Oilsands Quest turns to SAGD (March 29, 2010)

When Oilsands Quest (BQI-X) started drilling at its Axe Lake project in Saskatchewan in 2006, there was a much uncertainty in the industry about whether the oilsands of northern Alberta continued to the east.

“A lot of people in the industry assumed the oilsands deposit didn’t extend that far,” says Oilsands Quest chief geologist Simon Raven. “Or if they did, they thought it’d be water-saturated instead of oil-saturated.”

But the company’s hunch, based on old drill logs from the 1970s that showed bitumen intercepts, proved true. The first hole twinned a hole from 1973 and intercepted more than 20 metres of bitumen.

“We just kept stepping out from there and improving our geological model, and over the last four years we have proven a substantial bitumen deposit in Saskatchewan,” Raven says. “And we haven’t yet defined the maximum extent of the deposit.”

Oilsands Quest is still the only significant oilsands company in Saskatchewan but its discovery caused many companies to develop projects in northeastern Alberta, near the Saskatchewan border.

Today, Oilsands Quest has a new challenge. “We’ve proven the resource and now we need to prove that the resource is economically exploitable and that we can put oil down a pipeline,” Raven says.

The reason is that the deposit is located underneath a lot of overburden, and although oilsands producers in Alberta have developed a technology to recover the deep resources, known as steam-assisted gravity drainage, or SAGD, the company wasn’t sure it would work for it.

In Alberta, the oilsands deposits are covered by clear water shale, which acts as a cap to contain the steam in the SAGD process, but across the border the overburden is glacial till.

Over the last few years, Oilsands Quest, as well as a few other operators, have been developing a new way of using SAGD called “bottom up” in which two wells are located side by side at the bottom of the reservoir, instead of on top of each other. This process hasn’t yet been tested in the field.

“We were hoping to be the first ones to do that,” says Riyaz Mulji, Oilsands Quest manager of investor relations.

But now new studies on its glacial till cap rock have shown that Oilsands Quest’s glacial till will likely be able to contain the steam, allowing the company to test SAGD on its Axe Lake project.

“SAGD is much further developed in the industry in practise and that would get us to a commercial production development much faster,” Mulji says.

After spring break-up this year, the company plans to test some wells using a newer version of low-pressure steam injection.

SAGD is an energy intensive process that uses natural gas to generate steam, sometimes mixed with solvents, that’s injected into the deposit to heat the oilsands, lowering the viscosity of the bitumen. Hot bitumen then migrates toward the wells, which bring it to surface while the sand is left in place.

“There is a real pressure to move toward low-pressure SAGD for better energy efficiency and better economics,” Raven says.

At Axe Lake, located 55 km east of Fort McMurray, Alta., the company has discovered resources of 2.383 billion barrels (based on the “low” rating category), 3.250 billion barrels (best) and 4.215 billion barrels (high).

The company also has undiscovered resources of 1.171 billion barrels (low), 2.246 billion barrels (best) and 4.437 billion barrels (high).

Oilsands Quest has $30 million in working capital and estimates it should last over the next year.