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Full steam ahead

Mining oil with steam

Home / EOS Blog / Mining oil with steam

Bill Mackenzie, Senior Adviser
02 December 2015

The quaint sign at the entrance to the Christina Lake oil sands project stood in contrast to the vast dormitory-style residential complex and security gate that greeted us on our investor site tour hosted by the project’s operator and 50% owner, Cenovus.

Site visits enable us to evaluate on the ground the company’s handling of the site and working conditions and help us spot signs that the company may be sacrificing standards when faced with tighter cash flows, as in the case of Cenovus. The Christina Lake oil sands project in Alberta, Canada, has expanded over five phases, with the sixth, phase F under construction and scheduled to produce in 2016.  Development of phase G has been put on hold primarily due to the drop in oil price but also, we believe, due to pipeline capacity which is a concern to Cenovus, as it has partnership interests in refineries located in Illinois and Texas.

Cenovus 6En route to a live drilling site, the challenges of operating on soft muskeg were immediately evident as the road surface changed from gravel to a patchwork of large heavy wooden pallets.  Steel-reinforced pallets line the ground to accommodate heavy pipeline construction equipment beside the road. The pace of development is such that roadbeds to new drilling sites do not have sufficient time to firm up.

Bitumen operations
At Christina Lake, bitumen is too far underground for traditional mining, so the company uses steam-assisted gravity drainage (SAGD). This involves drilling horizontal wells and injecting steam to heat the bitumen so it can flow and be pumped out. Because of favourable geology and technology employed, Cenovus claims to extract bitumen at Christina Lake using less steam per barrel of bitumen than its peers. This efficiency is also reflected in comparatively lower water usage, higher production per well and lower emissions intensity.

Drill visit
Wearing a full safety kit, we boarded an active drill rig, giving us the chance to speak directly with staff on site.  These individuals clearly work closely as a team, continually making small improvements, which have resulted in a substantial reduction in drilling time per hole.

Cenovus 2

Despite staff cutbacks, Cenovus has been able to keep the best crews, while reducing its operating costs per barrel of oil. Experienced crews and a strictly enforced no-alcohol or drugs policy inside the gate help to ensure that the company’s injury rate is low.

Energy to produce steam is one of the main operating costs and the natural gas fired boilers are notable emitters of greenhouse gases. The company has undertaken initiatives to reduce emissions through the installation of flue gas recirculators on six of its 14 operating boilers. These have cut emissions substantially and will also be installed on the phase F boilers.

Cenovus 3

While these upgraded boilers demonstrate that the company strives to stay ahead of emissions regulations, our suggestion that it set and disclose emissions reduction targets was dismissed by management as unnecessary and would not change the way they operate. Challenged by us on carbon pricing, we were told that Cenovus stress-tests using a range of $15- $65 per tonne.

Community relations
Cenovus has a dedicated environmental team and environmental assessments are undertaken for every site. The company helps local First Nations build businesses to provide services to its operations. By bringing in businesses to partner with aboriginal start-ups, Cenovus admits that it is taking a more time-consuming and difficult path, but in the long run it believes better community relations as a result of this are worth the extra effort.

The visit assured us that the company is not cutting corners at Christina Lake. Because this project is one of the most efficient of its kind, it should allow Cenovus to demonstrate leadership by setting emission reduction targets and delivering on them by retrofitting all of the Christina Lake boilers with flue gas recirculation technology.

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Bill Mackenzie Senior Adviser William (Bill) Mackenzie joined Hermes EOS as a senior adviser and its representative in Canada in January 2009. He is a member of the investment committee and the responsible investment working group of the United Church of Canada Pension Fund. Until 2009, Bill was director of special projects with the Canadian Coalition for Good Governance (CCGG) and continues to be involved in the activities of the CCGG, including its public policy committee, as a representative of Hermes EOS. Prior to working with the CCGG, Bill was president of Institutional Shareholder Services Canada and its predecessor Fairvest Corporation. Bill’s career in corporate governance spans over 28 years and he continues to promote corporate governance and responsible investment in Canada through his participation on various industry committees and boards, writing articles and speaking at conferences. Bill earned the ICD.D designation of the Institute of Corporate Directors in 2004 and has a diploma in Business Administration from Ryerson Polytechnical University.
Read all articles by Bill Mackenzie

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