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Bob Nicolay, chief executive officer of Oak Point, in front of a 3-D model that he and his company are developing to be small and portable oil sands plants. (Chris Bolin/Chris Bolin for The Globe and Mail)
Bob Nicolay, chief executive officer of Oak Point, in front of a 3-D model that he and his company are developing to be small and portable oil sands plants. (Chris Bolin/Chris Bolin for The Globe and Mail)

Thinking small in the oil sands Add to ...

The oil sands plant Bob Nicolay is selling doesn’t actually exist yet. It is found, instead, in a series of books jammed with complicated engineering schematics, dense operating procedures and colourful renderings.

But some day soon – in January, Mr. Nicolay hopes – workers will take those books and begin building the first of a new breed of oil sands plant. It will be small. It will be portable. And it will do away with some of the complicated machinery that runs, and sometimes bedevils, oil sands operations.

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Mr. Nicolay, chief executive officer of Oak Point Energy Ltd., is betting that new solutions are possible for the oil sands, and that development of the Fort McMurray area can be less costly – by hundreds of millions of dollars – and have less of an effect on the environment.

The Calgary-based company wants to dramatically reduce the size of the plants needed to develop the oil sands, using new technology and designs to streamline complex equipment. It’s an about-face in an industry where the trend has been to bigger and more expensive operations – and Oak Point’s ambitious plan remains far from proven.

But it has attracted substantial interest with five companies operating in Canada: Devon Energy Corp. and Koch Industries Inc. have already signed licensing deals. Others have looked at the technology and concluded that it looks to be a “game-changer.”

If Oak Point succeeds, it would make it far easier to operate and explore in northeastern Alberta. A smaller, mobile plant could do test wells cheaply enough to turn a profit. It would provide new opportunities to smaller companies that aren’t flush with supermajor cash. It would also open up new deposits that are too small to be produced using current technology.

Oak Point, which has a long history of engineering for the oil sands, has taken three separate pieces of water treatment and boiling equipment and consolidated them into one. The results are significant enough that it has applied for five patents for the streamlined technology.

Instead of costing many billions to produce 30,000 to 60,000 barrels of oil a day, Oak Point believes it can install a 1,200-barrel-a-day plant for about $50-million. A larger plant would produce 7,200 barrels a day; an even larger facility about 20,000.

The current prize for building the lowest-cost new oil sands installations typically goes to Cenovus Energy Inc., using the industry metric of $22,000 per daily barrel of production at some of its operations. Others are far higher: Suncor Energy Inc.’s newest Firebag projects are estimated to cost, on average, $46,000.

Oak Point believes it can do it for $40,000 with the smallest plant, and $15,000 with its largest operation.

“We’ve rolled the clock back to what was 15 years ago pricing,” Mr. Nicolay said. The company owns several oil sands leases, and intends to pilot the technology on its land in northeastern Alberta next year.

To reduce manufacturing costs, the company plans to avoid Alberta’s overheated labour market. It aims to have the plant pieces made in Ontario, using skilled workers hungry for employment amid the auto downturn. The pieces are designed to be transportable and could be trucked across the country. And when one area of oil sands land is sucked dry, the plant could be taken apart and put back together elsewhere.

If Mr. Nicolay’s plans sound bold, it’s because they are. New technology is often easier to sketch out than to build, and history has shown that even small unforeseen problems can prove catastrophic in the field.

Costs in any construction project are tough to estimate accurately before something is built, and Oak Point is facing several important obstacles. For one thing, the roads between Ontario and Alberta can’t support the massive loads that currently move between Alberta manufacturers and Fort McMurray – a fact that poses potential trouble for Oak Point, although it’s also possible to manufacture in the west.

There are also serious barriers to smaller companies moving into the oil sands. Not least is the fact that the industry giants that now own the land are unlikely to let it go, and certainly not on the cheap.

Still, recent oil and gas history suggests that in energy, small things can succeed. In the early 1980s, for example, a company called Renaissance Energy gained a foothold by producing the pockets of oil that remained between wells then owned by larger players. It grew into a major Alberta company, before it was taken out by Husky Energy Inc. for $2.58-billion.

Some believe the field is now ripe for smaller companies to do the same in the oil sands.

“These smaller projects, if they work – and I don’t see why they won’t work – will definitely add in a significant amount of reserves in between all of the major projects,” said Robin Mann, a partner with energy advisory firm AJM Deloitte in Calgary.

The big question is: Can Oak Point deliver a project that works? The oil sands has a history of companies struggling to transition from concept to reality. But industry is ready to try.

“There’s a certain feasibility to it,” said Rob Dutton, vice-president of facilities and construction with Devon Canada. “But it doesn’t exist until it’s actually off the ... drawing board and into the field – and there’s been many attempts [by others]at doing this.”

Oak Point does have one advantage – timing. The deluge of environmental criticism about the oil sands in recent years has spurred a new desire for fresh approaches.

“We as an industry need to be a little more adventuresome in trying new technologies, and new packages of the same technologies,” Mr. Dutton said.

Follow on Twitter: @nvanderklippe

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