Tech helps oilpatch take on OPEC
The OPEC-orchestrated oil crash was supposed to drive higher-cost competitors — such as those in Canada’s oilsands — out of business. Instead it motivated them to reduce costs and accelerate the adoption of new technologies, and now companies such as MEG Energy Corp. are growing again and taking market share away from OPEC.
During a conference call Thursday to discuss results for the first quarter, MEG president and CEO Bill McCaffrey said deployment of a new proprietary technology, called eMSAGP ( or enhanced Modified Steam And Gas Push), is transforming the company: Capital costs are down by 25 to 50 per cent, development time to build new projects is down to 12 to 18 months from three to four years; greenhouse gas emission intensity is 22 per cent below the industry average and has the potential to be further reduced; returns are ranging between 30 and 40 per cent at US$ 55 WTI, and approximately 20 to 30 per cent at US$ 45 WTI; operating costs were $8.43 a barrel in the first quarter.
“We envision a business that can continue to reduce costs and be even more sustainable and resilient to commodity price swings,” McCaffrey said. “We don’t see in the future an oil price where we would be hindered going forward.”
The Calgary- based oilsands pure play anticipates 40 per cent production growth, to 113,000 barrels a day, by 2020, and to eventually reach volumes of 210,000 b/d from its Christina Lake property alone.
eMSAGP is being deployed in the Phase 2B assets at Christina Lake, which sits in the sweet spot for in- situ production in the Athabasca oilsands south of Fort McMurray.
It enhances reservoir performance by injecting a non-condensable gas and by drilling infill wells. The outcome is reduced steam requirement, increased production, lower steam-to-oil ratio, which in turn frees us steam that is redirected to new well pairs, further growing production.
It’s one of many new technologies speeding toward implementation in the oilsands, from using solvents to automating operations, with the dual goal of reducing costs and emissions.
The company is testing another technology, called eMVAPEX (or Modified VAPour Extraction) that involves injecting heated solvent in the reservoir and reduces bitumen viscosity. The company anticipates the technology could reduce overall greenhouse gas emission intensity by as much as 43 per cent.
On Thursday, MEG was one of three energy companies selected to receive $ 26.2 million in government funding to help bring clean technology projects to commercial demonstration.
The other two are Cenovus Energy Inc. and Field Upgrading. They are receiving $25 million from the federal government under its Oil and Gas Clean Tech Program, and another $ 5.2 million from the provincial government through Alberta Innovates. The companies themselves are investing a total of $43.3 million.
“Canada’s oilsands companies are constantly evolving and innovating,” said Jim Carr, Canada’s minister of natural resources. “Developing and adopting clean technologies creates jobs and will help Canada increase its global competitiveness for years to come.”
The same innovation push is happening in U. S. shale, where production is surging from continuing improvements in drilling and completion technologies.
MEG’s reaction to the oil downturn was predictable in a highly entrepreneurial environment like Canada’s oilpatch — though not, apparently, at OPEC.
The cartel seems have been caught off guard by the swift increase in supplies among non-cartel rivals and boosted their growth outlook by 64 percent, or by 950,000 barrels a day this year. The projection is f our times higher than in November, when the group announced a production cut to try and rebalance oversupplied world markets following their twoyear price war.
“U. S. oil and gas companies have already stepped up activities in 2017 as they start to increase their spending amid a recovery in oil prices,” the group’s research department said in a report Thursday. “In addition to the growth in the U.S., higher oil production is expected in Canada and Brazil.”
According to the report, OPEC members are sticking with their pledge to reduce output.
To be sure, the price war wasn’t easy on MEG. Debt swelled, staff and spending were slashed. As part of a major refinancing, the company raised $518 million in equity in January and restructured its debt. It plans to reduce leverage by growing production and, if it makes sense for the business over the long term, sell assets like its interest in the Access pipeline.
Now the company’s growing heavy oil production is being sold in the United States, particularly the Gulf Coast, where the call on Canadian crude is strengthening and discounts narrowing as OPEC producers concentrate their production cuts on heavy oil, McCaffrey said.
“With ( additional) declines in Venezuela and Mexico, it positions Canadian heavy barrels very well if you have access,” he said. “If OPEC continues with its program to restrict supply, that will be focused on heavier barrels, and that makes pricing strong in the Gulf Coast.”
WE DON’T SEE IN THE FUTURE AN OIL PRICE WHERE WE WOULD BE HINDERED GOING FORWARD.