| Imperial Oil - A Leader in Canada’s Oil Sands
Remarks by E.L. (Eddie) Lui, vice-president, oil sands development and
research, Imperial Oil, to the Scotia Capital Global Energy Summit 2006
| | Toronto, Ontario |
February 14, 2006
| Download Eddie
Lui's remarks and slides in Adobe PDF format.
Good morning. I'd like to thank Scotia Capital for the opportunity to speak to
you today here in Toronto.
Before we begin, I would like to remind you that the presentation this morning
contains forward-looking information and actual results could be different as
a result of many factors -- which are noted on this slide.
Imperial Oil has an unparalleled resource base which will enable us to sustain
long term volume growth.
This chart shows our annual oil and
gas production on an oil-equivalent basis, for 2004 at over 115 million
barrels. By comparison, our net proved reserves were over 1.7 billion barrels
-- one of the largest and highest quality proved reserves base in Canada with
a reserve life index of 15 years. (Note that 2005 reserves data are not yet
published).
But the proved reserves are only a small portion
of our total resource base. At the end of 2004, we had a non-proved resource
of over 11 billion barrels of which about 10 billion barrels is in the oil
sands. My comments today will focus on how we are developing this diverse and
high quality oil sands resource.
Imperial has been a pioneer in the development of Alberta's vast oil sands
resources for many decades -- both in-situ and mining projects.
This map shows the three major oil sands deposits and illustrates where
Imperial is currently active in oil sands production:
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At Cold Lake, Imperial's wholly-owned in-situ thermal operation, the
underground oil sands are heated in-situ with high-pressure steam and
subsequently produced; and
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At Syncrude, bitumen located in near surface deposits are mined and processed
into synthetic crude oil. Imperial is an original owner with a 25% working
interest. We are the second largest owner after the Canadian Oil Sands Trust.
I don't plan to address Syncrude today as Marcel Coutu has already given an
overview of the project.
I will be spending some time reviewing Imperial's proposed Kearl Oil Sands
Mining Project which is shown as the yellow star on this map.
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Imperial's oil-sands assets are enormous in size and scope, and offer
strategic long-term growth opportunities.
Our Cold Lake
project is one of the largest in-situ oil sands operations in the world and a
premier in-situ project in Canada. This asset is wholly owned and operated by
Imperial. Cold Lake produces over five percent of Canada's crude oil -- with
production of over 50 million barrels in 2005.
As I
mentioned, Imperial also holds the second-largest interest - 25 percent - in
the Syncrude Project. The Syncrude Project is the world's largest producer of
crude oil from oil sands with production of about 77 million barrels in 2005.
Production from these two operations are the cornerstones of our current
oil-sands business, and account for more than 50 percent of our total upstream
production. As noted on the bottom of this chart, they also accounted for 20
percent of Canada's daily oil-sands production in 2005.
Imperial also has extensive oil-sands interests outside of these two projects.
Our most advanced initiative, the Kearl oil sands mining opportunity is an
oil-sands mining development jointly owned by Imperial and ExxonMobil Canada
with Imperial having 70% interest and serving as operator.
As
I'll outline later, we are progressing a phased development project with
ultimate production potential of 300,000 barrels a day, on a high quality
resource that can support this production for well over 40 years.
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Imperial has been a pioneer in oil sands development and has decades of
experience in in-situ oil sands recovery.
Cold Lake is a
premier oil sands asset, and produces as much as all other Canadian in-situ
thermal operations combined. Net proved reserves are about 700 million
barrels, enough for 17 years of production at today's rates.
In addition, the company has about 3 billion barrels of non-proved resource.
Some of this resource is located in undeveloped areas in Cold Lake, while the
rest is in fields not yet developed in Athabasca.
Imperial
has a multifaceted strategy to monetize this non-proved resource. The first
priority is to keep existing Cold Lake surface facilities fully loaded, by
sequentially developing the best resource. The second priority is to improve
recovery from current operations through intensive surveillance and
introduction of new recovery technologies. The third priority is research and
technology development so that thinner pay, or areas with bottom water or top
gas can be economically developed.
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We have been active at Cold Lake since the mid-1960's when we started the
Ethel pilot. Since that time we have added two additional pilots and five
commercial plants (13 commercial phases). Our current approved development
area is 138 square miles and we have about half under active production today.
You can see from this graph changes in production as we brought on more phases
since commercialization in the mid-1980's.
In 2002, we
brought on phases 11-13 (on-schedule and on-budget) which included a 170
megawatt co-generation plant that meets the full site electricity needs. This
project was named "Project of the Year" by Alberta Construction magazine for
2003.
On average, production has increased about 4 percent
per year over the last decade.
I've listed across the top of
this graph the changes in bitumen recovery factor over the last 20 years. The
increase from 13% to 30+% is a direct result of our continued focus in
research & technology development and our growing expertise in thermal
operations.
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This chart highlights numerous technology advances that we have made at Cold
Lake since the 60's.
Imperial invested $250 million on
research and technology development before the start-up of the commercial
project in 1985. Since then, expenditures have averaged more than $25 million
per year at our research centre in Calgary and in field pilots at Cold Lake.
This sustained commitment to development of technology is a unique competitive
advantage.
Many of you may not know, Imperial invented and
held patents on cyclic steam stimulation (CSS) and steam assisted gravity
drainage (SAGD), which are the processes underpinning all in-situ thermal
production in Canada.
Our on-going commitment to
technology is unwavering. Our most recent invention late last year was a
patented process to enhance CSS recovery with liquid addition. In the bottom
left is a picture of this pilot -- in operation since 2002. Results are
encouraging -- plans for larger-scale implementation are now being
developed. This technology has the potential to increase recovery in areas
already developed, using existing wells and facilities.
The
diagram on the right is a schematic representing another recovery process we
are also investigating which will be pilot tested in the near future.
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Imperial has an ongoing focus on development of breakthrough technology --
advances that would have a significant and lasting impact on the company and
the industry.
At our research facility in Calgary, we are
actively developing and evaluating ideas to improve our existing operations,
and find ways to economically develop more challenging oil sands resources.
We also have access to global research through our relationship with
ExxonMobil. The schematic at the right shows a state-of-the-art reservoir
simulation software, which has the capabilities to model thermal and thermal
solvent recovery processes.
The Imperial Oil Centre for Oil
Sands Innovation at the University of Alberta was established in 2004 with
Imperial making a funding commitment of $10 million over five years. The
Centre's mandate is to focus on break-though research to develop more
efficient, economically viable and environmentally responsible ways to produce
Alberta's vast oil sands resource.
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Now let me tell you a bit about how we are applying new technology at Cold
Lake today.
This map shows the current plan to develop the
northern extension of Cold Lake, which we received regulatory approval for in
2004.
Over the next five years, we will develop 10 new pads
in this area and the first investments were made in 2005 with the drilling of
two new pads -- shown here in light blue (H58 and H59). This development is an
another example of continuous improvement through technology application.
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The well design and layout has been custom-fit to the resource. These 'mega'
pads use horizontal and vertical wells which allows one pad to access the same
resource as three standard pads, which reduces the overall capital required
for this development.
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For successful thermal operations, it is essential to control the steam
distribution in a horizontal well to achieve optimal production results.
Imperial has developed a patented completion technique with a special designed
well bore assembly to achieve this objective.
I would now focus our discussion on Kearl, a proposed bitumen mining project
in Fort McMurray.
Imperial owns 70% and is operator of the
project. The remaining 30% is held by ExxonMobil Canada.
The Kearl leases hold sufficient bitumen to support a 300 KBD mine. We will
develop Kearl in phases with the initial phase sized at 100,000 barrels per
day with two subsequent phases to follow.
Our assessment is
that the most economic approach for the first phase of Kearl bitumen is to
market to expansions of existing upgrading facilities.
Imperial refineries already process a significant amount of heavy crude oil
and we will advance low-cost expansions to take more. But, more broadly, we
expect that there will be additional heavy crude capacity in the markets we
currently sell into.
Canada and the refining areas of PADD II
and IV (Chicago and Rocky Mountain) and in the larger US refining centres of
PADD III (US Gulf Coast) and PADD V (California) to take a portion of the
first phase of Kearl.
Kearl is the best undeveloped resource in the Athabasca region.
A key quality indicator for mineable oil sands is called "TV to BIP". This
refers to the total volume of overburden and ore material one has to mine per
volume of bitumen in place. Low numbers are good. Since less material is
handled for each barrel of bitumen produced, there is an operating expense
advantage.
The combination of high quality and large resource
size (4.4 billion barrels) provides a significant economic advantage for
development of this project.
This chart summarizes the project status of Kearl.
In
2005, we completed the conceptual engineering and process selection, and the
regulatory application was filed with the Alberta Energy Utilities Board
(AEUB) in July 2005.
We are currently in the information
request stage of the regulatory process and are addressing about 425
information requests. We expect to file the information requests by the end of
March.
We expect the AEUB hearing to start in about Q3/Q4,
and a decision from the AEUB by the end of the year or early next year.
Let me say a few words about our view on the heavy oil markets in the near to
medium term.
For capital-intensive industries, the most
attractive investment is incremental expansion, or "creep" -- and this is
especially true for the refining business.
The bars on this
chart illustrate current coking capacity, expressed in thousands of barrels of
Heavy Crude Equivalent - over 7.5 million barrels per day in the North
American market.
Modest creep of only 2% a year will yield an additional 1.7 million barrels
per day of capacity by 2015.
We'll continue to evaluate
upgrading facilities at our Edmonton refinery. But a decision to do so will
not be made until we're convinced that this capital investment will be
profitable, competitive and yield attractive returns for our shareholders.
This chart is a comparison of the cost of new upgrading capacity in different
locations.
As I said before, the most attractive
investment for upgrading is to expand or creep existing capacity. Depending on
the facility additions required, this can be as low as 10% of the cost of
grassroots or as high as 80%.
The lowest cost
location on the continent for new upgrading facilities is the US Gulf Coast.
Costs in Edmonton and US Mid-West locations such as Chicago are roughly
equivalent.
Fort McMurray is a relatively expensive place to
build complex mega-projects like upgraders.
The relative cost
of upgrading is an important consideration when evaluating a conversion
expansion investment. This becomes more amplified given that once built, these
facilities will need to compete in the highly competitive North American
refining markets for decades to come.
This chart illustrates the potential impact of Imperial's oil sands resource
portfolio on future production. The successful development of the Kearl
resource along with continued selective investments at Syncrude and Cold Lake,
could lead to doubling of Imperial's production from the oil sands by 2015.
Let me close with a summary of the key points that I feel distinguish Imperial
Oil from the competition.
We have been a pioneer in the
development of oil sands -- with extensive operating experience and knowledge.
Our commitment to research and technology development will provide us with the
key to continued economic and responsible development of oil sands resources.
We hold a significant position in the oil sands resource, and are well
positioned for continued future growth.
And the bottom line,
for any investor, underpinning our strengths is the continued focus on
long-term quality earnings growth.
Thank you. I would be
pleased to answer any questions that you may have.
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