Devon Energy (NYSE:DVN) is one of many operators active in the Canadian oil sands. The company has two projects currently producing here, a third one in the planning stages, and it is looking to this area for future production growth over the next decade.
TUTORIAL: The Industry Handbook: The Oil Services Industry
The Canadian oil sands are located in Alberta and contain an estimated 170 billion barrels of recoverable oil in the form of bitumen. These deposits are located at the Athabasca, Peace River and Cold Lake areas. (Changes in the price of oil aren't arbitrary. For more, see What Determines Oil Prices?)
Devon Energy first became involved in the oil sands in the late 1990s and acquired a lease position at Jackfish in 2001. These leases currently support production from the Jackfish 1 and Jackfish 2 projects, along with a third Jackfish project currently being planned.
Each project contains an estimated ultimate recovery (EUR) of 300 million gross barrels of oil and has gross productive capacity of 35,000 barrels of oil per day. Devon Energy booked proved reserves of 440 million barrels of oil as of the end of 2010.
The company is developing its oil sands leases using the Steam-Assisted Gravity Drainage (SAGD) method, which involves injecting steam underground to heat the bitumen so it can be brought to the surface for further processing. (For related reading, see How Does Crude Oil Affect Gas Prices?)
Devon Energy started production from Jackfish 1 in 2008 and reached maximum capacity here in 2010, with the project currently producing 33,000 barrels of oil per day net. The company spent $620 million in capital to start up the Jackfish 1 project.
Devon Energy started construction on Jackfish 2 in 2009 and began production in June 2011. The company spent $1 billion in startup capital on this project, as costs for materials have accelerated sharply over the intervening years. Devon Energy expects this project to reach peak production in late 2012.
The potential of the Canadian oil sands has attracted many oil and gas operators, and more than 20 projects are operating or under construction.
The Dover Operating Corp. is a joint venture between PetroChina (NYSE:PTR) and the Athabasca Oil Sands Corp. (OTCBB:ATHOF) to develop the MacKay River and Dover oil sands leases. The venture is pursuing regulatory approvals for projects on these leases.
Another operator involved with the oil sands is Nexen (NYSE:NXY), which has a project at Long Lake. The company is the operator of Long Lake and has a 65% interest in the project.
Nexen also owns a 7.23% interest in the Syncrude joint venture, an early oil sands operation that started up in the mid 1970s. Syncrude has current capacity of 350,000 barrels of oil per day. The venture is also owned by Murphy Oil (NYSE:MUR), Suncor (NYSE:SU), Imperial Oil (NYSE:IMO), Canadian Oil Sands (OTCBB:COSWF) and China Petrochemical Corp. (NYSE:SNP).
Devon Energy operates two producing oil sands projects and is working on a third expansion nearby. The company is aggressively planning future development here to help increase production. (For related reading, see Oil: A Big Investment With Big Tax Breaks.)
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