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Remarks by Randy Broiles, senior vice-president, resources division, to the
Raymond James Oil Sands of Canada Conference
| | New York, New York |
May 7, 2007
| Listen to the Web cast of
Randy Broiles' presentation.
Download the remarks and slides.
Good afternoon. I'd like to thank Raymond James for the opportunity to speak
today and to share Imperial Oil's opportunities in the oil sands.
Following my remarks, I'd be pleased to address your questions.
However, like others, I want to remind you that the presentation this
afternoon contains forward-looking information and actual results could be
different as a result of many factors -- which are noted on this slide.
Let me begin with an overall look at Imperial Oil...
Imperial
has been a leader in Canada's petroleum industry for over 125 years -- we
remain one of the largest producers of crude oil and a major producer of
natural gas.
Net proved reserves, after royalties and before
year-end price adjustments totaled over 1.5 billion oil-equivalent barrels at
the end of 2006, equivalent to a reserve-life index of nearly 12 years.
However, this is just a portion of our potential. Our non-proved resource base
was approximately 12 billion oil-equivalent barrels -- said another way -- our
resource base represents nearly 100 years of production at current levels --
and is a leading resource position in Canada.
We are a major
oil sands producer with nearly 220,000 barrels a day produced last year from
our wholly owned Cold Lake operation and our 25 percent working interest in
Syncrude Canada. We achieved record production from our Cold Lake operations
in 2006.
We are a leading refiner and marketer of petroleum
products in the country and supply about 25 percent of total demand.
The company's total chemical sales were over 1.1 million tonnes and our
polyethylene operations remain among the most cost-competitive in North
America.
We achieved record earnings in 2006 of over $3
billion dollars, in Canadian currency.
And -- a fundamental
competitive advantage for Imperial -- we remain the leader among our
competitors in Canada with the highest return on capital employed at over 35
percent.
As you can see, Imperial is distinguished in the market in many ways. But
fundamentally it is our disciplined management approach that sets us apart and
provides a significant advantage to our shareholders.
The
company has a solid track record of enhancing shareholder value through four
corporate priorities.
The first priority is to achieve
operational excellence and strive for flawless execution in all we do.
A second priority is to grow profitable sales volumes.
The
third is to achieve and maintain a best-in-class cost structure in every part
of the business.
And finally, the fourth is to improve the
productivity of our asset mix. This includes further investments in
high-performing assets, divestment of non-core assets and acquisition of new
opportunities.
It is this commitment and approach over many
years that distinguishes Imperial Oil in the marketplace.
This chart shows a global view on the locations of major oil deposits. Areas
of recoverable resources for oil sands are indicated with red storage
containers and oil shale resources are indicated with blue containers.
The bar chart in the bottom left illustrates these resources on the basis of
their estimated oil in place volumes. Together, the total volume of oil sands
and oil shale exceed today's estimated volumes of conventional oil. The more
significant of these are the oil sands, with nearly 6 trillion barrels of oil
in place. One of the largest single deposits is in Canada. This resource is
largely untapped compared to its 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. In fact, Imperial Oil
has been at the forefront in developing these technologies to support over 40
years experience in producing bitumen. However, we will continue to refine and
improve these technologies, to squeeze the most out of these resources
competitively.
Oil sands are making a contribution to world
supply today and one that will become increasingly important as demand grows.
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. This infrastructure now connects oil sands resources
to all of the major refining centers in North America.
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.
Let's get back to Imperial and where our future plans will take us.
Imperial's oil sands assets are enormous in size and scope, and offer
strategic long-term growth opportunities for the company. The blue portion of
the bar chart represents our non-proved resource base in the Athabasca and
Cold Lake oil sands deposits.
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 were active in some of the first oil
sands developments in the early 1960s.
Imperial holds over
500,000 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.
Record volumes were produced at our Cold Lake field in 2006 -- more than
150,000 barrels per day, before royalties.
Net proved
reserves of over 600 million barrels remain enough for over a decade of
production at today's rates.
We have taken a deliberate,
phased approach to developing this high-quality asset -- bringing on
production in stages over the past 20 years. This has allowed for advances in
technology -- many of them developed and patented by Imperial.
You can see changes in production on this graph 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. Currently we are producing from 13 commercial phases, with
Cold Lake blend being marketed to refineries in Canada -- including our own
Sarnia, Nanticoke and Strathcona refineries -- as well as refineries in
Chicago, the Gulf Coast and the Rocky Mountains.
As you can
also see from the chart, Cyclic Steam Stimulation generates fluctuations over
a given period based on steaming and production schedules. We will continue to
increase volumes through the disciplined addition of new pads and application
of new technology to increase recovery rates.
Shown across
the top of this graph are the changes in bitumen recovery factor over the last
20 years. The increase from 13 percent to over 30 percent is a direct result
of our continued focus on research and technology development and our
industry-leading expertise in thermal operations.
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.
In addition we will continue to evaluate development strategies for the
rectangular area in the upper right, with an eye to use existing facilities.
This development area also received regulatory approval in 2004.
Aside from developing new production, we are now commercializing a new
technology for enhanced recovery from mature producing wells. Let's talk about
it...
For a couple of years we have reported to you about the progress of piloting
our proprietary recovery method, named LASER (Liquid Assisted Steam Enhanced
Recovery). With the experience of two production cycles, we are now ready to
commercially phase-in this promising technology.
Fundamentally, a low concentration of diluent is added to the steam in
mid-life steaming cycles resulting in recovery uplift.
Illustrated on the right are our plans for commercializing. The red star
indicates where the pilot activity is ongoing and the red boxed area
illustrates the pads that will be first commercialized, starting in 2007.
We will continue to broaden the use of this technology, building on our
learnings from the on-going pilot and optimizing recovery performance.
Turning now to mining.
Imperial is a founding member of the Syncrude consortium established in 1964,
holding a 25 percent interest.
Syncrude is the largest oil
sands operation in the world, with a prominent lease position. Syncrude holds
eight leases covering an area of about 252,000 acres. The map shown here
illustrates the leases and their proximity to the existing mines sites, in
dark green. These mines are well connected with existing infrastructure,
including a slurry pipeline accessing the Aurora North Mine.
Annual production from Syncrude has steadily increased since its start-up 25
years ago.
Stage 3 expansion included the addition of a
third, 100,000-barrel a day coker which increased the site capacity by 40
percent to 350,000 barrels a day.
The expansion project
was completed and started up in 2006. Volumes ramped-up in the fourth quarter
and continue to increase towards achieving full capacity.
In
late 2006, Imperial announced plans to enter into a management services
agreement with Syncrude. Our near-term focus will be to implement this
agreement with focus on achieving reliable, low cost operations.
Kearl is a proposed bitumen mining project north of Fort McMurray, near
Syncrude's north mine.
The Kearl leases hold sufficient
bitumen to support a 300 thousand barrel a day mine. We plan to develop Kearl
in phases with the initial phase sized at 100 thousand barrels per day with
two subsequent phases to follow.
This 4.6 billion
barrel resource is 70 percent owned by Imperial who is the operator of this
project with the balance owned by ExxonMobil.
Kearl would
employ proven technology already up and running in the Athabasca using truck
and shovel mining, hydrotransport and paraffinic froth treatment technology.
The regulatory application was approved in February of this year and our
current activities surround evaluating the conditions associated with this
approval and conducting our preliminary engineering. We are targeting 2008 for
a decision to construct with first oil production in 2011.
Kearl is arguably one of the best undeveloped resources in the Athabasca
region.
This chart plots projects based on the relative
size and quality of the bitumen resource.
The "x" axis plots
total volume to bitumen in place (TV to BIP) -- 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 and green symbols represent the projects that Imperial is
participating in -- you can see that Syncrude and Kearl are both high quality
projects and the best of the bunch.
For the entire Kearl
resource -- the average TV to BIP is 7.8. using current regulatory cutoffs.
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. Development plans for volumes from additional phases are
being assessed.
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. But, 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 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.
There has been increased public attention to environmental matters, especially
as it relates to development of the oil sands. Our attention to such matters
started many years ago and have been integrated into our operations over time.
This chart highlights a few of these initiatives and the results that we have
achieved.
At Cold Lake, we supplement our freshwater intake
with brackish water from deep aquifers. In 2006, we achieved one of our best
years for recycling, with 99.7 percent of water produced during recovery
recycled. Today the operation uses 0.5 barrels of water for every barrel of
oil produced, compared to 4.5 barrels when the operation was commercialized in
1985.
At Kearl, our plan is to incorporate water storage.
This mitigation measure allows for periodic reduced water withdrawal from the
Athabasca river during any low-flow periods.
With respect to
emissions, we continue to look for ways to improve energy efficiency and
reduce unwanted byproducts from industrial operations. Towards this we have
invested in cogeneration and sulphur recovery at Cold Lake. These and other
initiatives, such as Global Energy Management System, have kept our green
house gas emissions flat, despite production growth.
Over to technology development...
The circles at the top of
this chart highlight the numerous technology advances that we have made at
Cold Lake alone.
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. This sustained commitment
to development of technology is a unique competitive advantage for Imperial
Oil.
Our commitment to technology is unwavering. Improved
reservoir recovery, and ongoing LASER research, which we discussed earlier,
are being explored as well as other recovery processes including steam
assisted gravity drainage technologies and cyclic solvent processes. In
addition, we are pursuing low-cost, efficient processing facilities, including
sodium desulphurization for bitumen upgrading, bitumen burning as an
alternative to natural gas, and paraffinic froth treatment for extraction of
bitumen from mined oil sands.
In addition to our in-house
research, we also have access to global research through our relationship with
ExxonMobil, our major shareholder and the arguable leader in energy
development worldwide.
How does this all come together?
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
Imperial, producing over 350 thousand barrels a day 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 disciplined investment and 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 have.
For more information:
Imperial Oil Limited’s site on the
World Wide Web contains a variety of corporate and investor information.
For more detailed investor information, or to receive annual and interim
reports, please contact:
Investor Relations
Imperial
Oil Limited
237 Fourth Avenue SW
Calgary, Alberta T2P 3M9
Email: investor.relations@esso.ca
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