Osum Cold Lake Commercial SAGD Application Planned by Year End

Posted: Jun. 18, 2009     Author: Elsie Ross     Publication: Daily Oil Bulletin

Junior oilsands developer Osum Oil Sands Corp. plans to submit a commercial application by the end of this year for its proposed 35,000 bbl per day SAGD (steam assisted gravity drainage) Taiga project at Cold Lake.

“We do not need to pilot; we are going right to a commercial application because of the fact it is such a proven area,” Richard Todd, chairman and chief executive officer, said Wednesday in a presentation at the Canadian Association of Petroleum Producers’ investment symposium.

The company anticipates regulatory approval for the project in 2011 with first bitumen production in early 2014.

So far, Osum has fully delineated Taiga for commercial development. It has drilled 52 core holes and has shot 20 kilometres of two-dimensional (2-D) seismic and 32 square kilometres of three-dimensional (3-D) seismic over its 29 sections of land.

The preliminary front-end engineering and design (pre-FEED) is complete and the environmental impact assessment (EIA) is underway. Osum also has confirmed a source of brackish water for the project – the McMurray formation.

When Osum submits its regulatory filing it will be able to book proved plus probable reserves of approximately 300 million bbls, based on a report by GLJ Petroleum Consultants Ltd., the meeting heard.

TAIGA is still on time and on budget to get production onstream in 2013-2014. “We are not a land flipper; we are going to commercial production,” said Todd.

He described the company’s 29 100% sections of land at Cold Lake as “the best of the best.” Taiga is about three miles from Imperial Oil Limited’s 150,000 bbl per day Cold Lake cyclic steam stimulation (CSS) project. Other operators in the area are Canadian Natural Resources Ltd., Royal Dutch Shell and Husky Energy Inc.

The Cold Lake reservoir has the highest bitumen API (11 degrees) that fetches a premium price, there is an existing infrastructure hub and it is the most prolific thermal in situ producing area in Canada, investors heard.

Osum currently is working on two zones that are laterally contiguous, vertically stacked proven reservoirs.

While Taiga offers a solid foundation, the real upside is to be found in the Saleski carbonates which have enormous potential, said Todd. Osum has a 40% working interest in one lease with joint venture partner, Laricina Energy Ltd. and a 100% interest in adjacent lands.

The area has very large laterally extensive reservoirs up to 150 feet thick with bitumen quality similar to Athabasca (about seven degrees API). There are four vertically stacked reservoirs but Osum and Laricina currently are working on only two: the Grosmont C and D.

Osum leases hold nine billion bbls of oil in place with net contingent recoverable resources of 1.72 billion bbls based on GLJ best estimates.

In the joint venture pilot, Osum will determine the best extraction methods and techniques. “Once we determine the proper extraction methods with 40 cent dollars we can develop the remainder of our lands at 100%.”

Shell and Husky also have land in the area.

Last winter, Osum and its partner did a cold solvent pilot test with the objective of determining if it could mobilize the bitumen under reservoir conditions and move it to surface and that was successful, said Todd. This winter, the partners plan to use heat with regulatory approval for that project expected by the end of June.

Recovery factors have been between 32% and 60% and “we are very excited about that,” said Todd.

Between the two projects, Osum has an estimated 11 billion net bbls of oil in place, more than 90 million bbls per section. It also believes that 97% of its leases are producible, which he suggested is one of the top numbers in the industry.

GLJ has estimated 2.2 billion net bbls are recoverable (best estimate of contingent resources). Management conservatively estimates that total production can exceed 200,000 bbls per day.

Todd said that based on work it has done in the field and in the lab over the past two years Osum management is encouraged that it will see increased recoveries and be able to move closer to GLJ’s high estimate (4.5 billion bbls recoverable).

There also are other reservoir zones not yet evaluated: the Upper Grand Rapids at Cold Lake and the Grosmont A, Ireton and Wabiskaw at Saleski, he noted.

On the financial side, in addition to the rocks and the team to execute a project, a company needs access to capital and the ability to raise it.

Osum has raised $375 million in the last few years, including $150 million each from private equity companies Warburg Pincus LLC and Blackstone Capital Partners VLP. By the end of this year, it will have $190 million in cash and no debt.

Todd said the company finances to key milestones. “It’s not a good idea not to get to those key milestones that drive per share value if you run out of money half-way through.”

Osum has financed through the key milestones through to 2011 and after it does that will still have $124 million remaining.

The company did a financing in August 2008 just before the market meltdown and raised $350 million.

Osum has recruited employees with thermal expertise obtained at other projects including Primrose, Wolf Lake, North Tangleflags, Kirby, Peace River, Orion and Foster Creek. The company currently has 29 employees and that number will increase to 40 by year-end and to 60 by the end of 2010.

“And we are still hiring because we have a project that is going to happen at Cold Lake,” said Todd. “It’s not a question of if, just a question of when.”

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