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Cenovus increased oil sands production by 14% year-on-year in Q3; Wedge Wells for increased recovery and lower steam-to-oil ratio

Cenovus Energy Inc., a Canadian integrated oil company, reported an increase in third quarter crude oil production year-on-year of about 4% due to oil sands production that was 14% higher compared with the same period a year earlier. Conventional oil production slightly declined due to a combination of factors.

A SAGD well pad at Foster Creek. Click to enlarge.

The Foster Creek and Christina Lake operations use steam-assisted gravity drainage (SAGD). The Cenovus SAGD process uses pairs of horizontal wells. The injector well injects steam into the producing zone, creating a high-temperature steam chamber in the formation. The heat melts the thick bitumen, allowing gravity to assist it to flow to the horizontal production well below. These two oil sands projects are operated by Cenovus and jointly owned with ConocoPhillips.

Combined production at Foster Creek and Christina Lake increased 14% in the third quarter from the same period a year earlier due to improved plant efficiency and well performance at Foster Creek and the start-up of phase C at Christina Lake.

Foster Creek produced more than 56,000 bbls/d net in the quarter, up 12% from a year earlier.

Wedge Wells. Click to enlarge.

About 12% of current production at Foster Creek comes from 38 wells using Cenovus’ Wedge Well technology. An additional 13 of these well types are waiting to be brought on production this year and the company plans to drill another 10 at Foster Creek by year end.

SAGD operations requires the use of many well pairs. Over time, a wedge of unrecovered bitumen forms in the space between two adjacent well pairs. Wedge well technology is a Cenovus innovation that allows the company to access that wedge of bitumen by drilling a single horizontal well between two SAGD well pairs and pumping the oil to the surface.

Wedge wells assist in working towards increasing total recovery of oil while lowering the environmental impact. Because the wedge formation is surrounded by steam chambers created by the existing well pairs, it requires less water turned into steam to soften it and pump it to the surface. Less steam means less water is used and less fuel gas is required to create steam.

Cenovus says that the Wedge Well technology has the potential to increase overall recovery from the reservoir by 10%, while reducing the steam to oil ratio (SOR).

SOR measures the number of barrels of steam needed for every barrel of oil produced, with Cenovus having one of the lowest ratios in the industry. A lower SOR means less natural gas is used to create the steam, which results in reduced capital and operating costs, fewer emissions and lower water usage.

Christina Lake production averaged more than 10,000 bbls/d net in the quarter, a 28% increase from the third quarter of 2010. This increase was mostly attributable to the start of production from phase C during the quarter. Production in September averaged more than 12,500 bbls/d net as this phase continued to ramp up.

Expansions. Phase D at Christina Lake is 65% complete, ahead of schedule and on budget for the total project. Initial production from phase D is expected in early 2013.

Once phases C and D are both fully operational, gross production capacity at Christina Lake is expected to be 98,000 bbls/d. Construction has started on Christina Lake phase E and earthworks are underway on phase F.

Earthworks are almost complete at Foster Creek for the next three expansion phases. Detailed engineering, the installation of metal pilings and the pouring of concrete continue. Several pipe and equipment rack modules for phase F are currently being assembled at Cenovus’s Nisku module assembly yard, with the first one already delivered to the site. Phase F, combined with phases G and H, is anticipated to increase gross production capacity at Foster Creek to 225,000 bbls/d by the end of 2016 from its current 120,000 bbls/d.

Capital investment at Foster Creek and Christina Lake was a combined $227 million in the third quarter, a 49% increase from the same period in 2010.

Operating costs. Operating costs at Foster Creek and Christina Lake averaged $12.60/bbl in the third quarter, a 13% increase from $11.15/bbl in the same period last year. Non-fuel operating costs were $10.22/bbl in the third quarter compared with $9.20/bbl in the same period a year earlier, an 11% increase. This was mostly due to increased staffing levels to prepare for full operation of the expansions as well as higher repair and maintenance costs.

Cenovus said it continued to achieve some of the best SORs in the industry with ratios of approximately 2.2 at Foster Creek and 2.8 at Christina Lake for a combined SOR of about 2.3 in the third quarter. The higher SOR at Christina Lake due to the start up of phase C in the third quarter is anticipated to decline as production volumes ramp up.

Future projects. The company has identified 10 emerging oil sands projects and continues to assess its resources to prioritize development plans and support regulatory applications.

A regulatory application for the Narrows Lake project, jointly owned with ConocoPhillips, was filed with the Alberta Energy Resources Conservation Board and Alberta Environment in June 2010. The company anticipates receiving a response in the second quarter of 2012. The application is the first to include the option of using a combination of SAGD and solvent aided process (SAP) for oil production. SAP combines steam injection with solvents, such as butane, to help bring the oil to the surface.

Narrows Lake is expected to have gross production capacity of 130,000 bbls/d, with initial production expected in 2016.

A SAGD pilot project is underway at the 100% owned Grand Rapids asset in the Greater Pelican Region. Steam injection began in December 2010 and the company continues to monitor the pilot to gain a better understanding of the reservoir. First oil production occurred during the third quarter. Cenovus remains on track to file a regulatory application for a commercial operation by the end of the year. Grand Rapids has the potential for production capacity of up to 180,000 bbls/d.

At the 100% owned Telephone Lake project in the Borealis Region, Cenovus expects to submit a revised application later in the fourth quarter, updating the initial 35,000 bbls/d application to 90,000 bbls/d. The company is making progress on its plans for a transaction involving the Telephone Lake project and some of the surrounding oil sands lands. Interested parties are now viewing information about the opportunity.

In the third quarter, Cenovus was included in the 2011 Dow Jones Sustainability Index (DJSI) North America for the second consecutive year and was recently named again to the 2011 Carbon Disclosure Leadership Index for Canada. The DJSI recognizes the leading companies in terms of sustainability, with selection being based on an annual assessment of their economic, social, corporate governance, and environmental performance. The Carbon Disclosure Project recognizes exceptional levels of climate change disclosure by companies.

For 2010, Cenovus reported that it had lowered its oil sands production greenhouse gas intensity (tonnes CO2e/m3 oil equivalent) from 0.40 in 2006 to 0.33 in 2010: a 17.5% decrease. Because oil sands production increased, however total company GHG emissions from all operations have risen as well, from 3,395 tonnes of CO2e in 2006 to 3,991 in 2010: a 17.6% increase.



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