Sunday, July 17, 2011

Pull together, not apart; Call out for oil sands operators to collaborate in keeping capital costs in check

Gary Park, Petroleum News

A ramping up of large-scale oil sands projects in Alberta is being accompanied by a campaign among industry leaders to promote collaboration among peers and rivals to curb capital costs and deal with a looming shortage of skilled labor and services.

The pace of new development was evident at a TD Securities conference in Calgary.

Devon Canada said it plans to go ahead with its wholly owned 140,000 barrels per day Pike project and is continuing with work on the second stage of its Jackfish joint venture with BP, which is scheduled to come onstream in three phases of 35,000 bpd; Total E&P Canada will break ground this winter on its 100,000 bpd Joslyn North mine, targeting first production in 2017; and Shell Canada said it will file with regulators in January for its two-stage, 80,000 bpd Carmon Creek project.

In addition, ConocoPhillips plans to invest C$1.5 billion this year on its oil sands assets, teaming up with Total to produce a combined 136,000 bpd from the Surmont project and partnership with Cenovus Energy to develop two phases of the Christina Lake thermal recovery project, which are due for completion in 2011 and 2013.

Challenges ahead

But Total’s Canadian President Jean Michel Gires was among those warning that the long-term, complex and capital intensive challenges to meet labor, technical and infrastructure requirements convince him that operators can no longer afford to remain isolated.
He told his audience of analysts and brokers that they should not underestimate the challenges.

“We know the world is watching us, so let us collaborate and prosper with a long-term goal in mind to produce the world-class resource sustainable (to meet) global energy demand,” Gires said.

He said that as projects move ahead they will face an “extremely tight labor market in North America,” especially recruiting qualified engineers and trades people, on top of which 30 percent of the current workforce is due to retire within the next decade.

Gires said that technologies to reduce water use and limit carbon emissions and toxic byproducts have advanced considerably over recent years and the information is being shared more openly.

“Addressing the issues together is much more efficient than attacking them individually,” he said.

Sharing and reducing risks

Nick Olds, senior vice president of ConocoPhillips Canada, said his company plans to spend C$100 million a year over the next five years on technology, targeting reduced gas consumption in its steam-assisted projects.
Rick George, chief executive officer of Suncor Energy, which is partnership with Total on the Joslyn and Fort Hills mines and an upgrader, said the joint venture is designed to share and reduce economic risks.

He urged companies to complete their engineering and procurement before mobilizing on a project, keep their workforces to a manageable size, award bite-sized contracts to proven contractors and avoid being driven by deadlines.

“I’ve got the scars on this one, trust me,” he said. “The focus has got to be on costs.”

John Brannan, chief operating officer of Cenovus Energy, said his company is running its own fabrication yard to restrain costs through quality and quantity control.

In addition, the use of new insulating technologies on tubing and innovative solvents to produce bitumen should trim C$10-C$15 off per-barrel costs over the next few years, he predicted.

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Republished with the permission of the Petroleum News