| Imperial Oil -- A Leader in Oil Sands
Remarks by
E.L. (Eddie) Lui, vice-president, oil sands development and research, Imperial
Oil Limited to the TD Newcrest Oil Sands Forum
| | Calgary, Alberta |
July 6, 2006
| Download Eddie
Lui's remarks and slides in Adobe PDF format.
Good morning. I'd like to thank TD Newcrest for the opportunity to speak to
you today and to share with you Imperial Oil's current development and future
opportunities in the oil sands.
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's oil-sands assets are enormous in size and scope, and offer
long-term growth opportunities for the company.
We have been
a pioneer in the development of Canada's vast oil-sands resources since the
early 60's -- in both in-situ and mining projects.
This map
illustrates the three major oil-sands deposits and shows our position in both
current oil-sands production (red symbols) and in undeveloped oil-sands leases
(gold symbols).
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. The gold star northeast of Fort McMurray represents
the Kearl leases on which we propose to develop a 300,000 barrel-a-day mining
project with ExxonMobil Canada.
The gold star to the
southeast of Fort McMurray represents a number of leases which we are
evaluating for development using in-situ methods.
Let me
start with a few words on our development at Cold Lake with some history on
our research efforts in the oil sands.
Imperial has been a leader in the development of much of the technology that
has underpinned the commercial development of Canada's vast oil-sands
resource.
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 over $250 million on research and
technology development before the start-up of the Cold Lake commercial project
in 1985. Many of you may not know that Imperial invented and held patents on
both cyclic steam stimulation (CSS) and steam assisted gravity drainage
(SAGD).
Our ongoing commitment to technology is
unwavering. Our most recent success is a process we successfully patented in
2005. This invention enhances CSS performance through the addition of diluent
with the steam. As a result, we will increase recovery in areas already
developed, using existing wells, facilities and infrastructure. We have
piloted this process since 2002 and an application will be filed with the AEUB
for a larger-scale implementation of the technology later this quarter, with
field start-up occurring in 2007.
In June we filed a
pilot application with the AEUB for another recovery process. This new
recovery process (shown in the schematic on the lower right) enhances the
performance of SAGD through the addition of diluent with the steam. Drilling
of two well pairs required for the pilot is to occur in early 2007, once the
pilot application has been approved by the AEUB.
This
sustained commitment to development of technology is a unique competitive
advantage for Imperial Oil.
Imperial's wholly-owned Cold Lake project is a world-class asset and the
premier in-situ asset in the oil sands. It produces as much as all other
thermal in-situ oil-sands projects combined.
As you can see
from the graph on this slide, bitumen production at Cold Lake has increased
significantly since our first pilots in the 1960s, to the current production
level of over 150,000 barrels-per-day. We have taken a deliberate, phased
approach to developing this high-quality asset -- bringing production on in
stages to incorporate advances in technology into new production phases.
Across the top of the graph in red, I have 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.
Looking forward ...
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 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 -- we are just
completing construction of the surface facilities and will begin steaming
these pads in the next few months.
This development is
another example of our commitment to continuous improvement through
application of new technology at Cold Lake;
-
The well design and layout in this development has been customized to optimize
resource access.
-
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 objective.
Finally, I'll draw your attention to the black rectangle directly to the east
of our northern extension area. This is the next section of the Cold Lake
lease that we will develop. We have a team in place evaluating the most
economic options to bring this part of the Cold Lake lease into production.
Turning to mining....
Imperial is a founding member of the
Syncrude consortium established in 1964 and remains the operation's
second-largest owner, holding a 25 percent 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 its start-up 25 years ago.
The recently
completed Stage 3 expansion included the addition of a third, 100,000
barrel-a-day coker. As a result, site production will ultimately increase by
about 40 percent. As well, the quality of the entire synthetic crude output
will be improved to capture higher realizations.
The
expansion project was completed and started up on May 6, but unfortunately had
to be brought down on May 18 to deal with a persistent odour problem
associated the start-up of the new Flue Gas Desulphurization unit.
Syncrude has been working with experts from ExxonMobil to resolve this
unexpected problem, and the current expectation is that the underlying problem
will be rectified and the new coker brought back on line later this month.
Let me turn now to Kearl, a proposed bitumen mining project in Fort McMurray.
Imperial owns a roughly 70 percent interest and is operator of the project.
The remaining 30 percent is held by ExxonMobil Canada.
The
Kearl leases hold sufficient bitumen to support a 300,000 barrel-a-day mine
for more than 40 years. We plan to develop the Kearl project in phases with
the initial phase sized at 100,000 barrels-per-day, and two subsequent phases
to follow.
To date, we have completed conceptual
engineering and process selection for the project.
The
regulatory application was filed in July 2005. We were notified last month
that a joint provincial/federal panel will conduct the hearings for the Kearl
project, and we expect public hearings to begin this fall with a regulatory
decision about the end of this year.
Kearl is arguably the best undeveloped resource in the Athabasca region -- and
with apologies to our conference host, while "bigger is better" in some
circles, for Kearl, a bigger resource combined with a better quality is best
for development.
This chart plots projects based on the
relative size and quality of the bitumen resource.
The "x"
axis plots "TV to BIP" (total volume to bitumen in place) -- a key quality
metric for mineable oil sands. 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 a natural operating expense advantage for a mine.
The "y" axis plots recoverable resource. The "sweet spot" on this graph is the
upper left hand corner indicating high quality and large recoverable resource.
The red circles represent industry projects -- both producing and proposed.
The blue symbols represent the projects that Imperial is participating in --
you can see that Syncrude and Kearl are both high quality projects and Kearl
is the best of the bunch.
For the entire Kearl mine -- all
three phases -- TV to BIP is 7.8. The combination of the high quality of the
Kearl resource on the site and large resource size -- 4.6 billion barrels --
is a significant economic advantage for development of this project.
I'd like to add that although the current mine plan filed in our regulatory
application for Kearl is 4.6 billion barrels of recoverable bitumen, total
bitumen-in-place on the Kearl leases is over 13 billion barrels.
A final point on Kearl related to how we will market the bitumen.....
For the first phase of Kearl, we plan to market the bitumen as a blended heavy
or sour crude, selling into the increasingly expanding North American markets
for Canadian heavies. Marketing plans for volumes from additional phases are
being developed.
Our assessment is that the most economic
approach for the first 100,000 barrels-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 two percent 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 two 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 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 as a leader in the development of oil sands.
We have been
a pioneer in the development of oil sands -- with extensive operating
experience and knowledge. Our continued 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 -- with high-quality assets like Cold Lake
-- and are well positioned for continued future growth in both in-situ
operations as well as mining.
Thank you for your attention.
For more information:
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 S.W.
Calgary, Alberta T2P 3M9
Email:
susan.b.swan@esso.ca
Phone: (403) 237-4537
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