Why we’re restarting SAGD construction: Cenovus

Why we’re restarting SAGD construction: Cenovus EVP Drew Zieglgansberger

By JWN staff

Feb. 2, 2017, 7:38 a.m.

 

Good news came from Cenovus Energy in December 2016 when the company announced it would restart work on its 50,000-bbl/d SAGD expansion at Christina Lake.

Construction on the project had been suspended in late 2014 in the midst of collapsing oil prices.

Cenovus Energy’s restart announcement followed Canadian Natural Resources’ announcement in November that it would restart work on its 40,000-bbl/d Kirby North project, which had also been suspended in the same time period.

Cenovus executive vice-president Drew Zieglgansberger spoke with the Journal of the Canadian Heavy Oil Association about getting back underway at Phase G.

Why is it appealing for Cenovus to restart this expansion now?

The real reason is the work our teams have done over the last two years since it was basically stalled. They’ve been able to rework both how we’re going to finish the construction and, most importantly, we’ve re-looked at how to exploit the reservoir.

In doing a lot of that work, we’ve been able to remove about $500 million in costs that might have been incurred had we not stopped it a couple of years ago. The combination of those two things, finishing the facility and the reservoir and the kind of innovative changes the teams have made to put wells in the ground and get the oil out from the reservoir, is really the main reason for our confidence in restarting it.

How have the expected cost reductions been achieved?

The big one is sustaining capital, and that is really the capital required to continue to drill wells and add more pad facilities to keep the current production levels to the size of the facilities. We’ve been able to drill the wells faster, so then your costs go down. We’ve also introduced a whole different design to our well pads which we call a “zero-based module,” and that has reduced our costs between 40 and 50 per cent from what those costs were historically.

These kinds of costs are sustainable whether we’re building a new phase or not, because this is the kind of activity that’s going to go on for decades to continue to keep the plant at these production levels.

How does this investment going into 2017 mesh with the new Alberta carbon tax also 

coming into effect this year?

The reason we’re confident we can still move ahead with this project is that over the last 10-plus years we’ve actually reduced our emissions intensity by about 33 per cent in oilsands and have set a target now to reduce it again by another 33 per cent from current levels over the next 10 years. So that in itself will help us stay competitive with this levy on the emissions side.

Obviously, for us to achieve that there are a number of things we have to work on and do. But at the same time, we’ve tested the benefits we believe we can still gain from our reduction of emissions intensity as well as the lower costs that we have taken into account in this decision.

Do you think this announcement should make people feel more confident about the future of the oilsands?

Well, I think what it shows you is that we as a company have confidence in our resource and the ability of our teams to find innovative ways to still be competitive. So I think the industry from a vendor and staffing standpoint should feel some confidence in Cenovus in that we are finding ways to maintain competitiveness and even expand.

But this is project and asset specific. Not all reservoirs and projects are created equal, so I don’t think you could read this as a normal extension into all oilsands because I don’t believe there’s that kind of confidence still as an industry in the long-term growth.

I think it’s going to be company by company and asset by asset on who can really unlock the value in finding innovative ways to keep growing it and bringing it forward.

 

About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on February 2, 2017, in economic impact, oil. Bookmark the permalink. Leave a comment.

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