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Petroleum News: Chevron goes big time in oil sands

Chevron Canada is taking the all-or-nothing route in the oil sands, setting the stage to become operator of five leases that it believes have 7.5 billion barrels of oil-in-place.
Covering 180,000 acres the leases have been assembled over recent months at a cost of less than C$70 million, rated a bargain basement price alongside some of the successful bids at Alberta government land sales over the past two years.
Maverick Land Consultants, acting for Chevron Canada, paid an average C$838 per hectare for three of the leases covering 16,128 hectares (39,852 acres) last August, a steal alongside the average C$3,684 paid at a February auction.
“One of the big advantages is the price of entry,” said James Bates, vice president of operations and asset development at the Canadian unit of Chevron.
But the price may also reflect Chevron Canada’s decision to push development farther west than any existing project.
If appraisal drilling, expected to start in next winter, confirms the quality and scope of the estimated resources, the company will have found a “very cheap way” of capturing the bitumen assets, Tristone Capital analyst Tom Ebbern told the Calgary Herald.
However, Chevron Canada said it had no part in a February land sale when a company registered as 1122131 Alberta forked over C$464 million for 10 leases west of existing oil sands operations and has yet to disclose its principals or its intentions.
Bates said the company has been looking for a chance to grow in the oil sands after taking a 20 percent stake in the Shell Canada-operated Athabasca project.
The company believed it could find good quality acreage at a government sale and is happy to have landed the acreage it did.
Cost may have been 1 cent per barrel
Depending on the results of drilling, Chevron Canada may have paid only 1 cent per barrel for its reserves, compared with the 75 cents per barrel paid last summer by France’s Total when it acquired Deer Creek Energy for C$1.67 billion and the current trading values of C$2 per barrel of oil sands start ups such as UTS Energy and Connacher Oil and Gas.
If the Ellis River project goes ahead, possibly on the scale of 100,000 barrels per day, it could involve Athabasca’s three existing partners — Shell Canada 60 percent, Chevron Canada and Western Oil Sands (20 percent each). They hold options on any new development, with Chevron Canada as 60 percent operator and the other two spitting the balance, but Shell Canada said it has yet to decide whether to join a new operation.
The new leases are 24 miles southwest of the Athabasca site, but are too deep to be exploited by the mining methods used at Athabasca.
Bates said the initial view is that Ellis River would be a candidate for steam-assisted gravity drainage technology, which injects steam to melt the bitumen, forcing it to the surface.
While conceding the challenges that lie ahead, Bates noted that parent company Chevron has acquired considerable expertise operating heavy-oil projects on a global scale, notably Indonesia’s 212,000 barrel per day Duri field, the world’s largest steam-flood project.
Chevron Canada President Alex Archila said the purchase of leases puts the company in an excellent position to “pursue in-situ oil sands development” by building on “our existing thermal and oil sands knowledge and capabilities.”
George Kirkland, Chevron’s executive vice president, upstream oil and gas, said the Alberta opportunity “expands our efforts to develop high-quality, large-scale resources to enhance our production growth profile.”
—Gary Park

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