Japan Canada Oil Sands to quadruple production

For a decade now, bitumen production at Japan Canada Oil Sands‘ (JACOS) Hangingstone demonstration plant near Fort McMurray has been caught between experimental mode and commercial production but all that’s about to change.

JACOS is planning a major expansion for its steam assisted gravity drainage (SAGD) operation that will increase production to 35,000 barrels per day of bitumen (bpd) over 25 to 30 years, a significant increase from current production of 8,000 bpd. Production at the new facility would begin at the end of 2014.

SAGD was still pretty new when JACOS began constructing the $100-million operation in 1997, says executive vice-president, Yukio Kishigami, but the cost of the plant meant it was a little more than an experiment.

“Our intention was to demonstrate that SAGD technology was applicable to our oil sands reserves,” Kishigami says. “We still needed to define technology application itself.”

With 80% of the oil sands reserves too deep for open pit mining, a cost effective extraction technique was needed for this significant resource second only to Saudi Arabia. SAGD, which is energy intensive and requires natural gas to generate steam used in the bitumen recovery process, has become more common over the last 10 years.

In a SAGD operation, oil is recovered using drilling technology where steam is injected into the deposit to heat the oil sand, which lowers the viscosity of the bitumen. The hot bitumen migrates toward producing wells, bringing it to the surface, while the sand is left in place.

Kishigami says the company has built up its confidence to expand the project and has completed a geological evaluation that included 3D seismic drilling and an expansion of the resource.

In each of the last two winters, JACOS has spent between $20 and $30 million on exploration, and plans to spend $40 to $60 million in the coming 2008-2009 winter drill season.

The flurry of exploration left the company with just $4 million in net earnings in 2007, accounting for less than 2% of earnings for the parent company Japan Petroleum Exploration (JAPEX), an exploration and production company listed on the Tokyo Stock Exchange. JACOS holds 75% of the Hangingstone project while Nexen (NYX-T) holds the remaining 25%.

When it comes to volume though, JACOS’ production accounts for 12.5% of production volume when measured in barrels of oil equivalent, Kishigami says.

Kishigami says the company plans to complete an environmental impact assessment within two years.

“We released our proposal for expansion and are asking all the stakeholders including environmental people and native people, how they feel about our business expansion,” Kishigami says. “That’s the biggest challenge going forward.”