Taking on Taiga (and forgetting Marie Lake)

Posted: Mar. 26, 2009

Osum takes another go at Cold Lake with a new project and a new strategy

by Deborah Jaremko

Two summers ago, Osum Oil Sands learned a hard lesson about what happens when a community really, really doesn’t want an industrial project developed in its backyard. The private junior had been granted permits to conduct seismic on Marie Lake, a favourite body of water frequented by the cabin community in the Cold Lake region of Alberta. After intense backlash despite the company’s assurances of environmental protection, the Alberta government withdrew the approvals, and Osum cancelled its leases.

Cold Lake Mayor Craig Copeland recalls that part of the problem with the Marie Lake project was that Osum seemed to “parachute in from the clouds.”

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“The community didn’t know Osum. [The company] didn’t do their due diligence,” Copeland says, adding that, “The people issuing the licences also didn’t do their due diligence on what a unique waterbody Marie Lake is.”

Now, in the midst of a global recession, Osum is back to the region with a new project on new leases and a new strategy complete with a multimedia website, community investments, and early public consultation. The approach is easily summed up by the large, bold message on the front of the Taiga public disclosure document: “Let’s talk. About everything. Let’s put it all on the table.”

Copeland says that during the summer of 2008, Osum’s leadership got a hold of him and others in the community to start talking about the new project and how the company should best approach local residents. Osum also presented the proposed project to the Lakeland Industry and Community Association (LICA) prior to conducting its first open house last December.

“They really emphasized that this time [the project] will not be located under or on the lake,” says LICA chairman Robert Deresh. “It was a big relief to a lot of people.”

Copeland and Deresh both bring up that Taiga is a more “conventional” development than what Osum had planned for Marie Lake.

“It helps that the current lease is very similar to normal, conventional oilsands operations. The community is very used to that,” Copeland notes. “It wasn’t this way-far-out vision of going underneath a pristine waterbody.”

By referencing “normal” oilsands operations, Copeland is talking about in situ projects that have been producing in the Cold Lake region for decades, including Canada’s largest thermal operation, a 160,000-some barrel per day cyclic steam stimulation (CSS) project owned by Imperial Oil. Osum’s neighbours also include in situ installations owned by Canadian Natural Resources, EnCana, Husky, and Shell Canada.

That said, Osum’s leaders know they have to do a better job of engagement than they did in 2007.

“Marie Lake made us more open to a different communications style. It is the back context to think differently,” says chief operations officer and vice-president of projects Steve Spence, adding, “We are not perfect, and we are not completely breaking new ground.”

Rather, the company is conducting itself the way others in the community operate. With the addition of a different kind of website that begs for interaction, whether it is used to its full potential or not.

“Communication has changed drastically in the last 10 years, and the industry in this province hasn’t really taken advantage of that,” notes Justin Robinson, Osum’s communications manager. “We recognize the community demands transparency, and we’re going to give it to them. We see it as important to create the spaces for our stakeholders to get what they want, and we’re trying to take a little bit more sophisticated approach.”

Progressing a new project during a recession
It’s likely no coincidence that Osum started talking to the Cold Lake community about Taiga during the summer of 2008. Not long after the company contacted Mayor Copeland in July, it closed a private equity financing of $275 million. Enough, Spence says, to progress Taiga as well as its other work, which includes a position in Alberta’s potentially vastly prolific carbonates.

“We were fortunate to close financing in August. We’ve raised enough money to get through to the [Taiga] final investment decision…. We control our own destiny.”

Osum is not a big organization, but it’s about to get bigger.

“We’re growing at a pretty steady rate,” Spence says. There were 24 employees at the end of 2008, but he predicts there will be over 40 employees at the end of 2009. “We’re building up who we need to move the project forward and execute it.”

While he notes that the onslaught of a global recession was irrelevant to the timing of the Taiga disclosure, it actually puts the junior company at an advantage.

“To be able to move a project forward during a down cycle is a privilege,” Spence says. “You can reduce your project costs. The heat is off in some senses. It positions you well for when the heat comes back again.”

It has been suggested that junior players do not have a long future in the oilsands industry. To that, Spence, who led development and project management for Shell’s proposed Carmon Creek 100,000 barrel per day project at Peace River, Alberta, and its start-up of Orion at Cold Lake, says:

“Anybody who’s really involved or works in the oilsands for any period of time knows it goes through cycles…. It’s not a short-term market.”

He adds that many junior companies may not be able to take that long-term view, and believing in it is does not end with company employees, but extends to the board of directors and the shareholders. “You have to be willing to stay the course.”

So tell us about Taiga
The Taiga project is in its early stages—first bitumen production isn’t targeted until 2014—but there are many aspects of it that have already been established or are anticipated. The goal is three phases of production, starting with 10,000 barrels per day. A second phase will bring on another 10,000 barrels per day, with a final phase of 15,000 barrels per day, taking production to a peak of 35,000 barrels per day. Osum says the project has potential to produce for 25 years.

“Our design intent is to ramp it up,” says Spence. “We still really like that, where you can walk around the site in a day and know everyone.”

As for technology, companies to date either employ CSS or steam assisted gravity drainage (SAGD) in the Cold Lake region. On its leases, Canadian Natural uses both.

Osum predicts it will also need to use a combination of both as it produces from the Clearwater and Lower Grand Rapids formations, at depths between 360 and 460 metres. Spence says including a combination of SAGD and CSS is based on their respective merits relative to the reservoirs they will target.

“Gravity works fantastically until it hits a barrier,” he explains, noting that SAGD does have the ability to break down those barriers over time. “CSS [which is not based on gravity] actually pushes through some of those barriers. You may need that extra push.”

Spence expects SAGD will be used in both formations, with a bit of CSS in the Clearwater. The company says Taiga will include a central plant with steam generation facilities, steam delivery and product recovery pipelines, well pads for horizontal wells, water treatment and recycling, bitumen treatment, and deep disposal wells.

“They’re going to be using brackish water,” Deresh notes as one of the project’s positive aspects. “Most of the larger companies around here, that’s what they’re using.”

Osum anticipates regulatory approval in 2011.

You said you wanted to talk about it…
Staying the course in the oilsands involves answering tough questions about environmental impacts, and now even moral judgment. Communications manager Robinson:

“The image of the tar sands has really been controlled by, to a large extent, special interest groups who may not know about the really progressive and innovative technologies that we use. Especially in situ companies. A lot of what we’re doing is really progressive and innovative, but that’s not necessarily what people globally think about the oilsands…. We welcome skepticism, but the time has come for us to start questioning our sceptics as well.”

Osum is a member of an organization called the In Situ Oil Sands Alliance (IOSA), which also includes Laricina Energy, Athabasca Oil Sands, MEG Energy, and Petrobank Energy and Resources. The catalyst for the group was concern over Alberta’s royalty review in fall 2007. Now IOSA is launching itself as a face for in situ developers in an effort to separate their image from that of mining operators.

Says Spence, “[We want to] focus the dialogue on what we’re doing rather than the broad rhetoric. [IOSA] lets us have a separate voice.”

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