| Remarks by Randy Broiles, Senior vice-president, resources division,
Imperial Oil, to the Raymond James Oil Sands of Canada Conference
| | New York, New York |
May 8, 2006
| Listen to the archived
webcast.
Download Randy Broiles' remarks and slides in Adobe PDF format.
Good morning. I'd like to thank Raymond James for the opportunity to speak to
you today and to share with you Imperial Oil's opportunities in Canadian oil
sands.
Following my remarks, I'd be pleased to address your
questions.
Before we begin, I want 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 a leading position in Canadian oil sands.
In
terms of current production -- from our wholly-owned Cold Lake thermal in situ
development and our 25% share in Syncrude -- or our future opportunities
spearheaded by the proposed Kearl oil sands mining project -- Imperial
commands a substantial and significant position in the development of this
vast resource.
The demand for energy is tightly linked to population growth and ultimately,
economic growth. Looking forward to the increasing demand for energy globally
and here in North America, Canada and its petroleum industry are uniquely
positioned to take advantage of the opportunities to meet growing demand.
Canada is the only G-7 country with significant potential for growth in
hydrocarbon production. It has the resource base to support increased
production -- and the educated, skilled workforce and industrial capacity to
develop the resource efficiently.
Canada's fiscal regime is
sound, consistent, and not prone to sudden "overnight" changes in the
regulatory framework.
An efficient, reliable pipeline
infrastructure already connects the Canadian and US markets for oil and
natural gas, providing producers with access to customers continent-wide.
And, notably important in a world of continuing geopolitical uncertainty and
instability, Canada represents a uniquely secure source of future energy
supply -- in both a physical and political sense. Security is further
strengthened by important multilateral arrangements like NAFTA.
This chart shows a global view on the recoverable resources for oil sands (in
red) and oil shale resources (in blue).
While both are very
important, the more significant of these are the oil sands, with about 800
billion barrels of recoverable resource. As you can see from the map, the
largest single deposits are in Canada and are largely untapped compared to
their ultimate potential.
Unlike much of the potential
conventional resources to be produced, we know exactly where the oil sands
resources are -- there is no exploration risk. And we already have the
technologies needed to develop them. However, we will continue to refine and
improve these technologies, making the resources both more competitive and
increasing recovery rates.
Oil sands are already making a
contribution to world supply today and one that will become increasingly
important as demand grows.
I'd now like to
share with you the major role Imperial has played in the commercial
development of Canada's oil sands over the past several decades, and where our
future plans will take us.
Imperial Oil is developing one of Canada's leading resource bases -- a high
quality, diverse portfolio of opportunities 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 2005 at over 115 million barrels
shown in the red bar. By comparison, our net proved reserves were over 1.6
billion barrels shown in the green bar -- one of the largest and highest
quality proved reserves base in Canada with a reserve life index of 14 years.
But the proved reserves are only a small portion of our total resource base.
At the end of 2005, we had a non-proved resource of about 12 billion barrels,
shown in the blue bar, of which over 10 billion barrels are in the oil sands.
We are pursuing many opportunities, including the Mackenzie Gas Project, to
migrate these resources to reserves and ultimately production but my comments
today will focus on how we are developing our oil sands opportunities.
Imperial's oil-sands assets are enormous in size and scope, and offer
strategic long-term growth opportunities for the company.
We
have been a pioneer in the development of Alberta's vast oil sands resources
for many decades -- in both in-situ and mining projects. In fact we have been
active in some of the first oil sands developments in the early 1960s.
This map shows the three major oil sands deposits and illustrates how we are
positioned in both current oil sands production and in undeveloped oil sands
leases.
Imperial holds about 465,000 acres of oil sands
leases including Cold Lake -- the largest in-situ oil sands operation in the
world and the premier in-situ project in Canada. This asset is wholly owned
and operated by Imperial.
Imperial also has extensive
oil-sands interests which are currently undeveloped -- mostly in the Athabasca
area of Alberta.
Cold Lake is a premier oil sands asset, and produces as much as all other
Canadian in-situ thermal operations combined.
Net
proved reserves at the end of 2005 were about 700 million barrels, enough for
15 years of production at today's rates. There is considerable non-proved
resource in addition to proved reserves and we will continue to develop this
site in a measured, productive way.
We have taken a
deliberate, phased approach to developing this high-quality asset -- bringing
production on in stages over the past 20 years. This has allowed for advances
in technology -- many of them developed and patented by Imperial -- to be
fully incorporated into new production phases.
You can see
from this graph changes in production as we brought on more phases since
commercialization in the mid-1980's.
Volume has come on in
measured, staged additions and has been absorbed into the North American
refining markets. We currently market Cold Lake blend to refineries here in
Canada -- including our own Sarnia, Nanticoke and Strathcona refineries -- as
well as refineries in PADD II (Chicago) and PADD IV (Rocky Mountain). And,
with the recent reversal of the 20 inch ExxonMobil pipeline south from Patoka,
Illinois, Canadian heavy crudes can now reach the Gulf Coast -- the single
largest high conversion market in North America.
We have been
active at Cold Lake since the mid-1960's when we started up our first pilot
plant on the site producing an average of 150 barrels a day. Currently we are
producing 150,000 barrels a day from 13 commercial phases.
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.
Across the top of this
graph are listed 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 and technology development and our growing expertise in thermal
operations.
The circles at the top of this chart highlight the numerous technology
advances that we have made at Cold Lake since the 1960'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 for Imperial Oil.
Many may not be aware that Imperial invented and held patents on both cyclic
steam stimulation (CSS) and steam assisted gravity drainage (SAGD), the
processes underpinning all commercial in-situ thermal production in Canada
today.
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 and 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 on company leases in the near future. This pilot is focused on
improving the economics for resources where SAGD is currently the leading
recovery technology for development. This is an enhancement to the SAGD
process which was invented by Imperial in 1982. The enhancement involves the
addition of solvent to the injected steam and is currently being tested in
scaled models at Imperial's laboratory in Calgary.
In
addition to our in-house research, we also have access to global research
through our relationship with ExxonMobil, our major shareholder and the leader
in energy development worldwide. And in 2004, we established the Imperial Oil
Centre for Oil Sands Innovation at the University of Alberta. With 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.
Near term development at Cold Lake is focused on developing the "northern
extension" of our approved development area.
The Cold
Lake lease area (shown as the dashed black line on the map) is about 300
square miles. The approved development area shown as the solid black line is
about 140 square miles and we are currently active in about half of that.
Our efforts from now to the end of the decade are to develop the area shown in
red, one of the new areas which we received regulatory approval for in 2004.
Over the next five years, we plan to develop 10 new pads in this area. The
first investments were made in 2005 with the drilling of two new pads in the
southerly part of this area.
This development is another
example of our commitment to continuous improvement through technology
application and shows how we continue to apply new technology at Cold Lake
today;
-
The well design and layout in this development has been custom-fit to the
resource.
-
Looking at the illustration in the bottom right of this slide, you can see
that these new 'mega' pads use horizontal as well as vertical wells. One pad
can now access the same resource as three standard Cold Lake pads, which
reduces the overall capital required for this development as well as the
surface footprint.
-
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
wellbore assembly to achieve this ojective.
Imperial is a founding member of the Syncrude consortium established in 1964
and holds a 25% interest.
Syncrude is the largest oil-sands
operation in the world, with a resource base to support decades of production.
Annual production from Syncrude has steadily increased since it's start-up 25
years ago.
The current Stage 3 expansion includes the
addition of a third, 100,000-barrel a day coker. As a result, site production
will increase by about 40%. As well, the quality of the entire synthetic crude
output will be improved to capture higher realizations.
The
expansion project is essentially complete with feed-in to the new coker
expected [this week]. Imperial and ExxonMobil have provided experts to assist
with project execution and start-up.
And, as you heard from
Marcel Coutu this morning, there are additional expansion opportunities.
Let me turn now to 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 plan to develop Kearl in phases with the initial
phase sized at 100,000 barrels per day with two subsequent phases to follow.
To date on this project we have completed conceptual engineering and completed
process selection for the project -- Kearl would employ proven technology
already up and running in Athabasca using truck and shovel mining,
hydrotransport and paraffinic froth treatment conditioning technology.
The regulatory application was filed in July 2005 and we have just completed
responding to the information requests from the regulator. We expect public
hearings to begin this fall and a decision by the Alberta Energy Utilities
Board near year-end.
Kearl is the best undeveloped resource in the Athabasca region.
A key quality indicator for mineable oil sands is a metric referred to as "TV
to BIP". This measures the total volume that has to be mined -- overburden
plus ore -- relative to the amount of bitumen-in-place. Low numbers are
better. Less material is handled for each barrel of bitumen produced so there
is an operating expense advantage for a mine.
For the entire
Kearl mine -- all three phases -- TV to BIP is 7.8.
The
combination of the high quality of the resource on the site and large resource
size (4.6 billion barrels) is a significant economic advantage for development
of this project.
Our assessment is that the most economic approach for the first 100,000 barrel
per day phase of Kearl bitumen is to market to 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.
For capital-intensive industries, the
most attractive investment is incremental expansion, or "creep" -- and this is
especially true for the refining business.
The blue 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 shown in the blue hatched
bar of only 2% a year will yield an additional 1.7 million barrels per day of
capacity by 2015. In addition, there are proposed upgrading projects in
Canada, shown in the red checkered bar -- either stand-alone or with dedicated
bitumen supply -- that could deliver an additional 2 million barrels per day
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 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.
For more detailed investor information, or to receive annual and interim
reports, please contact:
Susan Swan
Manager,
Investor Relations
Imperial Oil Limited
237 Fourth Avenue SW
Calgary, Alberta T2P 3M9
Email: susan.b.swan@esso.ca
Phone: (403) 237-4537
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