Japan Canada Oil Sands to quadruple production at Hangingstone

For a decade now, bitumen production at Japan Canada Oil Sands’ (JACOS) Hangingstone demonstration plant south of Fort McMurray, Alta., has been caught between experimental mode and commercial production.

But with JACOS planning a major expansion for its steam-assisted gravity drainage (SAGD) operation, that’s about to change.

Expected to raise production to 35,000 barrels per day of bitumen from a current 8,000 barrels, the expanded operation should last 20 to 25 years, with the new facility ready by the end of 2014.

JACOS had been involved in research projects on underground bitumen extraction since the late 1970s.

SAGD was still pretty new when JACOS built 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 oilsands reserves,” Kishigami says. “We still needed to define technology application itself.”

With 80% of the oilsands reserves too deep for open-pit mining, a cost-effective extraction technique was needed for the estimated 1.7 to 2.5 trillion barrels of oil trapped in a complex mixture of sand, water and clay. 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 that injects steam into the deposit to heat the oilsand, lowering 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 JACOS has completed a geological evaluation that included 3-D seismic drilling and an expansion of the resource.

In each of the last two winters, the company has spent $20-30 million on exploration, and plans to spend $40-60 million in the coming 2008-09 winter drill season.

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

When it comes to volume, though, production from Hangingstone accounts for 12.5% of JAPEX’s production, measured in barrels of oil equivalent, Kishigami says.

The company plans to complete an environmental impact assessment within two years, he adds.

“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.”

The company holds a total of 460 sq. km in the Athabasca region for exploration.

JACOS has been active in the Athabasca area since 1978, when it optioned leases held by Petro-Canada (PCA-T, PCZ-N), Canadian Occidental (now Nexen) and Esso (Imperial Oil [IMO-T, IMO-X]), which formed the PCEJ group.

The group experimented with a cyclic steam-stimulation pilot project at the Hangingstone lease between 1983 and 1994. From 1992 to 1997, JAPEX participated in a SAGD pilot project known as the underground test facility with Alberta Oil Sands Technology and Research Authority.

Having achieved positive results at the test facility, JACOS decided to further pursue SAGD at the current Hangingstone site.