Cenovus receives approval for Narrows Lake project

abarrelfullabarrelfull wrote on 31 May 2012 06:53
Tags: canada cenovus n-america oil-sands upstream

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Cenovus Energy Inc. (TSX, NYSE: CVE) has received approval from the Alberta Energy Resources Conservation Board (ERCB) to proceed with its Narrows Lake oil sands project. Narrows Lake is just north of Cenovus’s currently operating Christina Lake facility, near Conklin in northern Alberta. The project is anticipated to have gross production capacity of 130,000 barrels per day (bbls/d) and be developed in three phases. Ground work for the initial phase of 45,000 bbls/d is expected to begin this fall.

“The approval of Narrows Lake is a significant achievement for Cenovus as we move forward with our plan to double the company’s net asset value between 2010 and 2015,” said Brian Ferguson, Cenovus President & Chief Executive Officer. “This milestone takes us another step closer to bringing on production at Narrows Lake.”

Project approval from Cenovus and its partner, ConocoPhillips, is expected by the end of this year. First production at Narrows Lake is anticipated in 2017, with the possibility of production starting in 2016, depending on industry activity and the associated demand for labour and materials. The Narrows Lake project has an expected life of four decades. Cenovus plans to apply learnings from its years of experience with steam-assisted gravity drainage (SAGD) in the oil sands to develop Narrows Lake. The company also plans to initially demonstrate solvent aided process (SAP) on 25% of the wells and eventually phase in SAP across the entire Narrows Lake operation. SAP involves the addition of a solvent to the steam injected into the reservoir to thin the oil and allow it to flow more freely to the producing well.

This would be the industry’s first use of SAP with butane on a commercial scale. Based on test results at other locations, Cenovus anticipates SAP may improve the steam to oil ratio (SOR) and oil production rate by as much as 30% when compared to SAGD alone. Cenovus also anticipates that SAP may increase total oil recovery by as much as 15%. The company expects the quality of the reservoir, combined with improvements it has made to technology and processes, will enable the Narrows Lake project to achieve industry-leading SORs as low as 1.6 with the full addition of SAP. SOR is a measure of efficiency for in-situ oil sands operations, with a low SOR meaning less water is needed and less natural gas is required, resulting in fewer emissions.

“Narrows Lake is an excellent example of how we’re applying innovation as we grow our oil sands operations,” said John Brannan, Cenovus Executive Vice-President & Chief Operating Officer. “Learnings from the SAP pilot projects at Christina Lake have the potential to improve production and decrease the environmental impact at Narrows Lake. In addition, efficiencies implemented at the newest Christina Lake expansion phases will be applied and improved upon at Narrows Lake.”

Compared to SAGD focused projects, Cenovus anticipates its SAP projects will have 10% to 20% higher initial capital costs. The company also anticipates higher capital costs for Narrows Lake since it is a new project with no existing infrastructure in place. The additional capital costs are expected to be offset by increased production volumes, increased oil recovery and lower operating costs due to SAP. Preparations for the Narrows Lake development are already well under way with a Cenovus team in place, initial equipment ordered and engineering work in progress. More than 200 stratigraphic test wells have been drilled at the project in support of the regulatory application and development plan. As the company gets further into its detailed engineering later this year, it plans to provide more detailed cost estimates for the project.

Reserves additions anticipated
The company’s 2011 independent contingent resources evaluation estimated the gross best estimate bitumen economic contingent resources for Narrows Lake at 888 million barrels (444 million barrels net to Cenovus). Sanctioning of Narrows Lake phase A by Cenovus and the project partner, ConocoPhillips, is expected to lead to the conversion of a portion of the contingent resource to proved reserves in the independent reserves evaluation to be prepared for year-end 2012.

Narrows Lake will be the third in-situ oil sands project operated by Cenovus. The Foster Creek operation is now producing about 120,000 bbls/d gross and Christina Lake is producing about 58,000 bbls/d gross with expansions continuing at both of those projects. Cenovus has a 50% ownership of the Narrows Lake, Foster Creek and Christina Lake projects with its partner ConocoPhillips. In addition, regulatory applications are under review for the Grand Rapids and Telephone Lake oil sands projects. Both of those projects are 100% owned by Cenovus and have planned production capacities of 180,000 bbls/d and 90,000 bbls/d respectively. Cenovus continues to assess other oil sands opportunities within its portfolio for future development. In addition to the 178,000 bbls/d gross of oil sands capacity already built at Foster Creek and Christina Lake, Cenovus now has 435,000 bbls/d of gross oil sands production capacity under construction or with regulatory approval.

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