Red-tape-busting CEO puts Sunshine on fast track
Dina O'Meara, Calgary Herald: Thursday, January 28, 2010
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Photograph by: Stuart Gradon, Calgary Herald |
Junior bitumen hopeful Sunshine Oilsands Ltd. is gearing up to start making money from its leases in northeastern Alberta, producing profits through the drill bit rather than selling off assets to majors.
The relatively new and privately owned company is looking to flow lighter bitumen up wells without having to steam or mine it out of the sands, saving big on a costly procedure, but banking revenues to launch its own thermal operation down the road.
Co-chief executive Doug Brown touts the two-year-old junior as bucking a trend to accumulate oilsands leases only to sell them off to majors. He's also proud of having managed to push exploration and development files over regulatory hurdles.
Recently, the privately owned company received provincial approval for its 1,000-barrel-per-day Muskwa project on 30 sections in northeastern Alberta, which falls under bitumen regulation, but has a resource that flows like heavy oil.
Sunshine also holds one million hectares of in situ oilsands deposits in Alberta's Athabasca region.
Q: Sunshine seems to have fast-tracked its way from launching in 2007 to filing its first application, a process that often takes years. How did you accomplish that?
A: Half of the effort in the oilsands is managing the regulatory environment. It's relatively easy to go in and test the area and do core holes, but the complication is that we have to get a bitumen extraction scheme approved to take the next step of developing it. We wanted to do it all in the same winter. Being winter access only, we didn't want to go through an exploration phase, then wait a year and have a development phase. So getting the Energy Resources Conservation Board, Alberta Environment and all the other agencies to process our scheme and give us approval in the time frame we wanted was a significant accomplishment for us.
Q: How much production are you looking at from Muskwa?
A: We have enough spacing to drill and sustain between 2,000 and 4,000 barrels per day for about 15 years, so there's quite a few spacing units mapped inside our net-pay cutoffs, so we could be busy here for four or five years, drilling.
Q: The Muskwa project will help fund thermal operations in the bulk of your leases. Are you concerned about the timing of your project coming on line at the same time majors are cranking up activity in the oilsands?
A: We have a massive amount of SAGD (steam-assisted gravity drainage) lands: 1,500 sections over one million acres (404,700 hectares). Those lands would be exposed to that uncertainty. But we're not trying to reinvent the wheel. We are technology takers. Just consuming technology that's available today and you can predict a pretty consistent capital efficiency and yield a solid stream of product, which you couldn't do a decade ago.
In the full cycle of our planning model, we would drill almost 2,000 SAGD wells over the next 20 years that's just on 60 sections, and is an intense project. Our plan is to fund the company to the point where we become self-funding, get up to 180,000 barrels per day off those 60 to 70 sections.
Q: When do you expect initial production from your future thermal oilsands operations?
A: We'll have up to 20,000 barrels per day on in the next five years. We will be filing a regulatory submission for 10,000 barrels within the next 30 days, and another one submitted at the end of the year for another 10,000 barrels per day. With proper submissions and good response to regulators' concerns, we believe that a 10,000-barrel-per-day plant can be adjudicated within a year.
Q: What is the biggest risk juniors face in the oilsands?
A: The No. 1 risk juniors face is access to capital. If you get past that, everything else becomes trivial in comparison.
The secondary risk that we would face is making sure that we are executing in a market that is relatively stable when it comes to labour and the cost pool. Those cost constraints are very real.