The agreements also provide for certain financing arrangements for AOSC. The projects are located in the centre of the Athabasca area in northeastern Alberta and have been independently assessed to contain approximately five billion barrels of best case contingent bitumen resource. AOSC currently has 100% working interest in both the Dover and MacKay projects.

Oil sands projects are very capital-intensive long-term investments and difficult to fully finance in the traditional equity market. AOSC therefore decided to look for joint venture partners, and these strategic joint venture arrangements with PetroChina, one of the world’s largest energy companies, can ensure that the MacKay River and Dover projects will be developed in timely manner.

—Bill Gallacher, Chairman, AOSC

SAGD well pair. Source: AOSC. Click to enlarge.

AOSC has been planning to use in-situ technologies such as steam assisted gravity drainage (SAGD) in its projects. SAGD is a thermal production method that pairs a horizontal injection well approximately 5 meters above a horizontal production well drilled along a parallel trajectory. Both wells are positioned low in the reservoir. Saturated steam is injected into the reservoir via the SAGD injection well where the steam rises and expands throughout the reservoir.

The steam heats the bitumen and reduces its viscosity to that it will flow under gravitational forces, along with the condensed steam, to the SAGD production well, that in turn extracts the bitumen to surface heavy oil production facilities.

AOSC recently visited several of PetroChina’s oil facilities in northeastern China where PetroChina operates a number of heavy-oil projects using various SAGD processes and firefloods.

As joint venture partners, AOSC and PetroChina International intend to use common in-situ methods to develop their oil sands projects. AOSC has filed regulatory applications for approval of two pilot projects within the project areas with Alberta’s Energy Resources Conservation Board and intends to file a regulatory application for the first 35,000 bbl/d phase of the MacKay River commercial project at the end of 2009.

In 2007, Alberta granted China National Petroleum Corp. exploration rights for 11 oil sands fields with estimated reserves of 2 million barrels of bitumen, marking the first instance of major Chinese oil company winning a majority stake in a Canadian oil sands project. (Earlier post.)