ALBERTA OIL SANDS INDUSTRY QUARTERLY UPDATE PHOTO: CENOVUS ENERGY SPRING 2018 2 Oil sands map What’s new 10 Oil sands data Reporting period: 3 Market update 7 Projects 13 Glossary DEC. 8, 2017 6 Resource + technology 8 Business 15 Contacts spotlight TO MAR. 15, 2018 9 Environment + technology ALBERTA’S Initial volume in place OIL SANDS trillion 1.84 barrels Canada’s oil sands resources exist in three major deposits in FORT MCMURRAY Initial established reserves PEACE RIVER Alberta: Athabasca, Cold Lake billion and Peace River. Athabasca, the 176.8 barrels 1840.0 largest in size and resource, is 176.8 home to the surface mineable CONKLIN Remaining established reserves (2016) 11.4 region. All other bitumen must billion 165.4 be produced in situ or by drilling. 165.4 barrels LAC LA BICHE Currently, the vast majority of oil COLD LAKE sands production is exported to Cumulative production (2016) U.S. markets. BONNYVILLE billion 11.4 barrels SOURCE: ALBERTA EDMONTON LLOYDMINSTER ENERGY REGULATOR Peace RED DEER Kitimat River 1 Fort McMurray Grande Prairie Edmonton 2 CALGARY Burnaby Hardisty Anacortes Calgary 9 Cromer MEDICINE HAT LETHBRIDGE 10 Quebec City Saint John Clearbrook 5 Superior Montreal 4 3 12 Guernsey Sarnia 11 Canadian and U.S. crude oil Flanagan Chicago pipelines and proposals 1 Enbridge Gateway Patoka 2 Kinder Morgan Trans Mountain Wood Oil sands deposit Oil sands area 6 3 TransCanada Keystone River Peace River Capital of Alberta 4 Spectra Express - Platte System Athabasca Pipeline Cushing 5 TransCanada Keystone XL Cold Lake Proposed Pipeline 6 ENB Spearhead South Surface ENB Flanagan South mineable area 7 7 ENB/Enterprise Seaway 8 8 TransCanada Gulf Coast Extension Houston Port Arthur 9 Enbridge Mainline 10 TransCanada Energy East Freeport 11 Enbridge Line 9 12 Enbridge Southern Access UNLESS OTHERWISE STATED, ALL PHOTOS COPYRIGHT JWN © 2017. 2 MARKET UPDATE SOURCE: SUNCOR ENERGY OIL SANDS ECONOMICS NO LONGER WHAT IS HOLDING BACK GROWTH: WOOD MAC Oil sands projects aren’t as high cost as Bakken well level economics, but it's a very would question. Why would you add until you they used to be, but investors still aren’t ready different decision than an incremental well in get some certainty on some of these pipe- to inject cash into another wave of growth. the Bakken,” he says. lines?” Oberstoetter asks. That’s because the improvements that “You still have that dynamic of short-cycle The next wave of oil sands project devel- have been made on the cost front are being returns, which are in vogue now, versus these opment is likely to occur in the mid-2020s, he obscured by other factors, according to Wood long-life projects where you’d need a little bit says, around the time that the U.S. Lower 48 Mackenzie. more confidence on a $60 or higher oil price. supply juggernaut is expected to plateau. Even Non-energy in situ operating costs have But in terms of the economics, we think they though this is the same timeframe for an an- dropped 45 per cent since the first quarter of compete… you’re not going to compete with ticipated plateau in demand, new projects will 2014, with leading projects below C$5/bbl, the best of the best of the Permian, but those still be required – including in the oil sands. notes Mark Oberstoetter, Wood Mackenzie’s get drilled up eventually.” “Even if we are in a declining oil demand director of Canada upstream research. Construction on some new oil sands environment, you still have to replace a lot He adds that at the same time, integrated projects was restarted over the last year, but of the lost production per year. That gives us mining opex has fallen 33 per cent, with Oberstoetter says this is not surprising given confidence that U.S. tight oil is not enough; Canadian Natural Resources’ Horizon project the large amount of sunk capital in half-built you need deep water, you need oil sands, and achieving less than $20/bbl in the fourth facilities. In recent months however, new work you need a price higher in the $60s, $70s to quarter of 2017. has gotten the green light, including Osum’s support those [final investment decisions],” Capital cost reductions have not yet replicated Phase 2B at Orion and MEG Energy’s brown- he says. the success that has been realized in operating field expansion at Christina Lake. That includes proposed projects like costs on the whole, with a technological step “If we’re expanding that out to the bigger Imperial Aspen, Cenovus Narrows Lake and change required to bring the breakeven for a projects, the Pengrowths and Cenovuses and Foster Creek Phase H, as well as Suncor new SAGD project under US$50/bbl, Wood CNRLs, they’re worried about what that investor Energy Meadow Creek and Lewis. Mackenzie says, but there are recent examples backlash would be on a [final investment deci- “They’re in a time frame that probably coming closer to US$54/bbl. sion]. Their investors need to be sold that the makes more sense for more aggressive oil “We’re seeing phase-level break evens in oil sands cost structure has come down.” sands expansion; the companies that are the high $50s for a [Pengrowth] Lindbergh Pipeline export capacity in particular is a pushing those forward, pretty soon they’re Phase 2 or some of those kind of good, low key issue that is masking progress being made going to run out of opportunities to acquire hanging fruit projects, and that’s going to on costs, Wood Mackenzie said in a research things, and if they do want growth in that time compete with your Tier 2s in the Eagle Ford. note earlier this month. frame, it will mean going back to a modular It’s already competing with some of the “Market access is a logical one that they SAGD growth.” 3 Invest Alberta Your one-stop connection to doing business in Alberta Where Investment Thrives How can we help you? • Business Support: Customized advice, access to capital and incentive programs • Coordination and Connection: Linkages to government and business partners • Insight and Information: Market intelligence and opportunity analysis Contact Us Web: InvestAlberta.ca | Email: [email protected] Invest Alberta Your one-stop connection to doing business in Alberta Where Investment Thrives RESOURCE + TECHNOLOGY SPOTLIGHT NON-CONDENSABLE GAS CO-INJECTION Gas helps to insulate the chamber top to reduce heat loss Steam Injector Steam is generated BACKGROUND in situ by scavenging heat from the the hot ll oducer we Producer Well SAGD technology, which was commer- reservoir rocks s the pr toward Steam continues to heat bitumen drain es to STEAM ntinu cialized in 2001, has been a spectacularly il co INJECTOR ed o Infill Well eat successful oil sands recovery process, with H Warmed bitumen is pushed towards output roaring to approximately 1.2 million infill well by pressure Steam difference and gravity Non-Condensable barrels per day today. Gas (NCG) However, it remains an energy intensive PRODUCER INFILL process, which is why producers remain WELL WELL committed to lowering the steam/oil ratio. One way of doing this is to add small SOURCE: MEG ENERGY amounts of non-condensable gas (NCG) such as methane to steam injected into the overburden -- where heat is wasted -- to 100,000 barrels per day by the end of reservoir after wells have been producing steam is diverted laterally where it contin- the year. over a period on SAGD mode. ues to mobilize bitumen. In early 2017 Suncor Energy received Once there is sufficient heat in the res- SAGP was first piloted at the Dover regulatory approval to convert all steam ervoir, the NCG helps maintain pressure test site where SAGD was developed. That injectors on one pad at its Firebag proj- and frees up steam to be redeployed into government-funded testing, and several ect to NCG co-injection. new SAGD well pairs. more recent pilots by oil sands producers, In summer 2017, Canadian Natural MEG Energy has realized great success indicated SAGP could improve steam/oil Resources Limited applied to implement with NCG co-injection and is currently in ratios without reducing oil production. NCG co-injection on one well pad at its the process of deploying it across its oil MEG’s take on the system is called Kirby South SAGD project. The applica- sands project site. Other companies are in enhanced modified steam and gas push tion was approved in November 2017. the process of following suit. (eMSAGP), which also includes drilling of Also in November, ConocoPhillips single collector wells between well pairs to Canada filed an application for broad HOW IT WORKS collect bitumen that would otherwise be use of NCG co-injection at its Surmont Dr. Roger Butler, the inventor of the unrecoverable. SAGD project, following successful pilot SAGD process, also developed a system he The technology has enabled MEG to testing. It received regulatory approval in called steam and gas push (SAGP). This in- increase production without increasing January 2018. volves co-injecting relatively small amounts steam generation capacity. In those specific ConocoPhillips began injecting of a NCG with steam. well patterns where eMSAGP has already non-condensable gas with steam at three The gas has several benefits. It replaces been deployed, the company is currently Surmont well pairs in December 2016 some of the steam, resulting in a lower seeing a steam-oil ratio of approximately and has extended co-injection to all the steam/oil ratio. It helps maintain pressure. 1.3:1 (the industry average is 3:1), with the well pairs on one pad.