Husky ready to make the Sunrise

There are an estimated 170 billion barrels of oil in Alberta’s oilsands, but getting them all out is proving to be a costly venture. As with the metal mining industry, mining for oil has been subjected to steep cost inflation over the last few years.

But one of the oilsands’ most important new developments, Husky Energy (HSE-T) and BP’s (BP-N) Sunrise, has managed to buck the trend. Now that it is two-thirds of the way to completion, the companies are confident in saying that its costs are much in-line with the original estimates.

The trick to such cost control, according to Husky, was to fix as many costs as possible early on — along with making sure its contractors stayed on the same page, as the company helped it reach its current level of 85% cost certainty.

Sunrise sits on 166 sq. km of land, 60 km northeast of Fort McMurray. It hosts a world-class reservoir with 360 million barrels of proven bitumen, 2.48 billion barrels of probable bitumen and 860 million barrels in the probable category, for total reserves of 3.7 billion barrels of bitumen.

To get it out of the ground the companies are using an in-situ recovery steam-assisted drainage system. The process involves sending wells into oilsands-bearing chambers for extraction. The wells are made up of two pipes that are spaced five metres apart and extend 750 metres underground.

Once in the reservoirs, which have an average thickness of 43 metres, the top pipe releases steam that heats the chamber so that the oilsands liquefy and descend into the lower pipe, from which it returns to surface for processing.

The process involves separating the bitumen from water and gas, and allows for 90% of the water in the solution to be recycled back into the steam-generating plant for reuse in the wells. The steam-generating plant will be fired by natural gas.

The process does not require open-pit mining or tailings ponds, which means that of all the extraction methods being used in the region, it has the smallest environmental footprint.

Husky says that only 6% of
the land package area will
be affected by the process over its 40-year mine life, and only 3%
will be affected at any one point in time.

If it all sounds too good to be true, the rub comes in the form of the price tag. Sunrise’s first phase is projected to cost $2.5 billion to build, and when a company is dealing with costs of that scale, cost control becomes imperative.

Fortunately Husky is not starving for capital. The company’s reported cash flows from its global operations of $1.3 billion in the last quarter, compared to $1.2 billion for the same period the previous year. Its net earnings came in at $535 million, and total upstream production averaged 321,000 barrels of oil equivalent per day.

These production numbers are set to get a boost from Sunrise in the coming years, with the first phase bringing 60,000 barrels per day of output starting early next year. But there is sure to be much more after that. The companies have already secured regulatory approvals to produce 200,000 barrels per day at the site, and pre-engineering for phase two is underway.

As for the structure of the fifty-fifty joint venture, Husky is responsible for running the operations in Alberta and sending the diluted bitumen from the on-site facility via pipeline to Toledo, Ohio, where BP will be in charge of refining the material up to transportation grades at an oil refinery there.

The set-up allows Husky to leverage its expertise in the region, as it has been exploring the oilsands since 1973, and has established itself as one of its key players.

Outside of Sunrise Husky also has the Tucker project, 30 km northwest of Cold Lake, Alta. Tucker was Husky’s first oilsands project, and went into production in 2006.

Beyond Sunrise and Tucker, the company has another 15 properties in its oilsands portfolio. It plans to use in-situ recovery at all future projects.