Cenovus Outgrowing Expanded Fabrication Yard

Thursday, 19 January 2012 10:25

Cenovus Energy Inc. has so many in situ oilsands projects in its "hopper" it may have to increase its recently expanded module fabrication capacity again.
The company has applications for three in situ oilsands projects in regulators' hands. It recently expanded by 50 per cent its module fabrication yard at Nisku, Alberta, where it is currently building five phases of Foster Creek and Christina Lake.

With its next project, Narrows Lake, potentially set for construction to start this year, that yard will be full so Cenovus is on the hunt for more space, Harbir Chhina, executive vice-president of oilsands, told BMO Capital Markets' ninth annual unconventional resource conference in New York City yesterday.

That module yard and its "manufacturing approach" are critical to the company's operations, said Chhina. "We're making widgets. Yes, we make mistakes but we correct them. You make them on the first [phase and then] get the other three to five phases right. That's the key to success."

Applications for the Narrows Lake project, jointly owned with ConocoPhillips, and the 100 per cent Cenovus-owned Telephone Lake and Pelican Lake Grand Rapids projects are before regulators. Narrows Lake is expected to start producing in 2016, Grand Rapids is targeting to start producing in 2017 and the first phase of Telephone Lake is aimed at start up as early as 2018.

Growth in the next decade will occur outside its core area, at such areas as Borealis, Winefred Lake and Kirby East, and the company will start a pilot project at Clearwater this year, said Chhina.

Cenovus has 56 billion bbls of discovered bitumen initially in place, 5.4 billion bbls of best-estimate contingent resource and plans to drill more than 450 stratigraphic wells in 2012 to help assess the new oilsands resources.

China said the company is revising its breakeven price at Foster Creek, from $38 per WTI bbl in December to a little lower than that now. Christina Lake needs a price in the low $40s, he said. Farther north, when built, Borealis and Telephone Lake's breakeven price will rise to $50 to $55 per bbl, he added.

The executive said at oil prices of $90 per bbl, existing operations are generating full cycle returns of 22 to 25 per cent, up from 13 per cent in 1999.

Cenovus is seeking a joint-venture partner for Telephone Lake that would provide something other than capital. "Do we need other refineries? Potentially, yes. But we also need to diversify into different markets, whether that's PADD V or Asian markets ...," he said. About 30 companies have expressed interest. Bids are expected later this month and their evaluation will take a month or two.

Meanwhile, the company has submitted an application for a 90,000-bbls-per-day project at Telephone Lake (initially planned at 35,000 bbls per day) where it is spending a significant amount of money drilling in the area this winter and conducting a dewatering test, he said.

China's goal is to have 10 projects approved and ready for development but he is held up by a lack of well density and shortage of project applications, he said. "Currently, all the applications that are approved, we're building on them. In fact, we're building on applications that aren't even approved," he said.

The company is working on 140 new technologies and has changed its approach to technology over time, he said. Ten years ago Cenovus (as its predecessor Encana Corporation) would pilot projects if it felt there was an 80 per cent chance of success; now it needs only a 30 per cent chance of success to do so, he told the conference.

"We're spending so much capital and so much on [operating] cost that spending a few million dollars on a pilot is piddly squat compared to the hundreds of million of dollars' value you're going to generate if you do it a year or two ahead of time."