We visited the company’s oil sands leases in Alberta to take a closer look at the opportunities for growth in Canada and the challenges involved.
Oil, sweat and flexed muscles. The exploration drilling rig is shrouded in steam, and the air temperature is minus 15 degrees Celsius. The rig crew works intensely on the drill floor. Bang! A new length of casing is connected, and then the drill string descends 400-500 metres below the surface. This is one of 12 rigs working round the clock supported by an operation of nearly 700 contractors as StatoilHydro Canada’s 150-well winter drilling programme ramps up.
StatoilHydro Canada has four large, contiguos lease areas in the forests of the Athabasca region in Alberta: Leismer, Corner, Hangingstone and Thornbury. Together, they contain around 2.2 billion barrels of bitumen. The indigenous Chipewyan Dene people in the area gave our project the name Kai Kos Dehseh.
We are on a trip with Wendy Gaucher-Bigcharles, one of StatoilHydro Canada’s community liaison officers working with the local people. She tells us that in the language of the Chipewyan Dene people, Kai Kos Dehseh means Red Willow River, commonly known as the Christina River, which meanders through our lease area.
Being a good neighbour
The drilling is finished, and the electronic logging tool is lowered into the hole on a long cable. The steam and noise fade, and six men climb down from the rig. Wayne Krueger has few company logo stickers on his hardhat. He has only been working on the rig for two days, and is part of the company’s drilling training and employment programme for the local people.
“This means a lot to me. I have been given a new job opportunity and I feel it is going really well. The work may be hard, but I enjoy it,” says Mr Krueger.
One of the jobs of Ms Gaucher-Bigcharles, who is from an indigenous Cree-community in central Alberta, is to develop and support the training and hiring of young people near our operations.
“Being able to provide meaningful employment opportunities to local people is all about StatoilHydro Canada’s credo of “Being a Good Neighbour” she says.
Gaucher-Bigcharles has made many trips to the lease areas since she joined North American Oil Sands Corporation (NAOSC) almost three years ago. At the time, NAOSC was operator of the leases encompassing more than 1,110 square kilometres. The company was aquired by Statoil in June 2007. Since the merger with the offshore unit originally owned by Hydro, the company is called StatoilHydro Canada Ltd.
Expanding in Canada
“What we are experiencing in Canada is triple integration,” says Geir Jøssang, President of StatoilHydro Canada Ltd. He is sitting in a high-rise office building in Calgary, in what used to be NAOSC’s offices. Soon the offices will expand in the building to accomodate the colleagues from the former Hydro’s Atlantic offshore exploration and production group.
Hydro Exploration and Production activities started in Canada in 1996, acquiring, among other things, ownership interests in two producing fields, off Newfoundland and Labrador. Today, the company’s share of production from the Terra Nova and the Hibernia field amounts to about 24,000 barrels a day.
Jøssang tells us that before the merger this was an important international source of income for Hydro. Statoil’s interest in Canada, however, was oil sands, building on its heavy oil experience in Venezuela and demonstrated ability to work in harsh environments applying advanced technologies.
“The oil sands are accessible, there is a reasonably stable fiscal framework, and we are right next door to the worlds biggest petroleum product market. Large-scale production offshore with additional potential, combined with our significant foothold in oil sands, makes Canada a major future growth area for StatoilHydro,” he says.
No mining operations
We have left behind the towering derricks and are standing in a large, square clearing in the forest: the facility site for the Leismer project. This is the first phase of the Kai Kos Dehseh project. Oil sands development has encountered strong opposition from environmental groups, Norwegian among others, who have seen pictures of the open-pit mines. They are located 150 kilometres to the north of our leases, and Mr Jøssang is at pains to point out that we will not be mining. We will use technology called Steam Assisted Gravity Drainage (SAGD).
The method entails placing pairs of horizontal wells in the sandstone formation containing the bitumen. A total of 22 well pairs will be drilled for the start of the Leismer project. A processing plant will generate steam that is fed down into the upper of the two wells of each pair. The steam condenses as it gives its heat to the bitumen causing the tar-like, viscous hydrocarbon to flow through the sand formation like light conventional oil down to the lower well. The mixture of hot bitumen and water is pumped to the surface. Once the water and bitumen are separated, the water will be cleaned up and returned to feed the boiler and again converted to steam.
Leismer will have capacity to produce 20,000 barrels of bitumen a day, while the total production from Kai Kos Dehseh is expected to reach 200,000 barrels a day by the end of the next decade.
Environmental challenges
The SAGD method leaves a much smaller environmental footprint than mining operations, but SAGD still faces challenges, such as water and land use, and of cource carbon dioxide emissions.
“We do not intend to use water from the Athabasca River, which is tens of kilometres to the northwest.We will instead be using saline water from a deep geological formation not used for other purposes,” says Mr Jøssang. He points out that the goal is to recycle all the water:
“We will use the best available technology to recycle water and re-use it as well as reduce the amount we use. The industry standard today is 90% recycling. Our goal is to achieve 100%,” says Mr Jøssang.
Ambitious CO2 strategy
Steam production leads to the emission of carbon dioxide as the boilers are fired with natural gas. The method is energy-intensive and the emissions will be much higher than from conventional oil production.
On one of the new floors in StatoilHydros Calgary office sits Per Markestad, Vice President for Sustainable Technology. He tells us that, in the short-term, the company’s ambition is to reduce the amount of steam required to heat the oil sand. One concrete example of this is a planned pilot project in which solvent will be injected into the steam, which experiments show helps to reduce the viscosity of the bitumen reducing the amount of steam required.
"This could reduce the emissions of carbon dioxide significantly from the upstream production," says Mr Markestad.
He emphasises that, in the long run, the company wishes to participate in a carbon dioxide capture and storage project in cooperation with other industry players and the Alberta authorities. StatoilHydro has joined a group of the largest CO2 emitters in Alberta (the ICON group) who are cooperating to establish an integrated network for CO2 capture and sequestration in Alberta.
The first StatoilHydro heavy oil upgrader development is also planned to be "capture ready" in preparation for future carbon capture and storage. This is in line with the ambitions of the government of Alberta which has recently published a climate change strategy that includes a plan to capture 139 million tons of CO2 per year by 2050.
The long-term ambition is clear to Mr Markestad:
"Our ambition is to significantly reduce the CO2 emissions compared to the typical CO2 emission intensity today, and we have started a comprehensive project where we will study all possible options for reducing or offsetting CO2 emissions. This study will form the basis for our CO2 strategy. We are serious about this, and that is why we have to do our homework properly before we decide on a specific plan of actions".
Platform for long-term growth
Right next door sits Marty Proctor, Senior Vice President for Upstream Development and Production. He was in this position with NAOSC as well, and tells us that the company’s employees have always been concious of the environmental impact of bitumen production.
"It means a lot to us that NAOSC is now part of a company that also has a strong focus on this aspect and has means at its disposal to put its plans into practice," he says. But right now, Mr Proctor’s focus is on the winter drilling programme, the Leismer project and moving forward with the engineering design and planning of the full field development.
"StatoilHydro’s oil sands leases will produce for many years. This project is truly a platform for long-term growth for the company", says Mr Proctor.
The cold night air at the Leismer camp bites, and everyone is shivering as they climb back into the pick-ups. Soon, we warm up as our small plane climbs steadily into the night sky, headed for Calgary. Behind us, beneath the wintery silence of the Boreal Forests, lies one of world’s greatest hydrocarbon treasures. But unlocking it poses challenges.
"One of the keys to our success", says Ms Gaucher-Bigcharles, "will be ensuring good relations with the local communities. Our license to operate will depend on how well we work with them."