncor’s mining operations – is expected to produce 120,000 bbl/d of bitumen during its estimated 40-year operational life. Suncor currently has two complete upgraders at its Fort McMurray operations, as well as upgrading assets at the company’s Edmonton refinery. Suncor’s Voyageur upgrader and the Fort Hills Oil Sands Project are outlined in further detail below.

Suncor’s in situ projects are located at MacKay River and Firebag. The first two stages of Firebag have been in operation since 2003 and 2005, respectively. Together, they produce approximately 60,000 bbl/d. The $3.6-billion third stage achieved first oil in July 2011 and has planned production capacity of approximately 62,500 bbl/d. Preliminary work is underway on a fourth stage, with production set to begin in late 2012. Suncor recently received approval to develop three additional stages of the project, with stage four of the project expected to begin production in the first quarter of 2013.

Athabasca Oil Sands Project

Shell Canada Energy operates the Athabasca Oil Sands Project, a mining project located 75 km north of Fort McMurray, Alberta, and comprising the Muskeg River Mine, the Jackpine Mine and the Scotford Upgrader. It is a joint venture between Shell Canada (60 percent), Marathon Oil Canada (20 percent; previously held by Western Oil Sands) and Chevron Canada (20 percent).

At full production, the Muskeg River Mine can produce 155,000 bbl/d (24,600m³/d) of crude bitumen, a naturally occurring, semi-solid form of crude oil. The Muskeg River Mine stands on a Shell Canada lease containing more than five billion barrels (790,000,000 m³) of mineable bitumen, 1,650 million barrels (262,000,000 m³) of which is expected to be recovered over the next 30 years. Regulatory approval has been obtained for expansion of the Muskeg River Mine and the Jackpine Mine,[2] enabling production up to a total of 470,000 bbl/d.

Other Projects

In January 2010, Korea National Oil Corporation (KNOC) won approval to proceed with its 10,000-barrel-per-day BlackGold SAGD project. KNOC purchased 100 percent of the Black Gold oil sand leases from Newmont Mining in August 2006. The leases contain approximately 150 million barrels of recoverable bitumen.

CNRL’s Horizon integrated mining, extraction and upgrading project began producing in 2009. While it was at a production capacity of 110,000 bbl/d in 2010, production was delayed due to operational issues at its coker unit that occurred in early 2011 and production resumed in August 2011 and soon was producing at full capacity.

Projects Under Development

In March 2012, Koch Exploration received approval of its Gemini thermal oilsands project in the Cold Lake region in northeastern Alberta. The steam assisted thermal drainage operation will produce 10,000 bbl/d and is estimated to cost approximately $410 million.

In January 2012, MEG Energy Corp. received regulatory approval from the ERCB for 210,000 bbl/d design production capacity for the third phase of its Christina Lake project. The third phase is a multi-stage expansion of the previous two phases, which produced 3,000 bbl/d and 22,000 bbl/d respectively. The third stage is valued at approximately $6 billion and will use steam assisted gravity drainage.

In December 2011, Athabasca Oil Sands Corp. received regulatory approval for its MacKay River oil sands project, which is a 150,000 bbl/d steam assisted gravity drainage project. The first phase is expected to produce 35,000 bbl/d, with construction beginning in 2014. The project is 40-percent owned by Athabasca and 60-percent owned by a subsidiary of PetroChina.

In March 2011, Suncor announced that it had finalized its strategic alliance with Total E&P Canada Ltd. under which Suncor acquired a 36.75-percent working interest in the Total-operated Joslyn joint venture with Total now holding 38.25 percent, Occidental Petroleum holding 15 percent and Inpex Canada Ltd. holding 10 percent. Suncor will also receive approximately $1.75 billion from the transaction. Total acquired a 49 percent interest in Suncor’s Voyageur upgrader and upon completion, Suncor will operate the planned 200,000 barrel per day facility. Total also acquired a portion of Suncor’s interest in the Fort Hills oil sands project resulting in Suncor now holding a 40.8-percent interest, Total holding 39.2 percent and Teck Resources Ltd. holding the remaining 20 percent. Suncor and Total have agreed to develop the Fort Hills mine and Voyageur upgrader in parallel so that both come on stream in 2016. The companies have also confirmed the Joslyn North Mine timetable with production expected to begin in 2017, subject to receiving the necessary permits and approvals.

Imperial Oil operates the Leming, Maskwa, Mahihkan and Mahkeses plants in the Cold Lake area. As an expansion to the existing plants, Imperial Oil recently completed its Nabiye plant, which includes a cogeneration plant, sulphur recovery facilities and a drilling plan that reduces the number of well pads. Aggregate production from Imperial’s Cold Lake operations averaged 144,000 bbl/d of bitumen in 2010. Inter Pipeline Fund recently announced that it plans to spend $25 million to expand pipeline systems around Cold Lake, which will include expansions to the Nabiye plant. The company is also developing the country’s largest open-pit mining operations at its Kearl oil sands project north of Fort McMurray, which is slated to begin in late 2012. With over four billion barrels of estimated recoverable bitumen resource, Kearl is one of Canada’s largest and highest quality oil sands deposits. Initial development will start at around 110,000 bbl/d with a goal of ramping up to 345,000 bbl/d.

The front-end engineering and design for the first phase of BP and Husky Energy’s Sunrise Project, an in situ development designed to eventually produce 200,000 bbl/d, was completed in early 2010. BP and Husky also entered into a joint venture in respect of a refinery previously owned by BP, which will be expanded to handle 170,000 bbl/d of oil sands production. Husky also recently purchased a refinery in Ohio, which will be retrofitted to process heavy crude and bitumen from Husky’s operations in Alberta.

The first phase of OPTI Canada and Nexen Inc.’s Long Lake SAGD project with upgrading facilities is complete; bitumen production and on-site upgrading began in October 2008. Regulatory approval has been received for a second-phase, SAGD and upgrader complex, whereby Nexen will phase-in production. Regulatory approval is also in place for a third-phase SAGD project at the same location. In February 2011, production from the project dropped 14 percent from production levels in the previous month. Various operational difficulties and poor steam-to-oil ratios have continued to  increase costs and reduce output. OPTI began restructuring its finances in 2009 and is currently undergoing strategic alternatives review regarding its capital structure. Future expansion and development of the Long Lake project is uncertain.

Total E&P Canada Ltd. is continuing to develop its Joslyn Lease with the Joslyn North Mine in the regulatory approval process and the Joslyn South Mine planned for the future. This project will combine conventional mining with SAGD for a total capacity of 200,000 bbl/d by 2020. Total also owns half of the Surmont SAGD project in a joint venture with the Canadian subsidiary of Houston-based ConocoPhillips. Surmont Phase 1 has a design capacity of 27,000 bbl/d of bitumen and is currently producing. Surmont Phase 2, which would increase production to a total of 110,000 bbl/d, has been sanctioned and is scheduled to begin production in 2015. After acquiring Synenco Energy Inc., Total owns a 50-percent share (with Sinopec Corporation owning the remaining 50-percent share) in the Northern Lights Project, which is estimated to have 1.08 billion barrels of bitumen. Total has also received regulatory approval to build a bitumen upgrader near Edmonton, Alberta, which will produce 300,000 barrels of crude oil a day received.

Devon Canada Corporation’s Jackfish 1 SAGD project, located 15 km southeast of Conklin, Alberta, is currently producing 35,000 bbl/d. Production commenced in 2011, and with Jackfish 2 and Jackfish 3 currently under evaluation, total production could reach 105,000 bbl/d by 2015.

Statoil Canada Ltd.’s Kai Kos Dehseh SAGD project is comprised of four proximate fields containing roughly 2.2 billion barrels of bitumen. The project initiated steam injection in September 2010 and commenced production in the first quarter of 2011. Also, during the first quarter of 2011, Statoil sold a 40-percent interest in the project to PTTED (the Thai national oil company) for US$2.2 billion. Total capacity of the project is projected to be in the neighbourhood of 200,000 bbl/d by 2020.

Connacher Oil and Gas Limited anticipates combined bitumen production from its Pod One and Algar Great Divide SAGD projects to average between 14,500 bbl/d and 16,500 bbl/d for 2011. The company was also proposing to expand productive capacity to a combined target of 44,000 bbl/d, but in early 2012, the company’s board of directors initiated a review process to examine all strategies available.

Shell Canada has disclosed plans for a $27-billion expansion of its Scotford facility, entitled the Scotford Upgrader 2 Project. The project is expected to increase the facility’s capacity by an additional 400,000 bbl/d.

In March 2010, Devon announced that it will buy a 50-percent stake in BP’s undeveloped Kirby oil sands project for $500 million and will pay an additional $150 million to cover initial capital costs. Devon will be the operator of the Kirby project, which lies in close proximity to Devon’s Jackfish SAGD project. Like Jackfish, Kirby is expected to be a multi-stage SAGD development.

In February 2011, the government of Alberta, NWU and CNRL entered into a partnership agreement to construct and operate a bitumen refinery near Redwater, Alberta. The agreement will allow the province to take oil sands royalties in kind in the form of bitumen rather than in cash under the government’s BRIK Program. The first phase, to be completed by the summer of 2014, will process 50,000 bbl/d, three-quarters of which will be provided by the province and the rest by CNRL. The first phase will also capture more than 3,000 tonnes daily of carbon dioxide, which will be transported by the Alberta Carbon Trunk Line for enhanced oil recovery operators. The refinery can be expanded in two additional identical phases of 50,000 bbl/d of bitumen at a future date.

New Market Entrants

Although Canadian companies and U.S.-based multinationals have been an integral part of the development of Alberta’s oil sands, more recent market entrants from Asia and Europe have invested in the oil sands. For example:

• In January 2011, Statoil divested 40 percent of its Kai Kos Dehseh Project to PTT Exploration and Production (PTTEP) of Thailand for US$2.2 million in cash. PTTEP is owned 65 percent by PTT Public Company Limited, one of the largest power and utility companies in Southeast Asia, in which the government of Thailand holds a 51 percent interest.
• In May 2010, Penn West Energy Trust joint ventured with China Investment Corp. (CIC) in a transaction worth $2.6 billion to form a partnership to develop Penn West’s bitumen assets located in the Peace River area. Penn West contributed oil sands properties valued at $1.8 billion, and has a 55 percent stake in the partnership. CIC, the world’s largest pool of capital, contributed $817 million for a 45 percent interest in the partnership. CIC also took a five-percent stake in Penn West for $435 million.
• In April 2010, China’s state-owned Sinopec purchased ConocoPhillips’ stake in the Syncrude project for $4.65-billion, marking one of China’s largest investments ever in North America.
• In August 2009, PetroChina International Co. Ltd. announced that it would buy a 60-percent stake in Athabasca Oil Sands Corp.’s MacKay River and Dover oil sands projects for nearly $2 billion. Later in 2012, PetroChina bought out Athabasca’s remaining 40-percent stake for $680 million. PetroChina was also an early supporter of Enbridge Inc. in the $2.5-billion Northern Gateway Pipeline project in 2005, which proposes to deliver an average of 525,000 bbl/d of crude oil to the west coast of British Columbia for export, but has not yet received necessary approvals to proceed.

The catalysts for this influx of overseas investment are identical to the drivers for North American companies – rising prices and decline of conventional reserves. The oil sands represent a dependable source of production with easily estimated reserves that deliver steady returns to balance the volatility of increasingly expensive conventional exploration efforts.

Alberta Oil Sands Transactions 2001-2012

The data in Table 2 outlines major oil sands acquisitions in recent years, many of which involved Bennett Jones as counsel (denoted in the table with *). Pricing is reflected in USD (million).

Table 2 - Alberta Oil Sands Transactions 2001-2012