Frequently Asked Questions
Where are your assets in terms of their identification, delineation and evaluation? How solid is AOS’s resource base?
AOS’s resource base at the Clearwater Project is very well defined, with 60 delineation wells having been drilled and the 3D seismic data acquired. GLJ has assessed contingent resources of 373 million barrels in the best estimate case. The Clearwater Phase I Project has been designed and the project application is now before the provincial regulators. Our other three assets – Algar Lake, Grand Rapids and MacKay River – are at earlier stages of evaluation.
What is the difference between SAGD and mining oil sands, and what approach is AOS taking?
“Regular” oil sands, as most people understand it, uses open pit mining as the extraction method, resulting in a large disturbed surface area, as well as tailings ponds for processing of the mined sands. SAGD or steam-assisted gravity drainage is a common form of underground or in situ oil sands extraction in which the bitumen is produced by drilling wells, similar to conventional oil and natural gas development. Much less land area is disturbed. AOS’s Clearwater Project is using SAGD recovery method, resulting in a very small plant site covering barely 10 hectares in Phase I.
A thorough explanation of the differences between mining and SAGD can be found by clicking here.
What are the capital requirements for the Clearwater Project, and how will you meet them?
Phase I (with a design capacity of 4,350 barrels per day) is estimated to require $135 million in additional capital, while Phase II (15,000-25,000 barrels per day) will require an estimated $1 billion, depending on its final size and construction/equipment costs at the time. To fund Phase I, AOS envisions bringing in partners who would provide capital in return for a share of the project. With Phase I production generating positive cash flow and proving the commerciality of the Clearwater operating model, we anticipate having a range of options to fund Phase II.
How big is the Clearwater Project? Is it manageable by a company of AOS’s size? At the same time, does it offer enough scale to drive corporate growth and create shareholder value?
We think the Clearwater Project is of an ideal size. Phase I has a design capacity of up to 4,350 barrels per day, while Phase II would produce about 15,000-25,000 barrels per day. This is a fraction of the size of Alberta’s largest oil sands projects, minimizing impacts on surrounding communities, but still large enough to generate commercially viable production. The scale of our planned facilities would provide an operating life of 25 years or longer given the size of the resource base. The capital requirement of approximately $150 million for Phase I and an estimated $1 billion for Phase II. Phase II is also well-balanced: small enough to be manageable for a company of our size, but large enough to provide the opportunity for driving significant shareholder value over time.
How good is the reservoir at the Clearwater Project?
We consider it superb. The reservoir is part of the Middle McMurray formation, which is part of the largest oil sands accumulation in Alberta. The reservoir at Clearwater has particularly favourable characteristics for commercial oil sands production. Please click here for the scientific data.
What are “solvents” and what role do they play at Clearwater?
A solvent is simply anything that can dissolve another substance. In the context of the oil sands, solvents are injected into the reservoir to mix with the viscous or thick bitumen and make it flow more easily through the reservoir to the producing wellbore. Oil sands solvents are commonly hydrocarbons, such as propane or butane. AOS proposes to use diluent, also known as condensate, a liquid that is widely produced in many Alberta natural gas fields and that is commonly used in the oil sands sector to thin bitumen for trucking and pipeline transport.
AOS sounds like a high-risk, early-stage venture. Do you have much hope of success?
All oil and natural gas projects contain financial, technical and regulatory risks. As AOS moves the Clearwater Project through its various stages, the risks are clarified and mitigated as questions are answered, data is gathered and estimates gain certainty. For example, the thorough resource delineation at Clearwater creates a high degree of confidence in the size and quality of the resource. The operating model – SAGD with solvent co-injection – is a well-known concept and the facilities will employ known technologies, reducing technical and facility risks. The smaller scale of the Clearwater Project – Phase I will require only $150 million in construction capital – reduces capital risks.
All in all, AOS has moved Clearwater beyond the “early stages” into the “middle stages” – and our risk profile is shifting accordingly. We are very optimistic about our prospects of moving the Clearwater Project through approval and construction to production.
What are your technical and managerial resources? Can you handle what you have taken on?
AOS is well-organized and of the right size to drive forward a smaller-scale SAGD project such as Clearwater. We are neither bureaucratically top-heavy nor lacking in corporate and technical functionality. Our senior leadership consists of highly experienced industry managers, and our technical team covers the full range of required skill-sets. The AOS team is complemented by a line-up of first-rate technical consulting companies with specific oil sands experience that provide specialized services, from engineering to facility construction to environmental management and stakeholder consultation.
Does the Clearwater Project hinge on some as-yet unproven new technology or process? What happens if there are no technical breakthroughs?
The simple answer to the first part of the question is, “No.” The Clearwater Project is based on the established field-proven recovery model of steam-assisted gravity drainage (SAGD), complemented by solvent co-injection, another well-known process. Both phases of the Clearwater Project are technically and economically viable without any technological breakthroughs. We are using certain technical enhancements – such as our tiltmeter array, a first in the Alberta oil sands – to improve safety and environmental protection, and/or to increase productivity and maximize resource recovery, such as our basement well innovation.
What’s your corporate model? Are you planning to sell your assets to a much larger operator before you get any production?
AOS’s corporate strategy is to guide the Clearwater Project through approval and construction to successful production operations. We are definitely not intending to sell our Clearwater assets in the near term. AOS’s vision is to remain a growing oil sands company operating our properties. As we grow and develop the Clearwater Project and begin to develop our three other properties, we do expect to take on additional partners that can supply investment capital and/or additional operating expertise.
What’s the timetable for getting oil out of the ground? You’ve been working on this for four years, which seems like a long time.
Oil sands projects typically come to fruition over several years that covers numerous phases including land prospecting, lease acquisition, resource delineation, project design, application/approval, financing, construction and finally production plus further expansion. AOS has completed all of the initial phases and is currently awaiting regulatory approval.
What about your other three prospects? What are you doing with them?
AOS has three other oil sands properties that are in earlier stages than the Clearwater Project. AOS’s overriding priority is to move the Clearwater Project through approval and construction to successful production. Following that, the company will begin to pursue its other opportunities.