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Processor Profile: ConocoPhillips thinks it has picked the perfect time to switch its focus away from the oilsands

Don Horne   


Prophetic singer/songwriter Bob Dylan said it best with his 1964 classic "The Times They are A-Changin':"

ConocoPhillips Canada has recently shown it's not interested in sinking. In light of plunging oil prices and ongoing uncertainty in the oil patch, the Houston-headquartered exploration and production company recently announced it will be changing its focus away from Alberta's oncelucrative oilsands and to non-conventional assets elsewhere in the province and British Columbia.

More to the point, the company will be slowing a previously planned expansion at its Surmont facility, located approximately 60 kilometres southeast of Fort McMurray, Alta. “In the current price environment, we’ve decided to slow the pace of new developments at Surmont," Matt Fox, executive vice-president of exploration and production, said at on a webcast at an investor day meeting in New York just recently.
"Instead, we’re focusing on optimizing our production through existing facilities."

The decision comes on the heels of a decision by the company to reduce its Canadian staff by seven per cent or 200 employees, mainly at its country headquarters in Calgary. ConocoPhillips employs approximately 2,800 people in Canada.


Surmont is a SAGD bitumen recovery facility that is operated by ConocoPhillips under a 50/50 joint venture agreement with Total E&P Canada. The facility first began producing oil in 2007, with a capacity of 27,000 barrels per day (bpd). In July, the company applied for regulatory approval to bring total regulated capacity to 260,900 bpd over two additionalphases.

The second phase is still expected to begin to ramp up later this year, bringing total capacity to approximately 136,000 bpd. The third phase, however, has not been sanctioned by the company.

ConocoPhillips currently holds nearly 500,000 net hectares of land in the oilsands, which the company says represents an estimated 16 billion net barrels of resources.

In addition to Surmont, ConocoPhillips also owns 50 per cent of upstream oilsands assets in Foster Creek, Christina Lake and Narrows Lake, as well as other properties located in the eastern Athabasca region.

Referred to as FCCL Partnership, which is operated by Cenovus, it is advancing expansion plans that are expected to increase total gross production capacity to approximately 740,000 barrels of bitumen per day.

ConocoPhillips also has four additional land holdings in the Athabasca region. Thornbury, Saleski, Crow Lake and McMillan Lake containing what the company says are substantial bitumen resources. ConocoPhillips says the holdings are being evaluated using 2-D and 3-D seismic surveys and well data. If the company moves forward with developments in these areas, it expects to access the resources using SAGD technology.

Western Canada
Fox also said ConocoPhillips would cut its overall capital spending over the next three years to $11.5 billion US per year from $16 billion as it tries to grow production 10 per cent to 1.7 million barrels of oil equivalent per day while coping with low oil prices.

Yet the company's plans to spend approximately$1.3 billion per year in Canada remain unchanged. What has changed is where that money will be spent. In fact, the company has pledged to spend 50 per cent more over the next three years in the U.S. and Canada even though crude prices have fallen by more than half over the past 10 months.

“We’ve got two vast resource positions inCanada, in the oilsands and the unconventionals,” said Fox. “To develop those resource positions, we’re going to spend about $1.3 billion per year in Canada. While much of the resources in Canada this year will continue to go toward the second phase at Surmont, "when we get to 2017, we see a significant increase in capital going to our unconventional programs. That results in a production increase in Canada of 80,000 barrels a day from last year to 2017.”

That's not to say ConocoPhillips is giving up on the oilsands. Speaking at the IHS CERAWeek Energy conference in late April, CEO Ryan Lance said demand for Canadian heavy oil in the U.S. will continue because it's a good fit for its refineries. He did, however, acknowledge that new investment will need higher oil prices and continuing innovation, albeit at a reduced level than before.

"It does take some recovering prices to bring back investment to the Canadian oilsands, but it doesn't require $90 or $100 to continue to develop that," he said. Overall, ConocoPhillips holds more than 2.2 million net hectares of land making up a total production of 167,000 barrels of oil equivalent per day.

Earlier this year, the company reported first-quarter production had increased by 38 million boe/d to 318 million boe/d. ConocoPhillips attributed the increase to strong plant and well performance in the oilsands operations, as well as production from new wells brought on line during a Western Canada winter drilling program. Bitumen production increased 26 per cent compared with the first quarter of 2014.

Over the last few years, the company has shifted the focus of its drilling program from vertical to horizontal wells and to liquidsrich and tight oil plays.

ConocoPhillips is one of the largest producers and operators in the Deep Basin, which stretches across northwestern Alberta into northeastern B.C. By changing the direction that the company drills — from vertical to horizontal — officials say they have greatly increased the resource potential in this mature area. Total net production for this region currently averages 48,000 barrels of oil equivalent per day (boe/d).

ConocoPhillips operates the Elmworth Plant, which is the main processing facility for the area. It also has significant working interest in seven other major natural gas processing facilities in the region. In west-central Alberta, the company holds more than 300,000 net hectares and operates several natural gas processing facilities in the area. ConocoPhillips last reported average net daily production of 42,000 boe/d.

Also in west-central Alberta, immediately south of the Deep Basin, the company holds close to 375,000 net hectares in the Kaybob-Edson area. The company's focus continues to be on liquids-rich horizontal drilling programs.

It last reported production of 45,000 boe/d. In its Plains assets, ConocoPhillips currently holds more than 100,000 net hectares across this area, which covers land in northeastern B.C. through Alberta to southwestern Saskatchewan. The company last reported an average of 32,000 boe/d in net production.

Fox said leading up to 2017, ConocoPhillips will focus on developing an estimated 25 years worth of inventory from its current unconventional drilling plays in Western Canada, including Glauconite, Cardium, Montney and Duvernay formations.

That said, earlier this year the company hired Scotia Waterous to advise on the sale of about 20 per cent of its production in Western Canada — primarily its gas-weighted assets that produce the equivalent of about 35,000 bpd.

Unconventional technology
ConocoPhillips employs a handful of extraction methods to get its reserves out of the ground, including fracking, SAGD, gas turbine once-through steam generators (GTOTSG), vacuum-installed tubing (VIT), enhanced-SAGD (e-SAGD) and flow distribution control.

• GT-OTSG: The SAGD recovery technique used at the Surmont facility requires the production of steam using large boilers called once-through steam generators (OTSG). GT-OTSGs integrate natural-gas powered turbines with the OTSGs to produce electricity at the same time as steam. The steam is used for bitumen production, and the electricity produced is used to power the facilities. ConocoPhillips says it’s currently piloting GT-OTSG technology at Surmont and, if successful, it could result in economic benefits, as well as reducing the environmental footprint. By generating electricity with a natural gas-powered turbine, GT-OTSGs reduce ConocoPhillips’ reliance on electricity from the Alberta power grid.

Since Alberta’s electricity grid is primarily supported by coal-fired power plants, GTOTSG use will also reduce the overall carbon intensity of facilities. In addition, by coupling the gas turbine exhaust with the OTSGs, we could also reduce our nitric oxide emissions.

• VIT: At SAGD developments, steam is injected into the ground to melt subsurface bitumen, which reduces its viscosity enough that it can be extracted. But before steam reaches the reservoir, it has to travel some distance, during which time heat naturally dissipates. To limit this heat loss, ConocoPhillips has started installing vacuum-insulated tubing in subsurface tubulars at facilities such as Surmont. The reduced heat loss made possible by VITs means less steam is required to be generated, less source water is used and less natural gas is burned to heat it.

Consequently, both ConocoPhillips’ water and greenhouse gas footprints are reduced. This has operational benefits, too. Before oil production can begin at a new well, it must be pre-warmed, which takes three to six months if unassisted. But with the reduction in heat lost to the environment while the steam is being transported, this prewarming period is dramatically decreased.

•e-SAGD: SAGD is the process by which operators inject steam into an oil reservoir, use heat to melt the subsurface bitumen and then pump it to a nearby facility where it can be processed and prepared for sale. e-SAGD, involves adding a mixture of light hydrocarbons to the injected steam, which allows ConocoPhillips to extract more oil using less steam. The light hydrocarbon and steam mixture melts the bitumen faster, so operators don’t have to inject as much steam to get the same amount of oil. This reduces the amount of water and the natural gas needed.

ConocoPhillips says it burns natural gas to create the steam for the injection process. By using less steam, the company may be able to reduce the greenhouse gas emissions per barrel of bitumen produced by as much as 15 to 35 per cent, and also reduce the amount of source water it uses.

• Flow distribution control: Currently being tested by ConocoPhillips, flow distribution control benefits both the steam injection and bitumen production parts of the process by encouraging a more even distribution of injected steam in the reservoir, and more even drainage of the melted bitumen. The system acts as a self-governing device that compensates for flow-rate changes, effectively improving the efficiency of the entire well.

And improved efficiency means both improved project economics and improved environmental performance. By optimizing the distribution of steam in the reservoir and the drainage of the bitumen from it, ConocoPhillips believes it will be able to increase the amount of resource that it could extract per well. This means the company is producing more salable product for the same or less amount of steam, and potentially fewer wells.

About the Author: Jamie Zachary is the managing editor of PROCESSWest.


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