Globe & Mail (Canada): Husky follows Shell in trying to squeeze oil from hard rock

PATRICK BRETHOUR

CALGARY — Husky Energy Inc., saying it is aiming for a “dominant position” in the oil sands, is boosting its bet that it can wring crude out of limestone.

The Calgary-based integrated energy company said yesterday it has spent $10-million to acquire leases 95 kilometres west of Fort McMurray, in an area where the oil sands become oil rocks — where bitumen is trapped in limestone rather than clay.

Husky already had substantial holdings of what is technically known as carbonate in its Saleski leases. Saleski holds about 16.8 billion barrels of original bitumen in place, one of the most expansive measures of the potential of an oil reservoir. The new leases, adjacent to Saleski, contain another 2.7 billion barrels of bitumen in place. All told, the Saleski properties hold more than half of Husky's oil sands potential.

The lands were bought in the early April land sale, about two weeks after Royal Dutch Shell surprised the oil patch by spending $465-million on a large 10-parcel property containing carbonates.

Decades of effort to exploit carbonates have ended in failure, but the Shell acquisition has injected new life into the play, said Robert Bedin, senior analyst at Ross Smith Energy Group in Calgary.

“There's a buzz now surrounding Shell's acquisition,” he said, noting that Husky spent only about a fifth as much per acre as Royal Dutch.

He suggested that the gap means Husky could turn a tidy profit if it ever opted to sell Saleski and the new leases, rather than shoulder the risk itself.

But Husky spokesman Colin Luciuk said his company is already moving ahead with plans to develop the resource, including a drilling program on the Saleski leases completed in the winter and a continuing evaluation of technology that could be used to extract bitumen. The current bitumen industry extracts the tar-like substance from sandstone and dirt, using either mining or steam-assisted extraction.

Neither of those methods work for limestone, which cannot be mined easily and dissolves if water is used. To further complicate matters, the bitumen in the limestone is broken up into small globules, often not much bigger than two fingers.

It is thought that electrical wires can be used to heat up the bitumen enough to pump it to the surface.

Meanwhile, Husky reported first-quarter financial results largely in line with analysts' expectations, despite production problems at the Terra Nova offshore oil project in Newfoundland.

Cash flow from operations was $967-million, or $2.28 a share, in the quarter ended March 31, up from $816-million or $1.93 a share in the year-ago quarter.

Although improved from last year, cash flow was below the $2.53 average estimate of cash flow per share of 13 analysts polled by Husky.

Revenue jumped to $3.1-billion in the quarter just ended, up nearly 50 per cent from $2.1-billion this time last year. Profit rose to $524-million or $1.24 a diluted share in the first quarter of 2006, up from $384-million or 91 cents a diluted share a year ago.

Husky, the first of the Canadian integrateds to report its first quarter, saw profit widen in its upstream production while earnings fell in its retail operations. In the upstream, profit rose to $412-million from $239-million, while those in retail operations fell to $16-million from $18-million, partly due to lower marketing margins for gasoline and other fuels.