Developing of Viscous Oil Reserves Is Worth Watching

Implications: This article describes BP's recently announced project to install facilities for production of viscous oil with sand.  It has some implications for the future progress of oil sands development, as well.  This project may be among the list of future types of activities for the major oil companies after deep water exploration dwindles and they must find other uses for their financial deep pockets in the exploration and production arena.

Analysis: This article describes the beginnings (permitting, etc.) of one of North America's largest producers' efforts to produce oil from a viscous (ultra heavy) formation.  There are some interesting variables surrounding this project that could indicate future heavy oil exploitation trends.

First, the viscous formation is on a lease that currently produces lighter oil from deeper zones.  Thus, much of the infrastructure (pipelines, flowlines, roads and electric power) is already in place.

Second, although BP's expectation is a recovery of only 20 percent of the heavy oil in-place, this low exploit still apparently meets BP's economics, probably due to the infrastructure availability mentioned above.  The process they are proposing to use might not be applicable if the infrastructure were not in place.

Third, at 2,500 to 3,500 feet below surface, "oil sands" type mining is not an option due to the formation depth.  Even if it were shallower, mining in the permafrost zone is not an option.

Lastly, projects such as this may indicate future areas of strategic endeavor for the super majors and national oil companies.  These types of oil/gas companies have concentrated for the last twenty years or so on very expensive undertakings such as deepwater and extended reach drilling such as Sakhalin Island in Russia.  Their deep pockets and ability to manage large enterprizes give them the advantage in these areas and they hope to find large amounts of reserves to match the tremendous capital investment required.  However, if one asks the question "what's next?" for the super majors and their strategies (when all the big and deep projects have been done) viscous oil and tar sand production may be the prime use for their deep pockets competitive advantage in the future.  And, the easiest of these plays to develop are those where production activities already exist.