Cenovus Energy Inc. is adjusting the way it uses steam at its oil sands operations in northern Alberta, tweaking a system that has been in place for over a decade.
The strategy comes after Cenovus’ posted disappointing statistics on steam use in its fourth-quarter results. Cenovus’s steam-to-oil ratio, which measures the amount of steam used to produce a barrel of oil in steam-assisted gravity drainage (SAGD) projects, climbed at its Foster Creek operations compared to last year. The company is about to launch expansion phases, and wants to avoid the rising ratios years from now by injecting more steam into the ground in the early days of a project.
Cenovus said it produced an average of about 53,000 barrels of bitumen per day at Foster Creek in 2013, down 8 per cent compared to 2012. Meanwhile, Cenovus’s operating cost at Foster Creek hit $15.77 per barrel in 2013, translating to 32 per cent more than in the same period in 2012. Foster Creek’s lower production was offset by increased activity at the company’s other main project, dubbed Christina Lake, which spit out more than 49,000 barrels of bitumen per day in 2013, up 55 per cent compared to a year earlier, Cenovus said.
Cenovus’s plan will ripple throughout the oil sands industry because it has some of the country’s longest-running oil sands projects, meaning it often encounters new problems before competitors and regulators. It is crucial for oil sands companies keep their steam-to-oil ratios low because the more steam companies use, the higher their costs and carbon emissions. Further, extra steam may demand more water use, another sticking point with environmentalists.
The company, which often boasts about its efficient use of steam, expects its steam-to-oil ratio to average between 2.6 and 3 at Foster Creek in 2014, according to its fourth-quarter results. By way of comparison, it clocked in at 2.5 in 2013, and 2.2 in 2012.
Cenovus said the ratio is going up in 2014 because it plans to inject steam for an extra month at wells in the next phase of development. This added steaming (starting with phase F) will add 40 cents per barrel to the cost of extracting bitumen, chief executive Brian Ferguson said. The jump in steam-to-oil ratio will be temporary, he said.
“We think there’s an increase in value and return for that over the life of the project,” Mr. Ferguson said in an interview. “Every time you bring on a new phase, you get a little bit smarter.”
Foster Creek’s phases F, G and H are expected to produce 90,000 barrels of bitumen per day, with room to hit about 125,000 barrels of bitumen per day.
SAGD projects extract bitumen using so-called well pairs. One well injects steam, softening bitumen so it can rise up the other well. Cenovus last year found that as steam chambers beneath the wells (and cluster of wells called pads) merged, the company struggled to find the best way to efficiently produce bitumen. Cenovus believes the extra month of steaming at the beginning of the expansion phase will mean that area of Foster Creek will avoid the problems it is encountering with wells and pads roughly a decade old. The new steam chambers, Mr. Ferguson said, will be more uniform. The expansion stretch is expected to produce its first drops of bitumen in the third quarter.
The market, however, is spooked. The stock dropped 3 per cent to close at $28.77 on the Toronto Stock Exchange Thursday, and analyst Phil Skolnick at Canaccord Genuity attributes this slide to Foster Creek’s predictions for steam use.
“Foster Creek could remain an overhang,” he said in a research note.
Cenovus lost $58-million or 8 cents per share in the quarter, compared to a loss of $117-million or 15 cents per share in the same frame last year. Operating earnings rang in at $212-million, compared to a loss of $188-million in the fourth quarter of 2012.
The company said its cash flow totalled $835-million or $1.10 per share in the quarter, compared to $697-million in the fourth quarter last year. Cash flow is often used as a yardstick to measure a company’s ability to fund its growth.