In Canada, Miniature Heavy-Oil Sites Overcome Slump in Crude Prices

EDAM, Saskatchewan—In a muddy field where rows of canola stood just three months ago, a miniature oil-sands plant is rapidly being assembled by a small crew of workers. What’s unusual about this project is the speed with which it is being built—in a matter of months—and its compact, football field-size. Oil-sands sites typically take years to build and require hundreds or thousands of acres of land. At a time when slumping crude-oil prices have shelved most new oil-sands projects in neighboring Alberta and halted drilling for all but the most productive shale oil wells in the Bakken formation on both sides of the border, pint-size sites are proliferating in Saskatchewan’s oil patch. About a mile away from the construction site, down a rural highway in western Saskatchewan, three other similarly size heavy-oil projects are rising on a landscape filled with cattle pastures and duck ponds. The miniboom along Highway 26 is upending the long-standing logic that this type of extraction needs to maximize economies of scale to provide the best return on capital. While Saskatchewan’s oil reserves are a fraction of those in neighboring Alberta, companies developing small-scale sites in the province say they are profitable, even with crude prices at six-year lows. That is due to advances in modular construction, ample rail and pipeline takeaway capacity and an attractive regulatory environment. Like their larger oil-sands brethren in Alberta—home to the majority of Canada’s oil production—these newer sites in Saskatchewan extract crude by drilling horizontal wells and then pumping in steam from natural gas-fired generators to loosen up the thick oil deposits. Typical steam-powered oil-sands plants produce from 30,000 to 100,000 barrels a day, but smaller-scale thermal heavy oil facilities produce as few as 2,000 barrels a day. Both use a technology called steam-assisted gravity drainage, or SAGD, to tap subterranean deposits of molasses-like crude oil. Smaller operations benefit from lower construction and operating costs, faster production ramp-ups and higher prices for their crude than traditional supersize oil-sands projects. That means they can make money below the roughly $65 a barrel needed for most new larger-scale projects to break even. “Oil at $40 a barrel doesn’t scare us the way it scares oil-sands producers,” said Chad Harris, the founder and chief executive of startup firm Serafina Energy Ltd., which expects to produce 6,000 barrels a day starting in the first half of next year at its roughly 180 million-Canadian-dollar (US$134 million) plant in Edam...more (subscription)