Sept/Oct 2010

MEG Energy's Christina Lake

Focused growth

By Dan Zlotnikov

MEG Energy's Christina Lake plant now processes over 25,000 barrels of oil per day | Photo courtesy of MEG

Two storeys above the streets of downtown Calgary’s business district there is a walkway system that connects the city’s office buildings and shelters the foot traffic from the winter wind and cold. “We call it the +15 because it’s about 15 feet above the ground,” explains Dale Hohm, CFO of MEG Energy Corp.

It was in the +15 that the future of MEG was decided, Hohm says. After forming the company in 1999, oil sands veteran William McCaffrey and his cofounders spent the next four years hustling through the overpasses of the city’s business district, making what deals they could to secure a land base for the fledgling firm.

In the late 1990s future development of the oil sands was far from a sure thing, says Hohm, both due to unproven extraction technology and the very low — by today’s standards — price of oil. In fact, the lack of interest from the industry played an important role in the creation of MEG. According to Hohm, McCaffrey formed MEG when his previous employer, Amoco Canada, sold much of its oil sands holdings to Canadian Natural Resources and got out of the oil sands business just as it was bought up by BP. In contrast to that, McCaffrey was convinced the in situ technology held great promise. So in 1999, McCaffrey, Dave Wizinsky [MEG’s corporate secretary and a director] “and a few others put together their personal capital to start acquiring land,” says Hohm.

From up in the air to on the ground

Eleven years later, McCaffrey’s belief has proven itself many times over. Today, MEG is the 100 per cent owner of 2,175 square kilometres of leases in the Southern Athabasca region, and a 50 per cent owner of a 345-kilometre oil pipeline. The company has been using the pipeline to ship oil since 2008, when it completed its 3,000 bpd pilot plant at its Christina Lake in situ development, going up to 25,000 bpd by mid-2010, when it completed the first of a series of planned expansions.

In 2009, MEG received regulatory approvals for its Phase 2B expansion — a further 35,000 bpd to begin construction early next year. The company has also just completed a $700 million initial public offering — Canada’s second largest for the year to date and more than sufficient cash to fund the upcoming capital investment.

But taking Christina Lake to 60,000 bpd is far from the end, says Hohm. The deposit was recently evaluated by GLJ Petroleum Consultants Ltd., an independent reservoir engineering firm. According to the GLJ assessment, Christina Lake has 1.7 billion barrels of proved and probable reserves and a further 1.4 billion barrels of contingent resource.

The size of the deposit means there is plenty of room for growth and MEG is intending to make use of the opportunity: the company filed an application in 2008 for its Phase 3, three-stage expansion at Christina Lake and is expecting approval later this year or in early 2011. Each of the three stages of the Phase 3 expansion is planned to add a further 50,000 bpd of capacity, says Hohm, with the final goal being 210,000 bpd, a level the reservoir can support for 30 years.

Anticipating and adjusting

Being a specialized, comparatively small operator can also make a big difference. MEG’s vice-president of reservoir and production, Chi-Tak Yee, who has spent many years working on major projects, is familiar with the drawn-out process that can precede a decision in a large company. In contrast, he says, MEG is a very nimble company, with just one producing project that is occupying virtually all of its attention.

“While we did run into our share of difficulties, we were first able to foresee a lot of these and prepare for them, and second, if something unexpected did happen, we were able to adapt to it rather quickly,” says Yee.

He offers the example of a peculiarity of the reservoir that the company encountered in Phase 2. “A portion of the bitumen reservoir overlies water, and the consequence of that is an impact on how high or low a pressure you need in order to operate efficiently,” he explains.

The optimal pressure differed from what was observed in Phase 1, Yee continues, and so the company had to adjust its practices to suit. The solution was to place electric submersible pumps inside each production well to increase the flow of the bitumen out of the well. Yee says the whole process of outfitting over 20 well pairs with the pumps was done within a couple of months, far faster than it would have been in the case of a large firm.

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