Oil and Gas industry of Alberta Canada

Q2 Presentation: The Oil sands
Industry in Canada

Usman Khan

June 22, 2007

Agenda and Objectives

To understand the significance of Canadian Oil Sands and
appreciate their importance to international players.
To understand the upstream Oil Sands product life cycle where
most of Canadian industry is active.

© 2007 BearingPoint, Inc. ENERGY SERVICES 2

Table of Contents

Global Oil Market
Global Oil Resources
Global Oil Demand and Geopolitics
Canadian Oil Sands
Canadian Oil Sands Ore Quality
Canadian Oil Sands Economics
Canadian Oil Sands Challenges
Canadian Oil Sands Market
Oil Sands Processes
Oil Sand Life Cycle
Upstream Oil Sand Phases
Extraction Processes
Open Pit Mining
In-Situ Extraction
Cyclic Steam Stimulation – CSS
Steam Assisted Gravity Drainage – SAGD
Emerging Technologies: In-Situ Conversion Process – ICP
Emerging Technologies: Toe to Heal Air Injection – THAI
Upgrading Vs. Refining
Upgrading or Visbreaking
Recap

Global Oil Resources

Global proven reserves according to most recent data
The total world proven oil reserves = 1200.8 Billion Barrels. Reserves that are economically
viable to extract with available technology at a given time are called “proven reserves”.
Proven reserves are a portion of total reserves. The amount of proven reserves has thus
varied with time, and have at time significantly increased with technological innovations.
The OPEC Cartel comprising of Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya,
Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela has 75.18% of world total
proven oil reserves.
Former Soviet Union (FSU) states comprising of Russia, Estonia, Latvia, Lithuania, Belarus,
Ukraine, Moldova, Georgia, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Uzbekistan,
Turkmenistan, and Tajikistan have 10.23% of total world proven oil reserves.
Organization for Economic Co-operation and Development (OECD) has 6.71% of total world
proven oil reserves. OECD comprises of 30 countries, including U.S.A., UK, most of E.U.,
Canada, Japan, Australia among others.
The balance of 7.88% of world proven oil reserves are in southern US, and Gulf of Mexico.
Their development is blocked by US senate under Petroleum Administration for Defense Act of
1970s.
More than 75% of world proven reserves are operated by state owned
More than 75% of world proven reserves are operated by state owned
companies in OPEC countries, such as Saudi Aramco and Kuwait Oil Company
companies in OPEC countries, such as Saudi Aramco and Kuwait Oil Company
etc. and are not accessible to international oil players.
etc. and are not accessible to international oil players.
OECD has only 40% of non-OPEC proven Oil Reserves
OECD has only 40% of non-OPEC proven Oil Reserves
Canadian Proven Oil Reserves account for 80% of OECD Proven Oil Reserves.
Canadian Proven Oil Reserves account for 80% of OECD Proven Oil Reserves.

Global Oil Demand and Geopolitics
G l o b al O i l D emand

90
Demand Total
85 Supply Total

80

75

70

65

60
2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E

Y ear
A higher differential of Supply Vs. Demand is pushing the price/barrel higher and keeping them High. Also
that gives Russia an immense position for bargain in the world market.
OPEC Cartel, which controls more than 75% of world oil reserves has become an unreliable source of
energy. Most of Iraq’s infrastructure is offline post second Iraq war. Algeria, Nigeria and Venezuela have
unstable political situation, and armed conflicts. Political unrest is on the rise in middle east affecting Saudi
Arabia, Kuwait, Qatar, UAE due to instability in Iraq. Iran is in a lockdown with global community due to its
nuclear program. Separatist tendencies in parts of Indonesia since East Timor.

Higher Oil prices, and instability in OPEC region has made investment in FSU and
Higher Oil prices, and instability in OPEC region has made investment in FSU and
OECD reserves economically viable, and lucrative.
OECD reserves economically viable, and lucrative.

Canadian Oil Sands

Most of Canadian Oil reserves are in the form of Oil Sands, which are non-
traditional Oil reserves.
Traditional oil reserves are of crude oil (or Crude) which contain hydrocarbon
molecules with 30-56 Carbon atoms. Crude is a thick viscous substance that is
liquid at normal temperatures.
Oil sands consist of Bitumen which contains 56-70 Carbon atoms in its
hydrocarbon molecule. It is more viscous than organic crude oil, and doesn’t flow
in temperatures less than 100 C at atmospheric pressure. Bitumen doesn’t form a
reservoir (unlike crude) due to its viscosity, and is spread along the soil surface in
millions of hectares.
Almost all of Canadian Oil Sands are in northern prairies with the exception of
Melville Island deposits in Arctic Canada. The Melville Island deposits probably
may never see development.
Canada has 1691 billion barrels of proven original bitumen in place (OBIP). 81%
of that (1370 billion barrels) is in Athabasca deposits in northern Alberta. The
balance 19% are in Cold Lake Saskatchewan and Peace River Alberta.

Oil Sands are non-traditional oil reserves, consisting of Bitumen, which is more
Oil Sands are non-traditional oil reserves, consisting of Bitumen, which is more
viscous than Crude Oil, and doesn’t flow under normal temperatures and pressures.
viscous than Crude Oil, and doesn’t flow under normal temperatures and pressures.


Canadian Oil Sands Ore Quality

The quality of Oil Sand ore is determined by:
Depth of reservoir.
Sand to Bitumen Ratio.
Overburden of the reservoir: depth of earth above a geological layer of interest.
Canadian Oil Sands deposits are of varying quality of bitumen across Athabasca basin, resulting in different
costs of production per barrel of crude. This makes Ore quality of extreme importance in rate of return on
investment.

Ore quality of Oil Sands determines the Rate of Return on Investment. With varying
Ore quality of Oil Sands determines the Rate of Return on Investment. With varying
Ore quality across the region, ROI varies as well, making some areas more viable
Ore quality across the region, ROI varies as well, making some areas more viable
than others.
than others.

Canadian Oil Sands Economics

Based on latest reported figures:
Estimated min. price of U.S. $45/barrel to sustain production in oil sands.
Cost of production in Oil Sands is much higher than traditional extraction. Estimated at around U.S. $37.5/barrel
Traditional extraction (such as in OPEC) is estimated around U.S. $5.5.

With current crude prices around U.S.$70/barrel, and forecast for crude prices to remain stable around U.S. $60
- $65 / barrel, the economic factors are in place to foster growth in Canadian Oil Sands. That translates to more
projects undertaken to improve and expand existing infrastructures, and research new technologies to increase
the recovery from Bitumen.

With economics in favor, the international oil players are investing heavily in
With economics in favor, the international oil players are investing heavily in
Canadian Oil Sands.
Canadian Oil Sands.
Production from Canadian Oil Sands will increase by more than 325% by year 2015 in
Production from Canadian Oil Sands will increase by more than 325% by year 2015 in
best case scenario for all currently approved projects.
best case scenario for all currently approved projects.

Canadian Oil Sands Challenges
Oil sand extraction has heavy demand of water. Thus the water supply available to oil operators is a limiting
factor in expansion in Northern Alberta. The Athabasca River and Peace River are of paramount importance to oil
operators as source of required fresh water. But oil operators share these water resources with other members in
the community: farmers, human and wild life population.
Oil Extraction has high environmental effects. Government of Canada is a signatory on global accords to reduce
green house emissions, and has been introducing stricter regulation to administer those accords. These
regulations have made it more challenging to get permits and approvals, and have increased cost of regulation
compliance.
Cost of capital projects to develop new facilities has sky-rocketed. It has more than tripled from ~C$29000 per
barrel/day in 2000 to ~C$95000 per barrel/day in 2006. Contributing factors include, but not limited to, high
labor costs, high cost of environmental regulation compliance etc.
With multitude of mega capital projects, and O&M underway, there is acute shortage of skilled labor in Alberta.
This has a negative effect on projects timelines.

These challenges has not deterred the oil players from spending on development and
These challenges has not deterred the oil players from spending on development and
expansions.
expansions.
The forecast is still strong despite all these challenges. The production is expected to
The forecast is still strong despite all these challenges. The production is expected to
double by 2015.
double by 2015. © 2007 BearingPoint, Inc. ENERGY SERVICES 10

Canadian Oil Sands Market

United States of America is the single largest
market of Canadian Oil Sands
U.S.A. market is divided into five Petroleum
Administration for Defense Districts (PADDs).
Approximately 64% of Canadian Oil exports
are delivered to PADD II, which includes states
of Illinois, Indiana, Iowa, Kansas, Kentucky,
Michigan, Minnesota, Missouri, Nebraska, Noth
Dakota, South Dakota, Ohio, Oklahoma,
Tennessee, and Wisconsin. Another 17% are
delivered to PADD IV, which includes Colorado,
Idaho, Montana, Utah, and Wyoming.
Pipeline companies are expanding their
capacity to transport synthetic crude to USA.
Canadian entities, such as Suncor, are
acquiring mid-stream and downstream
infrastructure in U.S.A.

The Oil Sands are profitable throughout
The Oil Sands are profitable throughout
the product life cycle from extraction to
the product life cycle from extraction to
consumer markets.
consumer markets.


Oil Sand Life Cycle
Includes the searching for The midstream sector The downstream sector
potential oil sands fields, processes, stores, markets includes oil refineries,
drilling of exploratory wells or and transports commodities petrochemical plants,
strip mining, and subsequently such as crude oil, natural gas petroleum product
operating the wells or mine and natural gas liquids such distribution, retail outlets and
that recover bitumen, and as ethane, propane and natural gas distribution
upgrade them to Synthetic butane. companies.
Crude Oil (SCO)

Upstream Midstream Downstream

Producers Upgraders


Upstream Oil Sand Phases

Cyclic Steam Stimulation (CSS)
Oil Sands
Steam Assisted Gravity Drainage
(SAGD)
Emerging Technology
Extraction In-Situ Conversion Process -
ICP
Open Pit Mining In-Situ Toe to Heal Air Injection - THAI

Bitumen

Upgrading

Synthetic Crude Oil


Extraction Processes – Open Pit Mining

Open pit mining is done when overburden is less than 75m.
Overburden is defined as geological depth above a geological layer of
interest.
22% of Alberta’s remaining oil sands can be recovered by mining.
Bitumen recovery rates are up to 90% through open Pit Mining
Production rate/ton of Soil varies across Oil Sands with the varying grade
of ore. Averages to 2 tons/barrel of crude.
With such production rate, large area needs to be mined to produce
significant crude.
Typical mine size in Alberta is between 150 to 200 square km.
Consumes high volume of water, despite the fact that most of water is
recycled.


Extraction Processes – Open Pit Mining

Ore is accessed by removing top soil. The mixture diluted by added further
extra hot water and allowed to settle in
Ore is picked up through shovels and
Extraction Vessel.
loaded into trucks to haul them to slurry
plant The mixture settles into three layers
Top Layer: Bitumen Froth – Sent to Upgrader
Ore is crushed and mixed with Steam,
Hot Water, NaOH. Middle Layer: Bitumen – Secondary separation
Bottom Layer: Sand – Sent to Tailings Pond
Mixture is graded through screens to
remove oversized particles.

Extraction Processes – In Situ

In Situ: Latin – means “in place”, “undisturbed”.
The soil structure is not disturbed for extraction. Overburden typically
more than 75 m.
78% of Alberta’s remaining oil sands are extractable through these
methods.
Reservoir quality is key in determining the yield and indeed the
financial viability of an in-situ project. Quality factors include a high pay
thickness, good vertical permeability, no bottom water, and little shale.
The objective is to have a low steam-to-oil ratio (SOR).
Two methods of In-Situ extraction:
Cyclic Steam Stimulation (CSS)
Steam Assisted Gravity Drainage (SAGD)


In-Situ Extraction: CSS

Injects superheated high-pressure steam (about
350°C) into the oil sand deposit via a vertical well.
The pressure of the steam fractures the oil sand, while
the heat of the steam melts the bitumen.
All CSS projects involve a six- to 24-month “soaking”
period, where the steam just soaks into the deposit.
Hence in-situ projects typically have very high SOR
ratios at the outset.
After the soaking period, the heated bitumen is
pumped to the surface via the same well used for steam
injection.
This complete steam stimulation cycle can be repeated


In-Situ Extraction: SAGD

This second well is located parallel to and below the
steam injection well.
The heated and, therefore, liquid bitumen is then
pumped to the surface from the second horizontal well,
also called the production well.
Much as in conventional drilling, maintaining the
stability of the reservoir is important. To this end,
water is injected into the bitumen-drained area.

SAGD is the evolution of CSS made possible by
horizontal drilling capability
The horizontal drilling increases the contact area with
the reservoir.
Two parallel horizontal wells are drilled through the oil
sand deposit.
Steam is injected into the deposit via the upper well.
The heat loosens the thick crude oil causing it to flow
downwards in the reservoir to the second horizontal
well.


In-Situ Extraction: Summary

20-50% recovery rate
Intensive requirement of water in the start up.
90-95% of water used in a steam cycle is recycled. Still requires 5-10%
additional water in every steam cycle. NEB estimates 1 Barrel of Crude =
0.2 Barrel of Fresh Water
High energy requirements to operate boilers. NEB estimates 1 Barrel of
Crude = 1.1 Mcf natural gas.
Miniscule geological footprint compared to Open Pit mining.


In-Situ Extraction: New Technologies - ICP

The process should be commercially feasible with
world oil prices at $30 a barrel.
The energy balance is favorable; under a conservative
life-cycle analysis, it should yield 3.5 units of energy for
every 1 unit used in production.
Reclamation is easier because the only thing that
comes to the surface is the oil you want.
While the rock is cooking, at about 650 or 750
degrees Fahrenheit, how do you keep the hydrocarbons
from contaminating ground water? You build an ice wall
around the well.
Ice is impermeable to water. So around the perimeter
of the productive bore, more wells are drilled only 8 to
12 feet apart, with piping, and refrigerants circulated in
them. The water in the ground around the shafts
freezes, and eventually forms a 20- to 30-foot ice
Drill shafts into the oil-bearing rock. Drop heaters down
barrier around the site.
the shaft. Heat (or cook) the rock until the hydrocarbons
boil off, the lightest and most desirable first. Shell will make a decision to put this technology to
production at the turn of decade (2010-11).
On one small test plot about 20 feet by 35 feet, on land
Shell owns, they started heating the rock in early 2004. Shell International exclusively developed and
"Product" - about one-third natural gas, two-thirds light tested this technology in Colorado and Peace
crude - began to appear in September 2004. Shell turned River Alberta. Yours truly was part of a sub-
the heaters in September 2005, after harvesting about contractor team who helped Shell with
1,700 barrels of oil. instrumentation, controls and safety
requirements and implementation.
This conversion rate translates to Upwards of a million
barrels an acre, a billion barrels a square mile.

In-Situ Extraction: New Technologies - THAI

THAI™ is an evolution of conventional fire-flooding It implies only modest usage of water and natural gas,
techniques, where the producers set fire to the petroleum which are key concerns.
in the reservoir by injecting oxygen/ozone. Estimated recovery rates in the 70%-80% range, higher
The heat from this combustion and the products than typical SAGD projects.
generated in the process (carbon dioxide gas and water Could potentially be used in lower-quality reservoirs than
vapor) decrease the viscosity of bitumen adjacent to fire SAGD.
front.
There are some concerns about the ability to control the
The fire front pushes the less viscous oil in front of it fire front to push oil towards the recovery rather than in
towards the recovery well. any other direction. However, Petrobank believes that the
THAI combines the vertical air injection well with a cold immobile bitumen outside the heated zone could act
horizontal production well. like a container for the heated front.
In Canada, Petrobank owns the rights. This technology is currently in the pilot stage.

Upgrading Vs. Refining

Refining Upgrading
An oil refinery is an industrial process plant where Oil Sands were discovered much later than traditional oil
crude oil is processed and refined into more useful deposits.
petroleum products, such as gasoline, diesel fuel, asphalt
Till very later parts of 1900s, oil sands were not
base, heating oil, kerosene, and liquefied petroleum gas.
developed. By that time several large refineries were
The refining process was designed in early 1800s, and already established, processing crude.
first refinery was setup in 1854-56 in Jaslo, Austrian
The oil sands contain higher unsaturated hydrocarbon,
Empire (currently Poland).
that are heavier than crude oil, and resembles the end
The crude oil is distilled (separation of a mixture by tailings of refining process, hence the name Bitumen.
using difference of boiling points of its elements) into
The development of Oil Sands required facilities that can
various products.
accept oil sands produce and produce usable products, OR
The residue is a thick black substance which is called convert oil sands bitumen into a product that already
Bitumen, and is commonly used in construction, established refineries can process. Industry opted for later
specially roads and bridges. option and Upgrader facility was born.
Refineries are large expanding facilities that costs tens Upgrading turns oil sands Bitumen into Synthetic Crude,
of billions of dollars, and number of years to construct. that established refineries can process.
Refineries are not environmentally friendly facilities, to
the extent that even in U.S.A. (who is not very
concerned about environment and green houses) has not
permitted construction of another refinery for more than
three decades (since 1976).


Upgrading or Visbreaking

Upgrading is the first step in converting bitumen into a Hydrogen Addition
more valuable product.
Done in two stages. In the first step, the heated bitumen
Upgrading separates the lighter components of bitumen is mixed with hydrogen and sent to the reactor where
and converts the heavy components into a refine-able catalysts convert sulfur and nitrogen compounds to
product: Synthetic crude oil - the primary product of hydrogen sulfide (H2S) and ammonia (NH3).
upgrading, needs further refining to be converted into
The bitumen is cooled, liquefied, and directed to a
usable consumer products.
hydrocarbon separator for hydrogen recovery.
Heavy oil upgrading techniques are typically referred to
After this first stage, kerosene-range products are
as “bottom-of the-barrel” conversion technologies.
removed as side-draw products.
There are two main methods for upgrading heavy oil
The first stage residuals from the fractionating tower are
bitumen:
once again mixed with the hydrogen steam and transferred
Carbon rejection to the second stage, where they are subjected to higher
temperatures and pressures.
Hydrogen addition
Once again, the resulting product is cooled and liquefied
Carbon Rejection
for hydrogen recovery and then transferred to the
Bitumen feedstock heated to high temperatures of up fractionator.
to 500 C in a furnace.
The volume of SCO from hydrogen addition is 17% higher
This heated feedstock is then pumped to a coker drum than from Carbon Rejection.
where it is held until it cracks into coke and gas vapor.
Capital intensity per flowing barrel of SCO for hydrogen
Vapors from the drums are then channeled to the addition is 20%–30% higher.
fractionator where naphtha, gas, and gas oils are
The hydrogen addition uses 45%–55% more natural gas,
separated out.
raising operating costs.
There are three different version of this technique in
Also hydrogen addition on-steam time is 5% lower than
production: Delayed Coking, Fluid Coking, Catalytic
the Carbon rejection.
Cracking

Recap

Discussed the significance of Canadian Oil Sands and appreciate
their importance to international players.
Discussed the upstream Oil Sands product life cycle where most of
Canadian industry is active.


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Oil and Gas industry of Alberta Canada

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