Total Expands Canadian Oil Sands Presence with $1.1B Acquisition

3 August 2005

The Joslyn oil sands project.

International oil major Total is acquiring all of Deer Creek Energy in a C$ 1.35 billion (US$ 1.11 billion) cash deal. Deer Creek Energy has an 84% interest in the leases of the Joslyn oil sands project (diagram at right, Click to enlarge) in the Athabasca region of the Canadian Province of Alberta.

Production from the mine is scheduled to begin in 2010, eventually, following several stages, reaching 200,000 barrels of bitumen a day. Currently in its start-up stage, a pilot for the project is targeted to become commercial in 2006, with a production of about 10,000 barrels per day.

The acquisition is in line with Total’s strategy of expanding its heavy oil operations in the Athabasca region. The Group already owns a 50% interest in the Surmont SAGD project, 125 kilometers south of the Joslyn Project.

Total is already a player in extracting and converting heavy oil thanks to its 47% participation in the Sincor project in Venezuela— one of the world’s largest developments of its type, producing more than 200,000 barrels per day.

Oil sands are a source of “unconventional” oil—oil produced by means other than drilling a well and pumping up the crude. As supplies of conventional crude become harder to find (and prices rise), production of unconventional oil becomes more cost-justified.

(DOE Secretary Bodman recently noted that increasingly production must come from such challenging, unconventional sources. Earlier post).

Canada is rich in oil sands. Estimates of current recoverable reserves range up to 300 billion barrels, with projections ranging up to 1.7 trillion barrels assuming improved technology. That, as Canadian energy companies are happy to point out, represents more Saudi Arabia’s oil reserves. It’s just much harder and much more expensive to retrieve and process.

(The Canadian Association of Petroleum Producers recently increased its projections for future oil sands production. Earlier post.)

Oil sands are a mixture of sand, clay, water and deposits of bitumen—a very viscous form of oil that must be rigorously treated in order to convert it into an upgraded crude oil before it can be used in refineries to produce gasoline and other fuels. (Oil sands used to be called tar sands, to give you a sense of it.) The ratio of bitumen to everything else is relatively small: 10%–12%.

The bitumen contained in the oil sands is characterized by high densities, very high viscosities, high metal concentrations, high amounts of sulfur and a high ratio of carbon to hydrogen molecules. With a density range of 970 to 1,015 kilograms per cubic meter (8-14° API), and a viscosity at room temperature typically greater than 50,000 centipose, bitumen is a thick, black, tar-like substance that pours extremely slowly.

Oil sands production can be divided into in-situ production (heating and other processing of the tar-like sands while still underground to release the oil, with subsequent extraction) and mined production (where the sands are mined, and then hauled to a retort for processing).

The majority of the Jocelyn resource will be recovered using open pit mining techniques. In-situ steam-assisted gravity drainage (SAGD) technology will also be used.

Current approaches to in-situ production are natural-gas intensive—some estimates peg the use of natural gas for oil sands production at 7% of the entire current natural gas production in Canada. To offset that, Deer Creek has been working with a different fuel: Multiphase Superfine Atomized Residue (MSAR) from Quadrise Canada Fuel Systems.

MSAR is a stable liquid fuel made of very fine oil droplets derived from heavy feedstock such as bitumen or refinery residue. The fuel, manufactured at the point of use, offers similar combustion characteristics to natural gas.

MSAR is derived from work on emulsion fuel technology developed in Venezuela—another major global site of heavy oil production—by BP and PDVSA in the early 1980s.

Resources:

• Deer Creek investor presentation

• Using MSAR: Quadrise Canada Fuel Systems