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Canoils Oil Sands Analysis Reveals Some Big Differences in Project Performance

|Includes: CEO, COP, CVE, DVN, HUSKF, PCZ, Suncor Energy Inc. (SU)

All oil sands projects are not created equal, with some big differences in project efficiencies and profitability, according to an in-depth analysis based on Canoils oil sands service. However, despite much lower benchmark crude prices and higher royalty rates kicking in for some projects, leading oils sands players are today managing to sustain healthy netbacks by driving down costs, introducing new technologies and benefiting from lower natural gas prices.

Steam Oil Ratios (SORs)

One key measure of oil sands project efficiency is the ratio of steam to oil required to extract in situ bitumen. SORS have a direct impact on costs and are to some extent controllable by each operator. Applying a general industry rule of thumb, it takes about 1 mcf (costing approximately Cdn $3.85 at today’s prices) to generate the steam to produce one barrel of bitumen at a steam oil ratio of 3. Canadian gas prices in 2008 were CDN $ 7.70 per mcf, compared to CDN $ 3.85 today so that is helping to widen operating margins.

Cenovus’ Christina Lake project has the lowest SOR of Alberta’s producing projects with an instantaneous January 2009 to April 2010 SOR of 2.1, according to CanOils. Instantaneous SORs refer to specific time periods as opposed to the cumulative SOR for the life of the project.) Cenovus have been able to extend this efficient extraction performance to their Foster Creek project. Foster Creek has over six times the capacity of Christina Lake, yet still maintains the second most efficient project SOR of 2.4.

Cenovus’ joint venture partner in its projects, ConocoPhillips, may be benefiting from the information they are gaining from this partnership, as its Surmont project, with an SOR of 2.8, is the fifth most efficient Albertan operating project. Devon Energy’s Jackfish project is third with an SOR of 2.5, while Suncor comes fourth with the recently acquired MacKay River project from PetroCanada, which outperforms its own long-standing Firebag project with an SOR of 2.5 to 3.1 respectively.

With its lower operating pressure, all of the top eight operating projects utilise steam assisted gravity drainage (OTCPK:SAGD) technology. It is perhaps no surprise that Imperial Oil as developer of the Cyclic Steam Stimulation (NYSE:CSS) technology, is the best of the CSS producers with its Cold Lake project operating at an average SOR of 3.5.

In contrast, Husky’s Tucker project averaged an instantaneous SOR of 7.7. While Nexen continue to boost production at Long Lake after its fourth quarter turn around, April’s SOR figures were up from 4.4 in 2009 to 5.2 in 2010.

Most of the new oil sands projects slated for development have estimated SORs of about 3, but given the variability and range of SORs for existing projects, it appears that this number may turn out to be on the low side in practice.

More Efficient Technologies

Not content to rely on lower gas prices to support their profitability, operators are also going to every length to trim SOR’s through improvements in operating efficiency and the introduction of new technology. Much of this attention has circled around the addition of solvents to aid in recovery. For example, Cenovus began its Solvent Aided Process (NYSE:SAP) in 2009 at Christina Lake, while at Cold Lake Imperial Oil has implemented its Liquid Addition to Steam to Enhance Recovery (LASER) technology. The application and annual performance review of these techniques are available in CanOils’ oil sands regulatory documentation.

Well Productivity by Project

However proactive the operator is, some reservoirs are substantially more productive than others, Canoils shows. Suncor’s Firebag project has the highest well productivity currently, as shown by the graph below.

Margins Hold Their Own

While 2008 provided operators with substantial price realisations on their bitumen product, higher gas prices at that time squeezed project netbacks. As operators have sought to lower operating costs and in combination with today’s low cost gas prices, netbacks have remained pretty robust. Netbacks at Foster Creek have climbed from a low of C$14.62 per barrel in Q1 2009 to C$44.13 in Q1 2010, while total operating costs have dropped from C$15.91 to C$11.11. Connacher’s Great Divide project after its first full year of total operations similarly cut per barrel operating costs, from C$20.41 in Q1 2009 to C$19.29 in Q1 2010.

All figures have been taken from the CanOils Oil Sands product. Monthly, Quarterly, Annual and Instantaneous Steam Oil Ratios are available on all Albertan oil sands projects, in addition to all constituent and technical components, while netbacks are available where provided. Full project application, decision and annual performance reviews are also available.

Disclosure: No positions.

Chris Wilson is an Oil&Gas analyst at Canoils a provider of Oil & Gas content for the Canadian market. His works full time covering the Canadian Oil Sands market keeping up to date with all market movements, project developments and deals.