$2B oilsands expansion approved

EDMONTON — Cenovus Energy's Foster Creek underground oilsands project has won approval for an estimated $2-billion expansion that will see 1,000 construction jobs created at the site 120 kilometres north of Bonnyville.

The Alberta Energy Resources Conservation Board approval announced Monday covers the next three phases of expansion (F, G and H) for Alberta's oldest and largest steam-assisted gravity drainage (SAGD) project.

"We will continue building the project in phases, making improvements with each one," spokeswoman Rhona DelFrari said.

Engineering on Phase F is already underway and preliminary ground work is expected to start soon.

Cenovus has its own construction management team, and the "cookie cutter" approach to the modules for each phase has resulted in industry-leading efficiencies.

Cenovus, which constructs the modules at its Nisku facility, estimates the development cost of its SAGD projects at about $22,000 per barrel of capacity.

Work on Foster Creek began in 1996 and it became the industry's first commercial SAGD project in 2001. There are now about 160 wells producing more than 100,000 barrels of oil per day. The current plant has a capacity of 120,000 bpd, and each of the three phases will add 30,000 bpd of capacity, bringing it to 210,000 bpd.

First production from the first phase is anticipated in 2014. Production from the other two phases is anticipated in 2016-17.

A regulatory application for the next expansion, expected to be submitted in 2014, would add another 25,000 bpd of production capacity, bringing the total capacity to about 235,000 bpd by 2019.

"The regulatory approval of these expansions at Foster Creek is another milestone reached in Cenovus's efforts to expand production and increase net asset value," said Brian Ferguson, president and chief executive of Cenovus in a statement.

"With these approvals, we believe there is a step change in the value of this project as there's increased certainty around the schedule and timing of the expansion."

Partner ConocoPhillips is solidly behind the expansion and is expected to quickly endorse the project.

Additions to plant infrastructure will happen first, followed by pipelines and well pads.

Cenovus expects it will be able to maintain its capital efficiencies in the construction of the three phases.

"The staff members at Foster Creek have helped that facility earn a reputation as one of the most innovative and efficient oilsands operations," said John Brannan, Cenovus executive vice-president and head of the integrated oil division.

"As we move forward with these expansions, we will draw upon the knowledge we've gained from the current operations and make improvements to help reduce our costs, decrease the amount of energy needed to produce the oil and minimize our impact on the environment."

In February, Foster Creek became Alberta's largest-producing SAGD project to reach payout for royalty purposes, reflecting the success of the operation. Projects begin to pay full royalties to the province once their construction costs are recovered.

Construction is also progressing on expansions at Christina Lake southeast of Fort McMurray, Cenovus's other producing oilsands asset. Phases C and D are each expected to add 40,000 bpd of production capacity, Phase C in the second half of 2011 and Phase D in 2013. That would bring Christina Lake's expected total production capacity to 98,000 bpd in 2013 from 18,000 bpd currently.

An application for the next oilsands project, Narrows Lake, about 480 kilometres northeast of Edmonton near Christina Lake, is now with regulators. That operation is expected to produce up to 130,000 bpd, possibly starting in 2016. Drilling of an SAGD pilot-well pair is complete and construction of associated facilities is underway in the Grand Rapids formation of the Greater Pelican Region, with an application for a 180,000-bpd commercial operation expected to be filed by the end of 2011.