March/April 2014

Fuel for the future?

The provincial government is pushing the long-term potential of Saskatchewan’s oil sands

By Graham Lanktree

Saskatchewan’s oil output is growing. Last year, the province produced nearly 178 million barrels of crude oil, besting the record it set in 2012. Oil makes up a big slice of gross domestic product and the provincial government is working hard to guarantee the industry’s continued growth.

Saskatchewan’s Minister of Economy Bill Boyd travelled to London in November to muster European interest and investment in the province’s as yet undeveloped billion-barrel oil sands reserves.

Speaking at the Canada Europe Energy Summit, Boyd pitched the opportunity that the estimated 1.2 to 2.3 billion barrels of oil locked up in the province’s northwest represent for long-term investors.

“We think that if it can be done in an environmentally responsible way, clearly we would like to see it developed,” Boyd said of the province’s deposits. “There’s a range of resource extraction options that are being looked at. There’s a technological question, an engineering problem, whether or not there is sufficient cap rock to maintain the integrity of the reservoir.”

Oil sands bitumen was first discovered in Saskatchewan in several wells drilled in the 1970s, which found 20-metre-thick deposits at a depth of 185 metres. Spread out over 27,000 square kilometres centred on Axe Lake in the Clearwater River Valley, about 100 kilometres northeast of Fort McMurray, even today technological and logistic limitations have made the deposits too expensive to extract.

In 2012 two companies stepped up to the challenge, purchasing a combined 214,433 hectares of land with oil sands deposits – the first deals in the province in five years.

Calgary’s Cenovus Energy was one of them. For $10 million, the firm bought up a combined 59,000 hectares in three parcels of land in northern Alberta and Saskatchewan from bankrupt Oilsands Quest Inc. Finalized by October 2012, the purchase added 17,438 hectares of Axe Lake oil sands to the company’s portfolio.

Before Oilsands Quest went broke in November 2011, it submitted a project proposal to the Saskatchewan Ministry of Environment in May 2010 to produce 30,000 barrels of bitumen per day on the property Cenovus bought.

Oilsands Quest proposed to use steam-assisted gravity drainage (SAGD) technology to extract the bitumen in a project the company said would last 25 to 30 years. Yet a $10.2-million court settlement reached August 26, 2013 alleged that Oilsands Quest and its directors – including embattled Sen. Pamela Wallin – overvalued the company’s assets by $136 million.

This was done “through a series of false and misleading press releases, investor presentations and accounting manipulations,” according to court documents.

Cenovus withdrew Oilsands Quest’s Axe Lake project proposal in August 2013. “It's far too early to say what role the Oilsands Quest assets might play in our long-term oil sands development strategy or what kind of technology might be used if they are developed,” said Brett Harris, Cenovus Energy’s senior media relations advisor, adding “a lot could change between now and then.”

Although SAGD is being considered, the technology would need to be modified to deal with characteristics that differ from Alberta’s oil sands. But the only realistic option is in-situ extraction since “it would be too expensive to move the overburden,” Boyd said, adding that, “a strip mining type operation is just out of the question.”

Saskatchewan’s deposits are continuous, homogenous, and have high porosity and oil saturation, with the main difference from Alberta’s deposits being a lack of Clearwater shale overlying the bitumen. A 2009 Pembina Institute study suggests that this “means conventional SAGD techniques used for in-situ extraction in Alberta may not be suitable.”

Oilsands Quest began to experiment with modified SAGD processes as it drilled a few hundred exploratory wells on the Axe Lake property. These included an electro-thermal process, as well as others injecting solvents such as propane and butane into the deposits to reduce viscosity, without disturbing the overlying geology. However, the company was unable to test these technologies on a large scale before running out of money in 2011.

The SAGD process typically recovers between 60 and 80 per cent from deposits and requires a large energy input. Around 2.5 to four cubic metres of steam, heated by 1,000 cubic feet of natural gas, are needed to extract one cubic metre of bitumen.

“At present there is no proven technology that has been found to be able to commercially extract the bitumen from the known oil sands deposits in Saskatchewan,” Boyd noted.

A second company, which bought up 196,995 hectares of oil sands land in December 2012, soon after Cenovus’ purchase, remains unidentified. Located north of the Primrose Lake Air Weapons Range, no exploration activity has begun on the two five-year land leases. Cenovus and the second company are the only ones that currently hold Crown oil sands exploration permits, the government said.

Cenovus does not have plans to start developing its Axe Lake deposit in the near future. “We see them as a potential bolt-on acquisition or extension to our Telephone Lake project that is directly adjacent to the Oilsands Quest leases on the Alberta side of the border,” said Harris. Cenovus hopes for Alberta’s regulatory approval of the Telephone Lake project in 2014, with site dewatering to begin in 2017.

Since the geology is similar between the two projects, “there might be some lessons from developing those assets that we could apply on the Oilsands Quest assets down the road,” explained Harris.

At the moment, Saskatchewan’s oil sands have no pipeline or rail infrastructure to transport crude oil either. If the leases were developed, “it would make sense to use the infrastructure built for Telephone Lake,” Harris added.

Despite Boyd’s pitches in November, not many foreign firms bit at the oil sands bait at the Energy Summit. “We had the opportunity to showcase Saskatchewan's vast resource potential,” Boyd explained, adding “there was substantial interest in Saskatchewan's carbon capture and storage project, which will be used in enhanced oil recovery.”

Still, the province has hopes that the current players in Saskatchewan are setting the table for what could be a future boon to public coffers. “[We expect] that [Cenovus] are doing the resource reservoir testing right now to see if they can successfully extract oil from the oil sands,” said Boyd. “There’s a very large resource there.”

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