Cenovus Energy’s Total Bitumen Initially-in-Place Estimated at 137B Barrels; Oilsands Production Expected to Increase 5-Fold to 300,000 bpd by 2019
An external evaluation of Cenovus Energy Inc.’s oilsands assets by an independent qualified reserves evaluator, McDaniel & Associates Consultants Ltd., has identified “best estimate total bitumen initially-in-place” (BIIP) on Cenovus lands of 137 billion barrels (Bbbls).
Cenovus is an integrated oil company headquartered in Calgary, Alberta, Canada, with an enterprise value of approximately C$26 billion.
The BIIP assessment includes the bitumen production, reserves and economic contingent resources previously reported as well as an estimate of Cenovus’s share of all other bitumen on the company’s lands.
Of that total, 56 Bbbls of bitumen is considered to be “discovered BIIP”. To qualify as discovered BIIP, the evaluator typically requires at least one well drilled per section of land. The BIIP numbers reported by Cenovus are the evaluator’s “best estimate”, which provides the most reasonable assessment of the bitumen resource.
Cenovus’s new ten year business plan outlines how the company expects to reach bitumen production of 300,000 barrels per day (bbls/d) net to Cenovus by the end of 2019, while maintaining capital discipline. That’s a five-fold production increase from current bitumen production levels.
Cenovus anticipates achieving that growth at long term estimated average finding and development costs of approximately $8.00 per barrel. The production increase is expected to come from continued expansions at the Foster Creek and Christina Lake operations as well as new projects at Narrows Lake and Grand Rapids. The business plan also includes cash flow growth that will provide Cenovus with the flexibility to consider increased dividends after 2011 and potential share buybacks in future years.
Production from the next phases at Foster Creek (phase F) and Christina Lake (phase E) is expected to begin a year earlier than initially planned, pending timely regulatory and partner approvals. In addition, further assessment of the potential of these two assets has resulted in Cenovus increasing the expected gross production capacity to about 235,000 bbls/d at Foster Creek and about 258,000 bbls/d at Christina Lake by 2019, a combined 15% increase over the previous capacity estimate.
Narrows Lake, located near Christina Lake, is the next project expected to be developed. A regulatory application for the initial phases of that project is expected to be filed in the coming weeks and includes the possibility to apply solvent aided process (SAP) along with steam assisted gravity drainage (SAGD) production.
Grand Rapids is a new project in the Greater Pelican Region. The company plans to test a SAGD well pair at Grand Rapids this fall and possibly submit a regulatory application by the end of 2011. Cenovus’s Greater Pelican Region also includes the current Pelican Lake polymer flood operation in the Wabiskaw formation and a potential future project in the Grosmont carbonate formation.
Evaluation work is underway for several other projects that are expected to start producing after 2019. Additional stratigraphic wells are being drilled to support the current application at the Telephone Lake project in the Borealis Region. Cenovus also plans to gather seismic data and drill stratigraphic wells on seven other promising oilsands assets in the coming years. Cenovus has decided to make public, during its 2010 investor day presentations, ownership information that was previously kept confidential about some of these lands. The goal is to have an inventory of regulator-approved commercial projects with a total capacity of 400,000 – 500,000 bbls/d net to Cenovus by the end of 2015. These projects would be in various stages of development and production.
Cenovus is among the lowest cost oilsands producers in the industry.
The company plans to double its annual research and development (R&D) spending to $40 million. It currently has about 50 R&D projects underway and plans to implement at least one new commercial technology each year. These technologies are expected to help improve oil recovery, decrease operating costs and reduce the impact on the environment. Nearly three-quarters of these R&D projects have environmental improvement as the primary focus, the company said.
Cenovus’s conventional assets are forecast to generate operating cash flow in excess of $2 billion in 2010, which helps fund the growth of the company’s oilsands operations. The company plans to reinvigorate efforts to increase production from its substantial conventional oil resource. Increased capital investment is expected to facilitate production growth at its Pelican Lake polymer flood operation, in the Greater Pelican Region. In the new tight oil plays in southern Saskatchewan, Cenovus has committed to funding 20 additional horizontal wells in the Lower Shaunavon in 2010 and is evaluating the performance of a number of multi-stage fractured horizontal wells in the light oil Bakken play.
Cenovus’s natural gas assets will remain an important part of the company’s portfolio as a source of strong cash flow and as a hedge against the cost of fuel for both oilsands production and refining operations. Over the long term, the intent is to manage the decline rate of natural gas production to a 6% level and to concentrate capital investment on high return gas opportunities such as the low cost coalbed methane recompletions, which benefit from existing infrastructure. Cenovus will continue to assess its portfolio and look to divest non-core assets if market conditions are favorable.
Cenovus’s downstream operations include the Wood River Refinery in Illinois and the Borger Refinery in Texas, which are jointly owned with ConocoPhillips, the operator. In addition to the 25,000 bbls/d (gross) coking capacity at Borger, 65,000 bbls/d (gross) of coking capacity is being added at Wood River with the coker and refinery expansion (CORE) project to increase total coking capacity at Wood River to 83,000 bbls/d (gross).
The CORE project is approximately 80% complete and the final cost is expected to be within 10% of budget. The project remains on track for a mid-2011 start up. It is anticipated this project will improve net margins at Wood River by approximately $4.00 per barrel. With the completion of the CORE project, Cenovus’s two refineries will be among the most complex in the United States, with the ability to process a wide variety of crude feedstocks and produce a large quantity of high value clean products. These refineries will have a combined capability to process as much as 275,000 bbls/d (gross) of heavy crude oil.