Osum Planning Small Expansions for Orion SAGD Asset

A private pure play oilsands operator in Cold Lake oilsands has developed a staged expansion plan that will enable growth of its SAGD project in small, marked steps to full capacity of 20,000 bbls a day over the next four years, says its chief executive.

The Orion expansion would be funded out of existing cash flow and capital, Steve Spence, president and CEO of Osum Oil Sands Corp., told the TD Securities Calgary Energy Conference.

“We’ve managed our cash very well through the downturn and that has put us in a great position to look at organic growth going forward,” he said.  Read full article.

Unleashed: How tiny Osum is pushing SAGD performance well beyond the record of a global super major

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Of all Alberta’s operating SAGD projects, Orion has never really stood out as an incredibly high performer.  But if Osum Oil Sands keeps the project’s new momentum going, that is set to change.  And that means a lot for a junior producer in a challenging market.

Located in the Cold Lake oilsands deposit, the Orion facility builds on some of the longest SAGD history in the oilsands.  In March 2006, a small company called BlackRock Ventures initiated construction of the 10,000 bbl/d commercial project following nine years of successful operations at its two-well Hilda Lake Pilot.  But BlackRock had other assets too, including an 80,000-acre-plus land position in the Peace River region that was highly attractive to Royal Dutch Shell.  In June 2006, Shell acquired BlackRock for $2.4 billion, and although the main target was Peace River, Orion came with the deal.

Shell started up Orion in 2007, ramping up to 22 wellpairs on stream in 2010.  During this time, production grew to about 4,000 bbl/d, and then slowly increased to about 6,000 bbls/d by the end of 2013.  According to data from the Alberta Energy Regulator (AER), the project’s steam to oil ratio (SOR) generally hovered between 4:1 and 6:1 between 2010-13.

Measured on capacity utilization and SOR, the main metric for SAGD performance, Orion was at best in the middle of the pack, but in 2013, Shell’s optimization efforts started to reap results.  By July 2014, when junior Osum Oil Sands finalized its $325-million acquisition of the Orion asset, the AER says production had increased to approximately 7,000 bbls/d, with an SOR of 3.2:1.

Under Osum’s ownership, Orion exited 2014 producing 8,800 bbls/d with an SOR of 2.95:1.  AER data shows that from January to June 2015, a period that included a maintenance turnaround, production averaged 8,000 bbls/d with an SOR of 2.4:1.  For one stretch, Osum says Orion reached its nameplate capacity of 10,000 bbls/d.  The operations team has every intention of achieving that rate again.

Read full article here.

Orion a good acquisition for Osum: COO

Osum’s acquisition of the Orion play will add to the company’s value, Osum’s chief operating officer told those gathered at a Nov. 6 town hall.

“We’re one of the largest Canadian private oil sands companies,” with a production protential of 500,000 barrels per day, Rick Walsh said in his presentation to update those attending on what the company is doing.

Osum acquired the Orion play, formerly owned by Shell, earlier this year and began operations there on July 31, said Walsh.

“We wanted to assume control in a stable, safe, effective fashion,” he noted.  “It’s a terrific first step.”

The production for the site’s first two months was 7,500 barrels per day, said Walsh, adding there was another good thing that happened from the deal.

“We were actually able to convince Orion folks to come across and become Osum employees.”

Indeed, said Walsh, Osum is looking for employees for the Orion play, as the company is discussing possible expansion.

Walsh said Orion is located 16 kilometres from Osum’s Taiga site, which, he said, is “a shovel ready project that we have regulatory approval for.”

Walsh said having the Taiga project also helped with the Orion acquisition, as “we’ve learned a lot about Orion over the years from Taiga” and the former will help build the latter.

Walsh also spoke about the company’s Saleski Grosmont Carbonates play,which measures 200 kilometres  from southeast to northwest.

“We’re in the sweet spot and we’re also close to infrastructure,” he noted, adding there are 400 billion barrels of oil in place there.

The bitumen in the rocks at Saleski make the play “very productive,” and the rock is naturally fractured, said Walsh.

In response to a question, Walsh said there are currently no plans to take Osum public, but that hasn’t been ruled out for the future.

The current state of oil prices is a concern, but not a panic, to Osum, said Walsh.

“If (the situation) persists, it could certainly impact the timing of growth,” he noted, adding he doesn’t see it having an impact on current operations.

Heating Up

The oilsands sector has been under siege from environmentalists, some liberal-leaning politicians, aboriginals and others, but there are few who debate the economic benefits flowing to Alberta and Canada from the industry.

The studies about the industry’s macroeconomic impact abound.

For example, there’s a recent study by IHS CERA that concludes that the industry has created 478,000 total jobs in Canada, including all the “spinoff” employment.

In addition, the study points out that the Alberta government’s coffers have swelled since 2012, thanks to the oilsands sector, to the tune of more than $7.7 billion in taxes and $4 billion in royalties. The federal government, meanwhile, has received more than $15 billion in tax revenue since 2012, according to the study.

And IHS CERA predicts economic benefits contributed by the industry could double by 2025.

A study released in 2011 by the Canadian Energy Research Institute (CERI) forecast oilsands activity would lead to total direct investment of more than $2 trillion in new projects in the ensuing 25 years, as production climbed from about two million barrels per day to five million barrels per day.

Those statistics are almost mind-numbing. But what does it mean for areas where that development is taking place?

The Alberta government, in a series of three reports looking at the future of the three main oilsands producing regions—Athabasca, Cold Lake and Peace River—tried to provide a picture of how the areas will grow in the future.

That exercise, called Comprehensive Regional Infrastructure Sustainability Plan (CRISP) was launched five years ago with a forecast of how development in the Athabasca region would unfold.

Based on an estimate that total oilsands production would almost triple to six million barrels per day by 2045, the planning team projected the population of the Athabasca region (the centre of which is Fort McMurray) would more than double to 240,500 by then.

In the Cold Lake region, which includes the City of Cold Lake, Canadian Forces Base Cold Lake, the towns of Bonnyville, Elk Point, St. Paul and Two Hills, and various municipal districts, hamlets and aboriginal communities—14 overall—it used the same formula of bitumen production metrics to project population growth and infrastructure needs, in a report released about a year ago.

Bitumen production in the region is now at about 550,000 barrels per day and the planners see that more than doubling by 2045, with the region’s population almost doubling to about 96,000 by then.

Population climbing

Meanwhile, what are the local impacts of that development?

The CRISP study predicts the number of oilsands related jobs in the area will triple to more than 3,800 by 2045.

It didn’t look at the local financial impacts, along with the benefits for Albertans and Canadians from that development, but it’s possible to gain a picture of what that might be by gathering the information from each of the major players in the area regarding what taxes and royalties they pay, possible total wages paid and other contributions to the area.

Imperial Oil Limited spokesman Pius Rolheiser says the company, the largest producer and employer in the region, paid $422 million in federal and provincial taxes in 2012 (the most recent year for which statistics are available) and $681 million in royalties to the Alberta government. It also paid $21 million in local property taxes to the Municipal District of Bonnyville.

Actual payroll statistics aren’t available (for competitive reasons), but Rolheiser says Imperial Oil employs 425 directly at Cold Lake, while its various contractors provide work for another 1,200 or so, suggesting the total jobs impact from Imperial Oil’s Cold Lake project—which has been ongoing for more than 25 years—is more than 1,600. Assuming each of those workers earns $100,000 per year, on average (and it is probably higher than that), that means the annual payroll for the Cold Lake project alone is $160 million.

The company won’t reveal how much it spends annually at businesses in the Cold Lake region, which it considers to be proprietary information.

However, having spent almost $4 billion in capital on the Cold Lake project so far, along with millions of dollars in operating expenditures, it’s a safe bet much of that has filtered through to local businesses and residents.

Local First Nations have also benefited from those expenditures, Rolheiser says. For instance, Imperial Oil has ongoing well-servicing contracts with Pimee Well Servicing Ltd., which is jointly owned by six regional aboriginal groups, as well as with those groups and Cold Lake First Nations.

It’s likely the Cold Lake project will continue to be the gift that keeps on giving in the area, given estimates the proved and probable reserves on the 780-square-kilometre lease are estimated at 1.7 billion barrels, while the contingent resource there is estimated at 3.3 billion barrels. With an available resource of some five billion barrels, there’s a strong possibility the project, already the largest in situ bitumen recovery project in Alberta, will only get bigger.

Two years ago, Glenn Scott, Imperial Oil’s senior vice-president, resources, talked about the possible development of the Grand Rapids Formation, which lies above the Clearwater Formation, the current source of crude at Cold Lake.

He talked about the potential to develop multiple 35,000-barrel-per-day phases in that formation.

Bruce March, at the time Imperial Oil’s president and chief executive officer, talked in glowing terms about the project.

“Even after 26 years of commercial production, we continue to believe Cold Lake’s best days are still ahead of it,” he said.

Canadian Natural Resources Limited (which operates its Primrose and Wolf Lake projects some 40 kilometres north of Bonnyville), has been dealing with the consequences of four leaks to surface at its Primrose East property. The company plans to convert the wells to steamflood, a lower-pressure process, which it believes will address the problem.

Strong tax base

Meanwhile, Canadian Natural, like Imperial, plays a large role in the Cold Lake area’s economy, according to spokeswoman Julie Woo.

“With over 180,000 barrels daily of crude oil production in the Cold Lake/Bonnyville region, our operations include primary heavy oil and thermal in situ development,” she wrote in an email. “Being a responsible and sustainable energy producer means we take every opportunity to work with the communities where we operate to create shared value. Our activities create value by providing employment, business development opportunities and revenues to governments.”

The company has statistics for 2013 and they show the impact its activities have on the local economy.

Last year it had 545 of its own employees on site, with 216 contract employees. It paid $19.5 million in property taxes to local municipalities and $715 million in royalties to the provincial government (it doesn’t break out taxes it paid to governments).

Woo notes Canadian Natural spent $2 billion in 2013 on goods and services, well servicing, welding, trucking and drilling waste management in the area.

“Aboriginal businesses were awarded more than $233 million in contracts in 2013,” she wrote. “Of that investment, over $95 million in business development opportunities were created with aboriginal communities in the Cold Lake region.”

Highlights of Canadian Natural’s community investments include donations totalling $500,000 since 2006 to support the community event arena in the Cold Lake Energy Centre (the money was spent to improve the arena’s ice surface and the running track), a donation of $100,600 in 2012 for upgrades to the Bonnyville Regional Airport, and another $1 million in 2004 to help build Bonnyville’s multi-purpose sports, recreation and entertainment complex.

“In addition to investments in local infrastructure, we also support many community development initiatives and local organizations, with over $450,000 spent annually,” Woo wrote.

Cenovus Energy Inc. is another of the major oilsands producers in the Cold Lake area, with its Foster Creek project. (Its other large existing project, Christina Lake, is located further north in the Lac La Biche–Conklin area.)

Reg Curren, senior media relations adviser with Cenovus, says the company’s corporate culture includes a pledge to provide benefits to the communities in which it operates.

“One of the commitments we make to all of the communities where our staff lives and the company operates is that they be better off because of our presence there,” he wrote in an email.

“We do this through being a socially and environmentally responsible developer of energy resources, which in this region includes both oilsands and natural gas assets [which it uses mostly at the Foster Creek plant]. We’re committed to supporting local businesses wherever we can, including a significant amount with aboriginal communities in the area.”

Foster Creek is the first commercial steam assisted gravity drainage (SAGD) project in Canada. (Imperial, which invented SAGD, uses cyclic steam stimulation at Cold Lake.) Development of Foster Creek, which is located on the Cold Lake Air Weapons Range, began in 1996 as a pilot operation, and it went commercial in 2001. Foster Creek now produces 120,000 barrels per day, with a current three-phase expansion slated to add 90,000 barrels per day to that. Eventually the company plans to produce 310,000 barrels per day at Foster Creek, making it among the largest producers among oilsands projects.

Because producers don’t pay royalties until projects reach commercial stage, Cenovus only started paying royalties for Foster Creek in 2010-11. However, it has already started to become a major contributor to the government’s coffers, with royalties from Foster Creek having reached $156 million (gross) in 2013. That amount should rise significantly in future years, as the project expands. (Cenovus didn’t release information regarding the taxes it is paying to the federal and provincial governments.)

Foster Creek is a major employer in the region, with 920 Cenovus staffers working there in the first quarter of this year, as well as 490 full-time contract workers. There are about 1,500 construction workers there now.

In 2013, the company spent $370 million on goods and services with businesses based in the Cold Lake–Bonnyville area.

Curren says the company has made a number of significant contributions to community-based organizations. These include a donation of $750,000 toward the first phase of the Cold Lake Energy Centre, another $600,000 toward the addition of an event arena complex there and $500,000 toward the Bonnyville & District Centennial Centre, which is a multi-recreation complex.

The company also donated $350,000 to the Lakeland Centre for Fetal Alcohol Spectrum Disorder, $175,000 for health-care equipment in the Cold Lake area and $75,000 for health-care equipment in the Bonnyville area.

There are a number of smaller oilsands and heavy oil players in the Cold Lake area as well. (South of the oilsands region, the area morphs into the Lloydminster heavy oil trend, where there are a number of primary and secondary heavy oil projects, some serviced by the Bonnyville and Cold lake oilfield service sector and some out of Lloydminster.)

Husky Energy Inc. is the grandfather of heavy oil development in the region, and has been actively producing in the Lloydminster region since the early 1960s. (It also operates a heavy oil upgrader in Lloydminster.)

It’s not a large producer in the Cold Lake area itself, although it has recently ramped up production at its troubled Tucker project, about 30 kilometres from Cold Lake, where it struggled to overcome a bottom water problem. Originally targeted to produce 30,000 barrels per day, Tucker is currently sitting at around 10,000 barrels per day, but with the bottom water issue solved, Husky hopes to ramp production up steadily.

The company also owns a large 56-section lease on the Cold Lake Air Weapons Range, about 53 kilometres from Cold Lake. Husky has conducted “significant delineation drilling and seismic” on the lease, which holds several billion barrels of reserves, and has suggested it will develop a commercial project there in the future.

Since Husky doesn’t yet have a major presence in the Cold Lake area, it’s difficult to pinpoint its contributions to the community.

However, company spokeswoman Kim Guttormson says the company “supports the communities where its employees live and work, with a focus on education, health and wellness and community initiatives.”

This includes a $1-million donation to the power engineering program at Lakeland College (which serves the Lloydminster and Cold Lake areas) and the Saskatchewan Institute of Applied Science and Technology in Saskatoon. It also offers scholarships and employment opportunities to help address the critical shortage of power engineers.

“We also make regional donations, including $10,000 to the Northern Lights School Division for its mobile trades lab,” she says.

There are other emerging producers in the Cold Lake area, all of whom plan to play a major role in the community.

For example, heavy oil producer Baytex Energy Corp., which is developing the Gemini SAGD project, located midway between Cold Lake and Bonnyville, expects to have a growing presence in the area, according to Brian Ector, senior vice-president of capital markets and public affairs for the company, which produced almost 52,000 barrels per day in the first quarter.

“In Alberta (and Saskatchewan) I think the industry is recognized for being a strong contributor to the local economy,” he says. “But we also want to be engaged in the communities in which we’re active.”

In the Cold Lake area, that includes such initiatives as supporting a school lunch program with Cold Lake First Nations, as well as its annual Treaty Days celebration.

“We support sports functions in the communities in which we’re active, including minor ball and hockey,” he says. “We encourage our employees to give back to the communities in which they live.”

Ector says Gemini, which was purchased from Koch Exploration Canada, L.P. in 2012 for $120 million, is slated to become a medium-sized SAGD commercial project. Baytex will spend about $200 million overall this year to lift production there from about 6,000 barrels per day to 10,000 barrels per day by the latter part of 2014.

Baytex already produces about 3,000 barrels per day of heavy oil in the area (most of that in the Elk Point area, south of Bonnyville).

He says the company employs 23 people now in the area, with nine working at Gemini, where staffing will be ramped up as the project achieves larger production targets.

Overall, Baytex now employs 500 people and in 2013 it paid about $250 million in royalties to the governments of Alberta and Saskatchewan.

Rick Walsh, chief operating officer of privately held oilsands junior Osum Oil Sands Corp., destined to become a major producer in the Cold Lake area as a result of the recent $325-million acquisition of the Orion project from Royal Dutch Shell plc, says the company plans to be more than an observer in the community.

“We see engagement in the community as being about more than writing a cheque,” he says. “It’s about getting our employees engaged.”

Even though it was not yet a producer at its Taiga project, which is adjacent to Orion, the company sponsored the 2010 Alberta Winter Games, which was held in Lakeland (the region that includes Cold Lake).

It has also sponsored a program that sees area science teachers sent on knowledge-development opportunities, sponsors field trips for area students, has paid to have solar panels erected on area high schools, sponsors speakers to go to the area and supports area junior hockey teams.

Osum also supports local aboriginal entrepreneurs and is a sponsor of the Bonnyville Oil and Gas Show.

At this time Walsh says the company only has six local employees, but it has maintained an office in Cold Lake for three years.

Over the next two or three years, it plans to expand Orion, now producing about 6,700 barrels per day, to 35,000 barrels per day and expects combined production from Orion and Taiga to eventually reach as much as 60,000 barrels per day, and will eventually have a substantial complement of workers at its plants, which are located about 30 kilometres from Cold Lake. Virtually all of them, he says, will live in Cold Lake.

“Cold Lake is a nice place to live,” he says. “There’s no need for a fly-in-fly-out workforce.”

Cold Lake heats up as oil boom beckons

Osum Oil Sands Corp. CEO Steve Spence says he used to call Cold Lake the “unknown story in the oil sands”.

Not any more. While the city of Fort McMurray further north has garnered all the attention for its rapid growth, Cold Lake city has been an oil boomtown in its own right with production in its vicinity ramping up to half a million barrels per day.

“It is actually the most understood region [in terms of geology],” Mr. Spence said, although the Athabasca basin in Fort McMurray produces the bulk of Canada’s oil output.

Osum made a big move in Cold Lake in June, picking up Royal Dutch Shell Plc.’s assets in the region for $325-million. The Orion project produces about 6,700-bpd and is located close to the company’s Taiga facility, which is yet to start production. Mr. Spence expects the Orion transaction to close by the end of the month.

Mayor Craig Copeland says his city is ripe for a new boom.

“In the past few years, we have really seen a ramp up in development in our city. We have had several small booms before, but all of a sudden a lot of people have been coming to work on construction sites,” Mr. Copeland said in an interview. “This past winter —the winter that was so cold —we had approximately a good 3,000 people embedded in the community in rentals; houses and hotels were full.”

The city’s population has grown 9% in the past two years to reach just under 16,000, according to the latest census published in July. The mayor says non-residents would probably take the population closer to 18,000.

Without the oil sands, the city would primarily be home to about 5,000 military personnel and their families working at the 4 Wing Cold Lake airbase, Mr. Copeland says.

But it’s the oil that’s spinning the economic wheels. The region and its adjoining areas produce about 500,000 barrels per day and that number could rise by another 150,000 by 2017, according to Oil Sands Community Alliance data.

Cold Lake is also home to Canadian Natural Resources Ltd.’s Primrose operation, which has had trouble managing an oil leak since last year. In a ruling this month, the Alberta Energy Regulator said it’s “not prepared to approve a return to full operations at these sites until all potential risks are addressed.”

Other well-established players in the region are gearing up for a new round of expansion in the region. Imperial Oil Ltd., a long-time resident, expects to start producing 40,000 barrels per day from its Nabiya project by the end of the year. Cenovus Energy Inc. is set to expand its Foster Creek project near Bonnyville and Cold Lake by 90,000 barrels per day by the end of 2016. The company spent $370-million with businesses based in the community on goods and services last year.

Osum also plans to raise output from Orion to 10,000 bpd and kick-off Taiga with 12,000 bpd in the first phase, eventually taking capacity to 45,000 bpd.

The rush of new production is expected to test the limits of the city’s infrastructure, and Mr. Copeland can see it coming.

“Every 100 barrels produced creates one to two permanent jobs,” Mr Copeland said.

With population growing, housing challenges are not far behind. Residential prices shot up 14.5% last year and have risen another 5.6% year-to-date, according to Royal Le Page Northern Lights Realty. Home prices have climbed more than 150% in a decade.

The city has offered a $7,500 rebate per door for builders in a bid to stimulate construction activity, and developers have responded with as many as 300 new housing units expected to come on-stream within three years. As many as 500 new hotels rooms are also on the books, the mayor says.

The city council is also in talks with nearby Bonnyville to annex about 1,220 hectares of land to “accommodate growth for the next 50 years.”

Housing and land are not the only challenges.

“There is pretty much room for any type of service,” said Sherri Bohme, executive director at Cold Lake Regional Chamber of Commerce. “We are somewhat underserviced in almost every business category. So the potential for start-up is great, but the availability of commercial land can be a challenge.”

Labour shortages are also chronic in the city, raising fears of an escalation in prices.

“It’s really hard in Cold Lake to attract healthcare professionals, teacher and people that work in the services industries and restaurants when rents are so high,” Mr. Copeland said. “A lot of people who don’t make oil sand wages were forced to leave the community because they could not afford to live here.”

Some government agencies such as the Lakeland Catholic School Board have purchased property and intend to rent out bedrooms to teachers at cheaper rates.

A report last year by the Department of National Defence and Canadian Forces Ombudsman highlighted the ugly side of the boom. Many Royal Canadian Force members in the city have been forced to take up a second job in the city to make ends meet.

“A number of families said they could no longer afford telephone, cable or Internet services,” the report said. Others sold belongings, dipped into their Registered Retirement Savings Plan funds and even claimed bankruptcy in order to meet their financial obligations.

While business community grapples with the growing pains of the economy, it’s also mindful that the excesses of the boom could very easily be reversed, as the Canadian Government makes changes to its temporary foreign workers program.

“The temporary foreign workers changes could potentially debilitate any potential growth of existing business and business coming in,” the chamber’s Ms. Bohme said.

The rules could have “devastating consequences” for the community, Copeland added.

“Probably, within a year or two, this community is really going to feel an impact of a lot of fast food chains, restaurants that are fully staffed by foreign workers.  The rules are going to cause business owners’ devastating results. I don’t know how the hotels are going to cope.”

The TFW program has come under fire as it’s seen as taking jobs away from Canadians, but Mr. Copeland does not see the logic especially in Alberta where there is a labour shortage.

“Nobody from Ontario and East Coast is coming to Cold Lake to work in the fast food industry.”

But Ontarians and East Coast are coming to the city for oil jobs.

“The baseball caps tell you their affiliation. You would be surprised at the number of people from southern Ontario that are based here,” said Copeland who is originally from Mississauga, Ont.

Mr. Spence says unlike Fort McMurray where majority of people are cooped up in campsites, Cold Lake offers a distinct advantage when attracting talent. “They can drive home every night in Cold Lake – there is a real selling feature to it.”

The city has an infrastructure deficit of $250-million, and although the oil sands companies are chipping in with contributions for the community, including the new Cold Lake Energy Centre, a multi-use recreation facility that can hold 1,800 people, Mr. Copeland believe federal and provincial governments need to help out more as the tiny city is an economic dynamo feeding taxes and employment to the rest of Canada.

Ms. Bohme believes Cold Lake can replicate Fort McMurray’s success, but sidestep its shortcomings.

“I am hoping that we have put enough things in place so that we don’t have some of the challenges Fort McMurray has.”

Upstart Osum makes mark in oil sands, snaps up Orion project for $325-million

CALGARY – It has been a rough market for small companies in Alberta’s oil sands of late, as financing dried up and concern over transportation bottlenecks kept investors at bay.

But Osum Oil Sands Corp., a privately held company chaired by former Suncor Energy Inc. chief executive Rick George, is doing just fine, its chief executive said Tuesday.

“We haven’t forced anything,” Steve Spence said in an interview at Osum’s Calgary offices.  “We have very patient shareholders and a very strong and patient board who have a lot of oil sands experience who have helped us make the right decisions at the right time.”

Those shareholders include private equity players Warburg Pincus and Blackstone Group, BlackRock and Kern Partners.  Korea Investment Corp. and the government of Singapore’s investment arm are also backers.

On Tuesday, the upstart pulled the trigger on a $325-million acquisition, snapping up an oil sands property called Orion from Royal Dutch Shell PLC for $325-million in a deal that gives it something that has eluded other small oil sands players: a producing asset.  The deal is expected to close July 31.

“This actually provides us with a really good opportunity to step forward in our business,” said Mr. Spence, a former Shell executive.

Orion, located about 30 kilometres northwest of Cold Lake, Alberta has been in operation since 2007 and pumped about 6,700 barrels of bitumen per day from 22 steam-driven well pairs as of the first quarter of this year.  As part of the transaction, Osum said it had financing commitments from Barclays Bank PLC and Goldman Sachs Lending Partners LLC for credit facilities of US $225 million.

Shell has been looking to sell Orion since 2012.  It acquired the project as part of its $2.4-billion acquisition of BlackRock Ventures in 2006.

Merger and acquisition activity among small- and mid-sized companies in Alberta’s energy patch has picked up amid strengthening oil and natural gas prices and a revivial in the availability of capital, analysts say.  The industry has tallied seven transactions valued at US $2.5-billion so far this year, not including asset deals, according to IHS Energy.  That compares to US $2-billion in all of 2013, a 10-year low.

But oil sands properties have been the exception, with some analysts attributing a slowdown in activity to rules introduced by the federal government that effectively bar state-owned companies from taking controlling positions in the resource.

Growth prospects for smaller oil sands players have been thrown in neutral, as companies such as Southern Pacific Resources Corp. and Sunshine Oil Sands Ltd. struggle to convert large asset bases into cash producers.

Mr. Spence said buying Orion gives Osum cash flow to help develop a nearby oil field called Taiga, which the company says could produce up to 35,000 barrels of bitumen a day over time using steam-driven technologies.

“That forms the base and then lets us build out,” he said.  He said the company has pushed back construction of Taiga from this fall while it works to integrate Orion.  Taiga’s first phase could cost as much as $625-million.

Mr. Spence said Osum has benefitted from the involvement of Mr. George, who was appointed chairman of the privately held company in November 2012, shortly after stepping aside as chief executive of oil sands giant Suncor.  Suncor under Mr. George grew from a valuation of $1-billion to a market capitalization of more than $50-billion.  “He brings all that experience of you’ve got to break some eggs to make a cake,” Mr. Spence said.

Osum has been rumored as a potential candidate for an initial public offering.  However, Mr. Spence played down the option, saying the company has no immediate plans to test public markets.  “It’s not our time yet,” he said.

Osum Oil Sands buys project from Shell in Cold Lake region

Private-equity-backed company pays $325-million for a development it could eventually link to its own nearby facility.

Osum Oil Sands Corp., a private-equity-backed company chaired by former Suncor Energy Inc.’s chief executive officer Rick George, is buying a steam-driven oil sands project from Royal Dutch Shell PLC for $325-million, a development it could eventually link to its own nearby facility.

For Shell, the sale of the Orion project in the Cold Lake region of Alberta comes about two years after it first put it on the market.

Orion produces about 6,700 barrels of bitumen a day from 22 production and steam-injection well pairs and has been in operation since 2007. It is 18 kilometres from Osum’s Taiga lease, for which it has won approval for a 35,000-barrel-a-day project.

The two projects could eventually be tied together as a single production platform, Osum CEO Steve Spence said in a statement.

Osum said it has financing commitments from Barclays Bank PLC and Goldman Sachs Lending Partners LLC for credit facilities of $225-million (U.S.). The balance of the purchase will be funded from cash on hand as well as from existing shareholders, it said.

The company is backed by such private equity players as Warburg Pincus, Blackstone Group, BlackRock, Kern Partners, as well as Korea Investment Corp.

Shell picked up the Orion project in its $2.4-billion (Canadian) acquisition of BlackRock Ventures in 2006. It first sought buyers in May, 2012, but a year ago it said none of the bids it received had matched its own view of the value.

Osum Oil Sands to buy Shell Orion project for $325 million

CALGARY — Osum Oil Sands Corp. says it’s buying the Orion Oil Sands project in northeastern Alberta from Shell Canada for $325 million.

Calgary-based Osum says the operation, located in the Cold Lake oilsands region, will significantly increase its current production.

Osum says first-quarter production at Orion Oil Sands averaged about 6,700 barrels per day of bitumen and the project is expected to have an economic life in excess of 25 years.

The company says Orion Oil Sands is close to another of its oilsands developments in the Cold Lake area, which has received regulatory approval for the construction and operation of a 35,000 barrel per day facility.

The transaction with Shell Canada is expected to close at the end of July.

Established in Alberta in 2005, Osum Oil Sands Corp. is a private oil sands producer focused on in-situ recovery technologies, which pump steam underground to extract the sticky bitumen.

Faces of the Oilsands 2013: Steve Spence, Osum Oil Sands Corp.

Faces of the Oilsands Image

Steve Spence
Osum Oil Sands Corp.

Advancing a junior into an industry’s unrealized opportunity

Steve Spence jokes that when he left a senior management position with oil and gas giant Royal Dutch Shell plc after 24 years with the company to join Osum Oil Sands Corp. in 2008 he had to pitch in to make coffee, along with dozens of other tasks, for what was then a start-up.

Now that start-up, along with fellow junior Laricina Energy Ltd., is tracking towards making oilsands history. This summer, the partners received regulatory approval for the first project to produce bitumen from carbonates on a commercial scale, a major milestone along the path to unlocking a massive resource that has evaded the industry for decades.

Spence, who became president and chief executive officer of Osum in 2010 after serving as vice-president of projects for two years, says the company plans to make its mark in the carbonates while developing more conventional oilsands assets.

“We are the third-largest landholders in the carbonates. We think it has enormous potential and will make us a substantial producer,” he says, adding that the private firm’s strong investor base positions it well for the future. “I sleep well at night,” he jokes.

For the oil industry veteran—who had joined Shell after receiving a degree in chemical engineering from the University of British Columbia and held a number of management positions with the energy giant, including a four-year assignment in the 1990s when he worked in Australia with Shell’s joint-venture partner Woodside Petroleum Ltd.—joining an oilsands-focused company like Osum felt natural.

“I joined Shell right out of school as a reservoir engineer involved mostly in unconventional oil plays in Canada, including things like the Midale [enhanced oil recovery] project in Saskatchewan,” Spence says.

That project is now owned by Apache Corporation and is one of two successful enhanced oil recovery projects in southern Saskatchewan where CO2 is injected to recover crude from legacy projects and subsequently sequestered. In addition to Midale, Spence also oversaw Shell’s heavy oil assets in Saskatchewan.

That experience served him well when he returned to Canada from Australia, where he was assigned to oversee Shell’s oilsands and heavy oil assets in the Peace River region. He also was responsible for overseeing Shell’s Orion steam assisted gravity drainage (SAGD) project near Cold Lake, which the company acquired through its purchase of junior BlackRock Ventures Inc. in 2006. It was that oilsands involvement with Shell that played a role in Spence making the jump to Osum.

Osum had acquired, mostly through Crown land sales, 30 sections of oilsands leases in the Cold Lake area, which now constitute the location of its planned Taiga SAGD project—a foundation for growth that is designed to en- able commercial carbonate expansions. Osum received regulatory approval for the phased 45,000-barrel-per-day installation last September, and initial production is expected in 2016.

“Taiga gives the company a strong base in an area that is well under- stood,” Spence says.

But, as significant as it is, he adds that it only scratches the surface of Osum’s potential. In addition to the Taiga asset and Saleski, the carbon- ates project Osum shares 40/60 with Laricina, in early 2013 the company filed the environmental impact as- sessment for Sepiko Kesik (Cree for “blue sky”), a phased 60,000-barrel- per-day thermal installation targeting bitumen carbonates.

In total, Spence estimates Osum has the potential to eventually produce as much as 500,000 barrels per day, including volumes from its joint venture with Laricina.

He would seem not to be alone among those who see Osum’s potential. Last November, Rick George, former president and chief executive officer of oilsands megaweight Suncor Energy Inc., agreed to become chairman of Osum’s board of directors.

Spence says he has long admired the way George took Suncor from an unprofitable oilsands miner to become one of the giants of Canada’s oil and gas industry.

“Rick is a wonderful person to work with. There’s not much in the oilsands he doesn’t know.”

While Spence is confident in Osum’s investor base, he acknowledges the challenges producers are currently experiencing raising capital—which it will need to achieve its own goals. He says the company is waiting for more receptive investment markets, at which time it will announce another private placement.

Finding Pathways to Produce Heavy Oil from Canadian Carbonates

Nearly 2 million bbl of ultraheavy crude are produced each day from Canadian oil sands, but the notion of also producing bitumen from reservoirs made of carbonate rock can spark skeptical remarks.

They are likely to say something like: “Carbonates are very different. In carbonates, it is just different,” said Daniel Yang, director of reservoir engineering at Laricina Energy, who has a different reading of the exploration history of formations that hold more than 400 billion bbl of the crude.

Laricina has partnered with a second Calgary independent, Osum Oil Sands, to try to prove that bitumen can be commercially produced from the Grosmont formation, which holds 75% of the heavy crude known as bitumen in Alberta’s carbonates.

The reality is the Grosmont is different. A pilot project by Laricina and Osum showed that the well design commonly used for oil sands is not a good fit in carbonates. But a mix of methods used for bitumen production worked well enough to convince the partners to plan a commercial test that they plan to use for the first commercial development in the formation.

The Laricina-Osum joint venture has filed for a permit to produce as much as 10,700 B/D from up to 32 wells, with first oil in 2015. Read the full article.