Canadian Oil Sands Overview

Canada has the third largest oil reserves in the world. Of Canada's 179 billion barrels of oil reserves, 175 billion (98%) are located in the oil sands. More than half of Canada's oil is produced from the oil sands (approximately 1.7 million barrels per day).

The Canadian oil sands are deposits of bitumen, heavy black viscous oil that will not flow unless heated or diluted with lighter hydrocarbons to make it transportable by pipelines and usable by refineries. Most of the oil sands of Canada are located in three major deposits in northern Alberta. These are the Athabasca-Wabiskaw oil deposits of north north-eastern Alberta, the Cold Lake deposits of east north-eastern Alberta and the Peace River deposits of north-western Alberta. The oil sands located in these three major areas is beneath approximately 140,200 square kilometers of north-eastern Alberta - an area larger than the state of Florida, twice the size of New Brunswick and more than four and a half times the size of Vancouver Island. Canada's oil reserves, which rank second in size only to those of Saudi Arabia, amount to approximately 179 billion bbl, of which the Canadian oil sands represent 175 billion bbl or nearly 98% of the Canadian total. At the 2006 production rate of approximately 1.126 million bbl per day, the oil sands have a reserve life index of nearly 426 years.

The Alberta deposits contain at least 85% of the world's total reserves of natural bitumen, but are concentrated enough to be the only deposits that are currently economically recoverable for conversion to oil at current prices. The largest bitumen deposit, containing about 80% of the total, and the only one suitable for surface mining, is the Athabasca oil sands along the Athabasca River. The mineable area (as defined by the Alberta government) includes 37 townships covering about 3,400 square kilometers (1,300 sq. mi.) near Fort McMurray. The smaller Cold Lake deposits are important because some of the oil is fluid enough to be extracted by conventional methods. All three Alberta areas are suitable for production using in-situ methods such as cyclic steam stimulation and steam assisted gravity drainage.

The Alberta oil sands have been in commercial production since the original Great Canadian Oil Sands (now Suncor) mine began operation in 1967. A second mine, operated by the Syncrude consortium, began operation in 1978 and is the biggest mine of any type in the world. The third mine in the Athabasca oil sands, the Albian Sands consortium of Shell Canada, Chevron Corporation and Marathon Oil Corp. began production in 2003. Petro Canada is also developing its $33 billion Fort Hills Project, in partnership with UTS Energy Corporation and Teck Cominco. If approved, Fort Hills Oil sands upgraders are slated to begin output in 2012.

With the development of new in-situ production techniques such as steam assisted gravity drainage, and with the oil price increases since 2003, there are several dozen companies planning nearly 100 oil sands mines and in-situ projects in Canada, totaling nearly $100 billion in capital investment. With 2007 crude oil prices significantly in excess of the current average cost of production for oil sands, all of these projects appear likely to be profitable. However, oil sands production costs are rising rapidly, with development cost increases of 55% since 2005, due to shortages of labor and materials.

The significant expansion of Canada's oil sands production that is anticipated to occur over the next several years is expected to have a profound effect on Canada's stature among global oil producing nations. According to the Canadian Association of Petroleum Producers ("CAPP"), Canada is expected to be a global leader in respect of planned oil production expansion during the period from 2006 to 2016 by nearly doubling its production from 2.5 million bbl per day, to approximately 5 million bbl per day. In 2006, the oil sands accounted for slightly more than 50% of total western Canadian crude oil production and approximately 45% of total Canadian oil production. According to CAPP it is anticipated that by 2020 conventional Canadian oil production will decline by approximately 45% to 0.57 million bbl per day, while the production from Alberta's oil sands will nearly quadruple to 4.0 million bbl per day, representing approximately 80% of total Canadian oil production. In addition, it is anticipated that the contribution from the oil sands resource will increase to approximately 14% of total North American consumption by 2020, more than doubling its current level of contribution.