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Cenovus gets Alberta's blessing to tap vast bitumen deposit

A Cenovus Energy storage facility

Rene Michaud - Bliss Photographi/EnCana Corporation

Alberta's oil patch is closely watching Cenovus Energy Inc. 's move to tap a little-touched energy source that promises to open a new oil sands frontier.

In the first step of an effort that could change estimates on how much oil can be pumped out of northeastern Alberta, the company has received provincial approval to build a test well into a vast bitumen deposit that remains largely untapped.

Cenovus plans to drill the well later this year into the Grand Rapids oil sands, which lie west of other Fort McMurray oil sands, and roughly 300 kilometres north of Edmonton.

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The test will provide "actual production information on how the wells perform," Cenovus chief executive officer Brian Ferguson said Thursday at the TD Newcrest Unconventional Oil & Gas Forum in Calgary.

If it works, "it's got the potential to be very, very large for us," Mr. Ferguson said.

The test well will use underground injections of high-pressure, high-temperature water to melt out the bitumen, a technique called steam-assisted gravity drainage or SAGD. It's a standard technique in the oil sands, but this test in particular is being watched closely by other companies with exposure to the Grand Rapids, which contains nearly 100 billion barrels of bitumen. Though companies typically extract only a fraction of the bitumen in place, the area could become a major source of production for Cenovus.

The company is preparing to file a regulatory application next year for 180,000 barrels of commercial production from the Grand Rapids, which is generally thinner than the oil sands deposits near Fort McMurray - generally a negative - but has some geological advantages.

Cenovus hopes it can begin producing Grand Rapids oil by 2017, and says it should be able to make a 9 per cent return in the area with oil prices at $60 (U.S.) to $70 per barrel.

Other companies, however, are not rushing into the play. Canadian Natural Resources Ltd., for example, owns substantial land in the area - but says the Grand Rapids will be more difficult to extract oil from.

"We understand how much is there, and we're talking billions of barrels," said Terry Joksch, senior vice-president of thermal and international for CNRL. "It's not so much how huge it is - it's how much you can get out of it?"

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The company has its attention on other, more certain, plays for now, although a Cenovus breakthrough could change that: "If there's commercial success, maybe that changes our priorities," Mr. Joksch said.

Still, others are charging ahead in the Grand Rapids. Laricina Energy Ltd. is planning a 5,000 barrel-per-day project. If it is approved by the province later this year, construction will begin early in 2011, with first oil in 2012.

"It's really a nice area, from access to infrastructure to the quality of the reservoir and its size," said Laricina chief executive officer Glenn Schmidt. The area's potential was one of the reasons that drew the recent $250-million investment by the Canada Pension Plan Investment Board into the company, he said.

On Tuesday, Pembina Pipeline Income Fund also announced that it has received the province's blessing to build a $440-million, 100,000 barrel-per-day pipeline into the area.

The Grand Rapids bitumen has the advantage of lying above a heavy oil reservoir known as the Wabiskaw, which has already brought camps, roads, pipelines and other necessary infrastructure into the area.

It is also above the Grosmont carbonate formation, which is a massive 400-billion barrel oil deposit. Though carbonates are so tricky to extract oil from that no company has yet done it on a large commercial scale, if major production begins in the Grand Rapids, companies could also begin to seriously work on carbonate production, Mr. Schmidt said.

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Success in either the Grand Rapids or carbonates could also help boost the estimate of how much crude can be recovered from Alberta's oil sands, a figure that currently stands at just about 170 billion barrels.

"As these projects come on stream, we should expect to see some additional oil on a recoverable basis - and, of course, the production attached to it," Mr. Schmidt said.


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About the Author
Asia Bureau Chief

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More

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