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Yedlin: Showing cynics how oil business is done

Posted on 06/24/2013 5:22:44 AM PDT by thackney

It's never great sitting in the tallest office tower in town when there are severe thunderstorms blowing around. But that didn't seem to matter much to the group of buy and sell side types who were listening to Harbir Chhina describe technological innovations at Cenovus.

Apparently, Chhina is always last to present at the company's annual investor day; one might say he is the oilpatch equivalent of 'Q' in the James Bond movie series since he's the one who talks about all the cool technology Cenovus is in the process of developing - and/or using.

"He always steals the show. It's kind of typical," said Mike Dunn, who follows the company for FirstEnergy Capital Corp.

What's going on at Cenovus should put to rest any image of the oilpatch falling under the definition of a low-tech industry.

And it goes well beyond the technology that is part of every drilling rig today.

"They are innovators in technology," said Dunn.

While Cenovus, admittedly, is blessed with some very good assets at Christina Lake and Foster Creek, the fact it said it can generate a nine per cent return (after-tax) with an oil price between $35 and $45 per barrel (WTI) goes against what is commonly said about the oilsands - that it is the marginal barrel because of what it costs to produce.

Dunn says that cost structure puts the Cenovus barrel in line with one produced from the Bakken.

So much for the highest cost barrel.

At a time when there is a question as to how many barrels the world really needs - economic reports out Tuesday suggested China's growth rate was slowing - the key in the world of oil production is the ability to control costs.

And that's why technology is so critical. Cenovus said Tuesday it has 100 technology projects in various stages of progress.

Some, like the mobile SkyStrat drilling rig - for which the company received an Environmental Performance Award at this year's Responsible Canadian Energy Awards dinner - not only lower the cost of drilling a $500,000 stratigraphic well by 25 per cent, but also significantly decrease the environmental footprint.

The SkyStrat, two-thirds the size of a conventional rig, can be dropped in by helicopter and is able to access sites all year-round.

Even more important is the fact the disturbance to the surrounding area is minimized. So much so, said Chhina on Tuesday, that government officials on site this week said the company could receive a reclamation certificate when they left the site rather than five to six years down the road, if a conventional rig had been used.

"That's the story we have to tell the public," said Chhina.

Sometimes one wonders if the story isn't told because there is an underlying sense no one would believe it. But the time has come not to hold back.

Another story on the environmental file is the company's initiative to decrease nitrogen dioxide emissions from its steam generating units. The cynic would say the only reason Cenovus would look at ways to decrease the so-called 'NOX' emissions is because it can result in a boost to the bottom line.

That's not true, according to FirstEnergy's Dunn.

"That's something they pursued from an environmental stewardship perspective. It did not boost the rate of return but it lowered emissions," he said.

While lowering the amount of energy required to generate steam - and thus emissions - is also one of the motivating factors behind SAGD players developing technologies that use solvents to boost the flow of bitumen, it is also seen as an approach that will boost the economics of SAGD operations.

And when 80 per cent of the oilsands resource is going to be extracted using SAGD methods, it's something to pay attention to.

They key to success on the solvent-based process, says Randy Ollenberger, who follows the company for BMO Capital Markets, is the amount of solvent that is recovered and can be recycled.

"From my understanding you have to get about 80 per cent of the solvent back before it's considered an economic process. And clearly they (Cenovus) must be seeing that in their pilots if they are commercializing it," he said.

Of course, the results seen in a pilot project are not necessarily what should be expected when applied on a larger scale. But what's important is that Cenovus continues to push the technological boundaries in an industry that is not necessarily at the top of everyone's list of innovators.

And because SAGD is in its infancy relative to oil-sands mining, the industry is only beginning to explore along the innovation curve.

That means Cenovus - with its commitment to innovation, as well as the fact its Foster Creek was the first commercial SAGD project - is well-positioned to continue to reduce costs and ensure its barrels stay competitive.

"They have definitely been at the forefront ... and that's why it's a good long-term story," said Ollen-berger. If only the market would pay attention.

TOPICS: Canada; News/Current Events
KEYWORDS: energy; oil

1 posted on 06/24/2013 5:22:44 AM PDT by thackney
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To: thackney

Canada’s Oil Sands.

It’s perhaps the largest oil spill in the history of the world. Certainly it’s the largest on this continent.

All private industry wants to do is clean it up.

But will the enviro-nazis in and out of Big Government leave them alone to continue the task they having willingly undertaken? No of course not.

Big Government and the enviro-nazis LOVE oil spills. And dirty sand.

2 posted on 06/24/2013 8:28:57 AM PDT by Balding_Eagle (When America falls, darkness will cover the face of the earth for a thousand years.)
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To: Balding_Eagle
It’s perhaps the largest oil spill in the history of the world.


3 posted on 06/24/2013 8:33:10 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

I think it’s important to describe this area using the words (swords really) of the enviro-nazis against them.

Everyone knows what the phase ‘oil spill’ means in an instant, and the importance of cleaning that spill up.

I believe the enviros have co-opted the words ‘ oil-sands, or ‘tar-sands’ to the point of calling them that is to begin an uphill battle from the downhill side.

Let the enviros defend leaving this ‘spill’ as it is, polluting the environment, when it is our side who wants to clean it up.

4 posted on 06/24/2013 10:20:44 AM PDT by Balding_Eagle (When America falls, darkness will cover the face of the earth for a thousand years.)
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To: Balding_Eagle

I don’t care to apply enviroMENTALists negative connotations to that that drives our economy and standard of living.

But to each his own.


5 posted on 06/24/2013 10:23:52 AM PDT by thackney (life is fragile, handle with prayer)
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