Following the sanctioning announcement, analysts at Raymond James were quick to point out that the forecast cost of the Kearl expansion–$8.9 billion—puts today’s “alarming” cost environment into perspective.

“[The expansion cost] is noticeably higher than we were expecting, particularly when the cost estimate on Phase 1 was increased [to $10.9 billion] earlier this year due to scoping changes relating to pre-build for future phases,” analysts Justin Bouchard and Christopher Cox wrote in a research note. “In our view, [the] announcement by Imperial is yet another data point that costs in the oilsands, and the potential for rampant cost inflation, is a very real threat for producers, at lease those in the Fort McMurray region.”

The researchers point to three recent cost estimates for new mining-only projects: Imperial’s Kearl Phase 1 at $10.9 billion or $99,000 per barrel per day; SilverBirch Energy’s Frontier Phase 1&2 at $14.5 billion or $91,000 per barrel per day; and Imperial’s Kearl Phase 2 at $8.9 billion or $81,000 per barrel per day.

“In the current cost environment, oilsands mining companies are effectively getting a mine only operation for the cost of a mine plus upgrader only a few years ago. Granted, there are some technology differences that account for some of the higher costs—but even so, at $85,000 per barrel per day, we estimate that a US$110 per barrel oil price is required in order to generate a 10 per cent return on capital employed.”

Oilsand from the first major oilsands exploration program in Saskatchewan

This could be the start of something big

I have always found Oilsands Quest’s (previously traded under the ticker BQI on the American Stock Exchange) search for, subsequent discovery of and efforts to develop bitumen in Saskatchewan to be very exciting. To go out and execute on something that others don’t believe can work is the essence of the oilsands industry itself and should be commended.

I have very clear memories of the day we took that tour. Including the flight from Calgary to Fort McMurray, flight from Fort McMurray to the site just over the Saskatchewan border, and helicopter flyover, we were up and down six times in a 12-hour period. We met staff–including a resort-experienced camp chef–and saw drilling sites. We saw and held rich core samples. We watched a plane fly onto the ice airstrip to deliver supplies. We drove on a road that Oilsands Quest had built to connect its various operations.

At the time the company seemed like it was on a roll. The project was prospective, yet promising. But Oilsands Quest never quite got back on its feet after the global market tumbled.

Yesterday’s announcement that Oilsands Quest has entered into creditor protection after the deal to sell its Wallace Creek assets in Alberta fell through is unfortunate, if not sad. Although Oilsands Quest has been going through a “strategic review of alternatives” for over a year, actually going into creditor protection adds a note of finality for the company that did not exist before.

It is encouraging, however, that CEO Garth Wong is expressing continued commitment to Oilsands Quest’s projects. In a news release, Wong said that, “We have been actively seeking options to manage our liquidity and to raise the capital we need to proceed with developing our assets. To protect those assets and find a solution that will enable them to be developed, we are seeking options to restructure our affairs up to and including the sale of the company.”

I just hope that someone buys it for a solid price, and that they do indeed continue to progress Oilsands Quest’s projects, particularly in Saskatchewan, where the company was recently granted the province’s first ever long-term oilsands leases. I, for one, still believe making it happen is possible–with the right technology. This could still be the start of something big.

“We, Canada’s candlelight providers are ready. Ready for the surge in demand that comes from people wanting to turn the lights on but rejecting every possible means of making that happen.”

And so on. Enjoy!

Here are your nominees:

Baytex Energy Corp.

Baytex Energy Corp. is on a roll in the Peace River oilsands deposit. Pioneering horizontal multilateral well production in the Seal region, Baytex is pushing upwards on production volumes while maintaining improved drilling economics. The company says that Seal is exemplary of its growth potential, with millions of barrels of reserves with characteristics that provide for first stage recovery using cold production and second stage recovery going thermal. In the second quarter of 2011, Seal production had increased 23 per cent from the previous quarter, and over 40 per cent from the previous year.

Canadian Oil Sands Limited

Canadian Oil Sands Limited offers the only direct opportunity for investors to buy into Syncrude, a project that remains the largest single source of synthetic crude oil in Canada. Syncrude continues to offer consistent and relatively reliable production with a reserve base that promises to keep it up well into the future. So far in 2011 Syncrude has achieved record production and despite some unplanned outages, the strength in the price of oil and the Syncrude product continue to result in robust netbacks. Canadian Oil Sands is the largest owner of the joint venture, and although it is not the operator, its leadership is deep into the trenches of the oilsands discussion. President and chief executive officer Marcel Coutu recently completed a cross-Canada tour in an effort to sophisticate and inform this dialogue.

ConocoPhillips Canada

ConocoPhillips has made a clear statement with its Canadian arm—it is serious about the in situ oilsands sector, not only in terms of growing production but also doing so in a sustainable fashion. In addition to stable production and a top quartile steam-to-oil ratio at the Surmont SAGD project, construction continues on Surmont Phase 2. This expansion will boost capacity by nearly 110,000 barrels per day in a single phase. In addition to its business partnership with Cenovus Energy, ConocoPhillips is collaborating with the some of the biggest players in the industry as a member of the Oil Sands Leadership Initiative. This group is working to improve, demonstrate and communicate environmental, economic, and social performance.

Imperial Oil

Imperial Oil sometimes is forgotten as an in situ oilsands producer, but its Cold Lake project is the largest, oldest, and most consistent in the business. Despite being in operations for more than three decades, Imperial Oil continues to produce upwards of 150,000 barrels per day at Cold Lake, even breaking production records and booking new reserves. It is also a hotbed of technology development, including the now-commercial application of a solvent-aided cyclic steam stimulation follow-up process, and a recent pilot of solvent-assisted steam assisted gravity drainage. Cold Lake can also boast some important recent environmental achievements such as incorporating a wildlife monitoring program that is certified by the Wildlife Habitat Council.

Shell Canada

In 2011 Shell Canada and its partners in the Athabasca Oil Sands Project did something that the oilsands industry hasn’t seen in years and likely won’t see for a long while to come—they commissioned a new upgrader. The 100,000 barrel per day expansion reportedly reached its full capacity in June. Shell has made significant investments in the Canadian oilsands, and now it is also leading the charge to improve operations for the mining sector as a whole. Shell vice-president John Broadhurst is the inaugural chair of the Oil Sands Tailings Consortium, a group that has committed to breaking down the barriers of intellectual property in order to reduce both the size and number of tailings ponds into the future.

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Here are your nominees:

Canadian Dewatering L.P.

Part of Mullen Group Ltd., Canadian Dewatering L.P. is contributing to an ever-strengthening bottom line as well as to the advancement of key environmental issues facing the oilsands sector.

Canadian Dewatering’s services, which include pumping, diving, barging, dredging, dewatering, sediment control and high-pressure cleaning, are helping Mullen achieve record revenues, particularly in the second quarter of 2011 with the company’s thin fine tailings barge system project. Canadian Dewatering is the main contractor for Suncor Energy Ltd. on its TRO tailings reduction strategy, which it will spend $1 billion implementing over the next two years. TRO is a game-changing technology that will enable Suncor to not create any new tailings ponds for its base operations in the future.

CE Franklin Ltd.

Over decades in the Canadian oilpatch, CE Franklin has built its reputation on trust and reliability. This on-demand provider of components and materials is key support to the oilsands sector, especially as it advances its strategy of further support for the quickly growing field of maintenance, repairs and operations (MRO), and large capital projects. At any given time in CE Franklin’s Edmonton warehouse, over 30,000 different products are in stock, from giant valves to small specialty equipment. Supported by field centres, CE Franklin is able to provide products to its customers within 24 hours of request.

Last fall, Syncrude recognized CE Franklin with an award of excellence for being consistently on time and quick to correct any problems, contributing significantly to the massive oilsands joint venture’s reliability.

GE Power & Water

For more than a decade, GE Power & Water has been an active supporter of oilsands development, and it is all about water. GE’s systems are a key element of in situ operations, which rely on effective water management for efficiency, reliability and environmental performance. GE dominates the field for water treatment using evaporator technology at SAGD projects, also providing zero liquid discharge systems, boiler and cooling technology, mobile water treatment, membrane systems, and H2S scavengers.

GE’s water evaporator has achieved the distinction of ecomagination certification, a corporate-wide initiative designed to aggressively commercialize new technologies that will help customers meet pressing environmental challenges.

Black Diamond Group Limited

In the relatively short time since its incorporation in 2003, Black Diamond Group has grown into an important workforce accommodation provider in the oilsands sector, and continues to build on its achievements.

Its camps, which include the Sunday Creek Lodges east of Conklin, Alta. in the heart of SAGD Central, are currently operating at 97 per cent occupancy. Sunday Creek itself was recently contracted 100 per cent sole occupancy to a major Canadian oil company to September 2012, valued at $47.5 million. Black Diamond was also recently selected by Suncor Energy to supply workforce accommodation for its McKay River SAGD expansion north of Fort McMurray.

Silverstar Well Servicing Ltd.

A relatively new player to the oilsands industry, Silverstar Well Servicing has already achieved important milestones and recognition. The company moved its first free standing double rig into the Fort McMurray, Alta. region in 2007. Silverstar now has two rigs working full time in the area, often operating on a 24-hour schedule. Of key significance, both of these rigs recently marked the special milestone of reaching one year with zero recordable injuries.

Silverstar and partner Suncor Energy were recently recognized by CAPP as nominees for its Responsible Canadian Energy awards based on the 4Pinc Job Observation Program, designed to improve worker safety and also support the Canadian Breast Cancer Foundation.

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It’s very funny. Take a look!

Does the oilsands domination of the event and 2011 RCE program reflect the increase in public attention to this sector of the Canadian industry, or is it evidence that oilsands producers really are showing significant gains in performance improvement? I think a bit of both.

Here are some quick hits on the winners:

Health and Safety-Shell Canada
For the first time in the history of any project in the Royal Dutch Shell group, Expansion 1 of the Athabasca Oil Sands Project–a 100,000 barrel per day boost to its mining and upgrading operations–Shell Canada achieved 43 million hours without a lost time incident.

Social-Statoil Canada
Statoil Canada has established a Local Opportunity Centre (LOC) near its in situ operations. The LOC  offers business owners in the local community opportunity to train and build their businesses to work on Statoil projects. The company reports that in 2010 it generated more than $81 million in contracts with local and community-affiliated companies.

President’s award-Suncor Energy
Suncor got the big accolades of the 2011 program for the combined introduction of its new tailings reduction operations (TRO) strategy, and the successful reclamation of the first tailings pond in the oilsands industry to a solid surface. TRO is designed to reduce the time for a pond to be ready for reclamation from decades to weeks. Suncor says that its implementation has already enabled it to cancel plans for an additional five tailings ponds at its existing operations, and it expects to reduce its tailings ponds from eight to one in the years ahead, shrinking the land area occupied by the basins by 80 per cent.
As for Tailings Pond 1, which opened with Suncor in 1967, it is now known as Wapisiw Lookout, a 220-hectare site in the early stages of becoming what is expected to be a productive forest and wetland.

Environment-Encana and Apache Canada
In the only non-oilsands award of the evening, the joint venture of Apache Canada and Encana was recognized for its use of the non-potable Debolt aquifer in sourcing water for its Horn River shale gas operations. The companies built a new water treatment plant and developed the Debolt formation as a water storage reservoir. The plant is expected to provide a minimum of supply needs for hydraulic fracturing operations, a significant reduction in fresh water use.

The projects that won the awards are certainly deserving, but be sure to also check out the other nominees–some really interesting initiatives in there that we will be sure to cover more fully in future editions of Oilsands Review. Stay tuned!

I find the oilsands industry fascinating–clearly, or else I wouldn’t be very good at my job–so you’d think that I’d be excited to watch a two-hour documentary on the topic. But, earlier this week when I found out CBC was going to air a new program on the bitumen business, I found myself in grimace rather than glee. No, no, I thought…maybe it will be well done this time. And I guess it was, for what it was–which was not, as one of my colleagues had hoped, “a balanced, sophisticated, absorbing dialogue that inspires deep self-reflection and big ideas.”

Tipping Point: The Age of the Oilsands, which aired last night on CBC’s The Nature of Things with David Suzuki, was promoted as a visual tour de force about a David and Goliath epic environmental showdown. Well, that was certainly what was presented (minus the “tour de force” part). Unfortunately that is not the reality of the oilsands industry…but it sure does make a good story, and as the CBC clearly knows, you can’t go wrong with the visuals.

I think that visually, for environmental activists oilsands mining operations are what Angelina Jolie is for celebrity magazines–run with those pictures, and you’re almost guaranteed all the traction you want. The difference is that when you buy magazines with Angelina Jolie’s face on the cover, there’s more photo than there is story–when you are presented with a “truth about the oilsands industry” story that relies exclusively on mining imagery, there is more story than there is photo.

The fact that Tipping Point essentially left out the whole in situ side of the oilsands industry (except for one sentence and a vague comment about “cooking the earth” that if you were not looking for, would have missed entirely) almost sneaks by in that the Fort Chipewyan story really is a mining related story–until the documentary takes us to Oslo, Norway, to learn about the challenges state-owned Statoil is facing at home due to its interests in Canada’s oilsands.

Statoil has no mining projects either operating or proposed. Was this mentioned? No. Maybe even a brief snap of a wellpad and a segue into discussion of the environmental issues of in situ development, and/or a comment in passing that more than 80 per cent of the resource–the area so often compared to the size of England–cannot be mined? Nope.

I’m glad that the federal and provincial governments say they are committed to revamping the environmental monitoring of oilsands development, and I think it has been a disservice to this massive resource to not have implemented a more stringent system in the past. I hope the people of Fort Chipewyan can get more clarity on the reasons for their health problems–despite being presented in Tipping Point as absolutely, certainty caused by the oilsands industry alone, this theory has been disputed many times, including last fall by the Royal Society of Canada.

I’m not sure that documentaries like Tipping Point help foster constructive dialogue–in fact, I’m pretty sure they don’t. This program, which another of my colleagues described as filled with “hyperbole, omissions of context, and misleading juxtaposition,” only serves to further polarize this debate.

A tour de force, this show is not.

In the next issue of Oilsands Review (December 2010), we’re getting a head start on winter by taking a look at cold weather operations in this 24/7/365 sector, and how the strategies companies face operationally and from a safety perspective have changed over the years.

In the meantime, thanks to oilsands workers and Fort McMurray locals, here are some videos I found that show what cold can really be like, and what it’s like to live, work and play in it.

Advisory: there is a bit of language in some.

My personal favourite: The Syncrude Shuffle

Instant Ice In Fort McMurray

Oil Sands Drilling @ Christina Lake Winter 2008 (@ 2:00 is when winter really comes in)!

979 coming up highway 63 two pull trucks, one push truck

Fort McMurray 2 Day Winter

Winter riding in Fort McMurray – 2009

Here are the nominees:

Canadian Natural Resources
The ramp-up of Canadian Natural Resources’ Horizon oilsands mine since start-up in early 2009 has moved quickly, and without substantial upset, with production rates stabilizing at or near capacity of 110,000 barrels per day. This alone is a feat to be commended, for such a large and complex operation. Canadian Natural is also innovating how it manages oilsands tailings by injecting CO2 into the system, and has won an environmental stewardship award from the Canadian Association of Petroleum Producers for its Horizon compensation lake, a first for the oilsands industry. Canadian Natural has also expressed its commitment to expand oilsands operations, planning to sanction the next phase of expansion at Horizon later this year, as well as initial development of the Kirby in situ project.

Cenovus Energy
This year Cenovus Energy became the largest steam assisted gravity drainage (SAGD) producer in the oilsands industry, increasing total bitumen production to nearly 120,000 barrels per day in the second quarter of 2010. That’s up from just under 90,000 barrels per day in 2009, and 60,000 barrels per day in 2008. That production growth has also come with industry-leading efficiency and innovation that reduces environmental impacts. Cenovus recently announced its plans to grow net bitumen production to 430,000 barrels per day by 2019, and with its proven approach to project execution, expectations are the efficiency and delivery will continue.

MEG Energy
Newly public MEG Energy is a junior that walks like a heavyweight. In addition to a top-quartile SAGD project that has experienced impressive ramp-up and innovative transportation approach, MEG has a strong oilsands team that it just keeps on building.
With a successful IPO now in its pocket, MEG has shown nothing but strength in 2010. It is now funded to move ahead with the next phase of expansion at its Christina Lake SAGD project, increasing production capacity from current levels of 25,000 barrels per day to 60,000 barrels per day by 2014.

Shell Canada
Shell Canada is in the midst of starting up its latest expansion in the Alberta oilsands, a 100,000 barrel per day boost to both its mining project and its Edmonton area upgrader. Shell continued this expansion through the economic downturn, when many other companies dropped their projects. It will soon see significant benefits from its production of synthetic crude oil.
The company is also unique in that it is the only oilsands producer actively advancing a test of carbon capture and storage, located at its upgrader. The project, which is expected to be operational near the end of 2014, would capture over 1 million tonnes of CO2, or the equivalent of taking 175,000 cars off the road annually. It has also established an innovative approach for managing its tailings volumes.

Suncor Energy
Canada’s oilsands giant is on our radar once again this year, primarily for marking a major milestone for the oilsands industry by becoming the first company in the sector to complete surface reclamation of a tailings pond. In fact, it is even the industry’s first tailings pond, the initial storage site that Suncor started with its operations in 1967. Suncor’s impressive technology, called tailings reduction operations, should help progress significantly faster reclamation levels in the industry.

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