The Canadian oil sands appear to be running alternately
hot and cold these days.
Imperial Oil (AMEX: IMO) signaled the
first sign of lifewith an intention to expand its Cold
Lake operation, while
PetroChina (NYSE: PTR) turned up the heat
further by taking a
$1.7 billion stakein two of privately held Athabasca Oil
Sands' projects.
This week, we saw
Total SA (NYSE: TOT) throw some more
cold wateron its Joslyn oil sands project. Meanwhile,
EnCana 's (NYSE: ECA)
soon-to-be-spun-offintegrated oil arm, Cenovus Energy,
announced that it's moving forward with a new
multibillion-dollar project at Narrows Lake.
Narrows Lake is just north of Christina Lake, one of the
properties subject to Cenovus'
joint venturewith
ConocoPhillips (NYSE: COP). The planned
method of extraction is steam-assisted gravity drainage
(SAGD), which has the handy feature of scaling up in phases.
Suncor 's (NYSE: SU) Firebag project is one
example of the way these developments tend to work. Cenovus
will likely start at 40,000 barrels per day and ultimately
scale the project up to two or three times that rate.
The more I study these SAGD projects, the more attractive
they look relative to the hulking bitumen mining and trucking
operations like
Canadian Natural Resources ' (NYSE: CNQ)
Horizon project. For a rundown of the benefits, see my recent
look at
Gulfport Energy 's undeveloped
oil sands assets.
For now, let's just focus on cost. Last year, I
notedthat Horizon came online at a capital cost of around
$84,000 (Canadian) per daily flowing barrel -- a discount
compared to Suncor's projections for its own Voyageur
expansion. It's not unreasonable to assume that Cenovus can
develop Narrows Lake at half the per-barrel cost of these
open-pit mining operations.
I think these economics go a long way toward explaining
why EnCana/Cenovus can push forward with this plan while
Total sits around waiting for higher oil prices.
This article was originally published as
EnCana's New Oil Sands Planon
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