Cenovus Energy Inc. is recycling a piece of mothballed equipment in Alberta’s oil sands, purchasing a processing plant for one of its projects from a French company that abandoned the facility.
The Canadian company on Tuesday said it bought steam-assisted gravity drainage facilities from Total SA. Cenovus plans to use the plant at its Grand Rapids oil sands project, which received regulatory approval in the first quarter. The existing plant, which can produce about 10,000 barrels of oil a day, was built for Total’s Joslyn project, but left unused after an overpressurized well blew up. Total now has mining plans for Joslyn.
Neither Cenovus nor Total disclosed the price of the facility. The deal comes as oil sands companies across the board look for ways to lower their costs. They have been assembling facilities in the oil sands using components built elsewhere – some in Canada, some from abroad – in order to cut expenses. However, it is unusual for energy companies to purchase, chop up, move and reassemble entire processing facilities.
“They have been well maintained,” John Brannan, Cenovus’s chief operating officer, said in the company’s first-quarter conference call. “We have to cut it off at the piles, and put it on trucks, and put the piles in the same position in our facility and just build the plant essentially in the same position, the same profile, as it would have been at their facilities.”
Grand Rapids has plans to produce 180,000 barrels of oil a day. The newly purchased facility will churn out about 10,000 b/d.
Companies have tried to move major pieces of equipment before, with Imperial Oil Ltd.’s experiment serving as the biggest caution to the industry. The Calgary-based company tried to cut costs by building giant pieces of equipment for its Kearl oil sands mine in South Korea. Because it could not get the necessary permits to transport the modules on highways in the United States, it disassembled the pieces and reassembled them in northern Alberta. This caused delays and increased costs.
Cenovus earned $247-million or 33 cents a share in the first quarter, up from $171-million or 23 cents in the same frame last year. Its cash flow, used to gauge a company’s ability to fund its projects, fell to $904-million or $1.19 a share in the quarter from $971-million last year. The per-share cash flow result was 3-per-cent lower than what analysts expected, according to Toronto-Dominion Bank analyst Menno Hulshof.
The company’s Foster Creek operations have been under the microscope as Cenovus winds down injecting steam into some of the wells. The company’s so-called steam-to-oil ratio has climbed through this period, forcing costs to climb. Cenovus said it produced one barrel of bitumen for every 2.7 barrels of steam it produced in the first quarter, compared with one barrel for every 2.4 barrels of steam in the same quarter last year. This caused operating costs at Foster Creek to climb by 36 per cent as the company used more natural gas to produce steam. Higher natural gas prices also played into this, but Cenovus has natural gas operations, which offsets the affect of higher prices.
Foster Creek produced 54,706 b/d in the first quarter, down 2 per cent from last year. The company’s other major producing oil sands project, Christina Lake, spit out an average of 65,738 b/d. Cenovus shares this project with ConocoPhillips.
With files from Reuters