Canadian Oil sands have great long term potential, and there may be a bidding war ...
if the SEC allows Major Oil companies to value Oil Sands reserves in a preferred way.

Here's a "pairs trade" : Shell Canada vs. Imperial Oil ... Ratio: about 1x SHC.t = IMO.t ... update : 2006


Oil sands are one of the few cheap long-lifed reserves left

How much oil is in Alberta's oil sands deposits?

Alberta's three oil sand deposits ?Athabasca, Cold Lake, and Peace River ?contain resources that could supply Canada's energy needs for more than 475 years, or total world needs for up to 15 years. The production potential of all the oil sand deposits could be as high as 2.5 trillion barrels of bitumen (five times more than the conventional oil reserves in Saudi Arabia). The Athabasca deposit is twice the size of Lake Ontario.

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Tar sands are impregnated sands that yield mixtures of liquid hydrocarbon and require further processing other than mechanical blending before becoming finished petroleum products. Until recently Alberta's bitumen deposits were known as tar sands but are now called oil sands. ... By 2005, oil sands production is expected to represent 50% of Canada's total crude oil output and 10% of North American production. Although tar sands occur in more than 70 countries, the two largest are Canada and Venezuela, with the bulk being found in four different regions of Alberta, Canada: areas of Athabasca, Wabasha, Cold Lake and Peace River. The sum of these covers an area of nearly 77,000 km2. In fact, the reserve that is deemed to be technologically retrievable today is estimated at 280-300Gb (billion barrels). This is larger than the Saudi Arabia oil reserves, which are estimated at 240Gb. The total reserves for Alberta, including oil not recoverable using current technology, are estimated at 1,700- 2,500Gb.

@: http://ffden-2.phys.uaf.edu/102spring2002_...jects/M.Sexton/

= = =

COMPANIES:
+ Teck Cominco ventures into Alberta oil sands. Deal with Petro-Canada and UTS Energy worth $850 million
+ partly Petro-Canada-owned Syncrude bitumen mining, extraction
and upgrading operation in the Canadian oil sands
+ Canadian Oil Sands Trust is an open-ended investment trust that generates income from its 35.49% working interest in the Syncrude Joint Venture.
+ The two largest oil sands mining operations are Syncrude Canada Limited and Suncor Energy. Albian_Sands is another smaller project owned by Shell Oil.
+ The recent acquisition of Blackrock Ventures for more than US$2 billion by the Royal Dutch Shell (RDS-A) affiliate, Shell Canada (SHC.TO), put higher values on undeveloped underground, or in situ, oil sands.

t.COS.UN Canadian Oil Sands Trust : 739732

t.SU- Suncor Energy : 103545

t.TECKMVA Tech Cominco: 46912

t.UTS UTS Energy : 115747

t.BMD Birch Mountain Resources [TSXv:BMD; AMEX:BMD] : 1718739

t.WTO Western Oil Sands (WTO) : 419564


The Syncrude Project
....is a Joint Venture undertaking among Canadian Oil Sands Limited Partnership, Canadian Oil Sands Limited, Conoco Phillips Oilsands Partnership II, Imperial Oil Resources, Mocal Energy Limited, Murphy Oil Company Ltd., Nexen Oil Sands Partnership, and Petro-Canada Oil and Gas, as the project owners, and Syncrude as the project operator. Syncrude's Mildred Lake facility is located 40 kilometres north of Fort McMurray.

Imperial Oil Resources,
t.IMO Imperial Energy : 103409

MUR Murphy Oil Company Ltd.: 3249

t.NXY Nexen / Nexen Oil Sands : 373438

Mocal Energy Limited,
= = =

t.SHC Shell Canada : 46856

t.CNQ Canadian Natural Resources [TSX:CNQ; NYSE:CNQ] : 205500

t.ECA EnCana Corp. [TSX:ECA; NYSE:ECA] : 1104214


BIG SPENDERS:
Shell Canada [TSX:SHC] announced it expects to pay upwards of C$17 billion over the next five years in capital spending, primarily to support major expansions at its Athabasca oil sands project. Canadian Natural Resources [TSX:CNQ; NYSE:CNQ] said it plans to spend a further C$20 billion to double the size of its Horizon project already under construction. And EnCana Corp. [TSX:ECA; NYSE:ECA] announced it intends to spend C$5 billion within the next decade to increase its oil sands production

MORE AND MORE EXPENSIVE LAND
====

Oilsands Parcels Propel Alberta Land Sale To $395.77 Million


A $40.98-million bid was among several high-priced bonus payments for oilsands leases in the Athabasca region that contributed to pulling in almost $396 million for Alberta at Wednesday’s land sale.

In all, the oilsands brought in $358.54 million from the auction of 224 768 hectares at an average of $1,595 per hectare.

Conventional leases provided $28.56 million on 136 768 hectares at an average of $381 per hectare, while licences drew 9.84 million for 21 504 hectares at a per-hectare average of just under $3.99.

So far this year Alberta has collected about $2.94 billion for 3.37 million hectares at an average of just under $873 per hectare compared to $1.16 billion for 2.08 million hectares at an average of $558 per hectare in 2005.

Sure Northern Energy Ltd. , a subsidiary of Shell Exploration & Production Company, paid the top bonus for the oilsands parcel covering 5 120 hectares or much of the land at 89-24 W4M in the Wabasca region. The company paid about $8,004 per hectare for the parcel.

Sure also bid $28.69 million for 4 096 hectares that included large portions of 90-24 W4M.

[Figure 1]

Canadian Coastal Resources Ltd. put up the top per-hectare bid of $17,823 for 2 048 hectares covering sections six and seven at 101-11 and two to five and eight to 11 at 101-14 W4M. The broker’s overall payment of $36.5 million was second only to the Sure Energy bid. Canadian Coastal also paid $25.5 million or $12,452 per hectare for 2 048 hectares covering sections 28 and 29 as well as 32 and 33 in 100-11 W4M and all of sections four and five as well as eight and nine at 101-11 W4M.

Scott Land & Lease Ltd. was also a high bidder in putting up $27.28 million or $10,657 per hectare for 2 560 hectares covering all of sections three to 10 at 101-9 W4M and all of sections one and 12 at 101-10 W4M.

Petroland Services (1986) Ltd. was the top bidder for a conventional lease in putting up $2.18 million or about $8,526 per hectare for 31-35-10 W5M in southwestern Alberta.

Scott Land & Lease paid the top amount for a conventional licence in putting up just under $2,798 per hectare for all of section 29 in 73-10 W6M and all of section 36 at 73-11 W6M in the Foothills region.

THESE COMMENTS on SU & IMO gives some notion of Oil Sands valuations
============

Summary and Recommendation
After reporting results for the second quarter of 2006 on August 3, buy-recommended Imperial
Oil (IMO) is priced near estimated net present value (NPV) of US$37 a share presuming a longterm
oil price of $60 a barrel. We raised our estimate of NPV from $30 a share when we revised
our oil price from $50 a barrel on June 6. The recent acquisition of Blackrock Ventures for more
than US$2 billion by the Royal Dutch Shell (RDS-A) affiliate, Shell Canada (SHC.TO), put
higher values on undeveloped underground, or in situ, oil sands. A pioneer and largest in situ
producer, Imperial has 39% of present value in oil operations, mostly its Cold Lake oil sands
resource. In addition, the company’s 25% ownership of Syncrude, Canada’s largest producer of
mineable oil sands last month, accounts for 32% of our estimate of present value. Meanwhile oil
is priced not at $60 a barrel as in our present value estimate, but at $75 for the next six years in
the futures market. In the publicly traded shares of Imperial, investors own a slice of 69% owner
ExxonMobil (XOM)’s highest potential and politically safest energy resources.
Kurt H. Wulff, CFA

2/
2/ IMO -
Summary and Recommendation
After reporting results for the second quarter of 2006 on August 3, buy-recommended Imperial Oil (IMO) is priced near estimated net present value (NPV) of US$37 a share presuming a longterm oil price of $60 a barrel. We raised our estimate of NPV from $30 a share when we revised our oil price from $50 a barrel on June 6.

The recent acquisition of Blackrock Ventures for more than US$2 billion by the Royal Dutch Shell (RDS-A) affiliate, Shell Canada (SHC.TO), put higher values on undeveloped underground, or in situ, oil sands. A pioneer and largest in situ
producer, Imperial has 39% of present value in oil operations, mostly its Cold Lake oil sands resource. In addition, the company’s 25% ownership of Syncrude, Canada’s largest producer of mineable oil sands last month, accounts for 32% of our estimate of present value. Meanwhile oil is priced not at $60 a barrel as in our present value estimate, but at $75 for the next six years in the futures market. In the publicly traded shares of Imperial, investors own a slice of 69% owner ExxonMobil (XOM)’s highest potential and politically safest energy resources.
Kurt H. Wulff, CFA

FORT MCMURRAY- and the oil sands boom

+ 173 billion bbls of oil in the bitumen around ft. McM
+ c$80 billion of planned spending
+ Population growing at 8% per annum, by 2010, should be 50% higher
+ housing prices have doubled since the beginning of the decade
+ in the past 18 months, rentals are up 70 - 100%

Yes yes but there is the same problem here as with all new oil now - the scale of financial and resource investment required to drive production. In the 1930s, to get 4mb/d out of Texas all you had to do was drill some wells and up it poured.

To get that 4mb/d out of tar sands you need large amounts of clean water and natural gas, and you need armadas of mechanical excavators and 400 tonne dump trucks. What you get is poor grade crude. Matt Simmons has called this "turning gold into lead". It is not a small operation. It is not just about the financial cost, without nat gas you can't run the process. Nat gas production is not increasing in NAm. You could use nuclear power to heat the oil out of the sand to process it. But then you have to build a nuclear plant.

Yes it can be done. No it is not easy. It will serve Canada well, if they aren't invaded by Uncle Sam, but it will not spare the world the discipline of having to adapt to higher road fuel costs.

Put a nuclear plant next to the tar sands- for heating it up-

and you're in business.

At a high enough oil price, it will make plenty of money

Oil From Sand

A region of Canada in Northern Alberta contains oil reserves to rival Saudi Arabia! But these are not underground reservoirs of sweet, light, crude oil that just need to be pumped out. These are the Athabasca oil sands – an unpleasant mixture of sand, water, oil and sulphurous tar. They cover more than a thousand square miles of remote terrain and are difficult, expensive and environmentally damaging to extract and process.

With the rise in oil prices, extracting oil from the tar sands has become big business. Oil companies have invested billions and expect production to rise to 5 million barrels of heavy crude a day over the next couple of decades, making Canada a major oil exporter.

To talk him through some of the slick ways to get thick oil out of the sand Quentin is joined by Dr Joe Wood, Lecturer in Chemical Engineering at Birmingham University – who is working on CAPRI, a method for refining the oil while it’s still in the ground - and by Professor Malcolm Greaves of the Improved Oil Recovery Research Group at Bath University, who has developed something called THAI - Toe to Heel Air Injection.

http://www.bbc.co.uk/radio4/science/thematerialworld.shtml

http://www.bbc.co.uk/iplayer/console/b00cyl89

There far more hydrocarbons in the oil sands than the whole Middle East put together. The problem is how to get them out. Existing techniques i.e. surface mining and SAGD can only address around 10%. This is where advanced in-situ methods like THAI come in. If it works, and it's not quite proven yet, it should allow around 70% of the bitumen to be got at. That's quite a step up.

THAI is also far less carbon and water intensive than the existing technologies, and has a minimal surface footprint.

If you want to take a punt on this the company is Petrobank (TSE:PBG), which has exclusive rights. This is a great company IMHO, it's not a one-trick pony and already has superb profits from conventional oil in the Bakken formation in Saskatchewan plus many other irons in the fire.

http://www.petrobank.com

Re the THAI process, this appears to me to be what amounts to a "fire flood", which is a form of tertiary oil recovery in a conventinal oil field. Based on what I remember from 40+ years ago beginning work as a summer engineering intern in Humble Oil's (now Exxon) production division, a reservoir is produced via first a well, then a water flood, then a steam flood, then if it appears worth while a fire flood. The terms are more or less self-explanatory.

However, when it is all said and done, even after a fire flood net production is still only about 50% of the original oil in the field. This can certainly vary substantially, but comes about from several factors, including oil clinging within the interstices between rock or sand particles, natural barriers in the formation, bypassing and advancing of hot vapors and air around sections of the reservoir because of less resistance, and so on. Once a section opens up, bypassing another section, the vapors will follow the path of least resistance - it is a self-destroying mechanism. You cannot plug or slow down the "fast flow" sections, they eat your lunch and leave behind an unrecoverable partially burnt poorly produced mess.

With oil shale, there were insitu tests that yielded only maybe 10% of the oil (that is the oil from kerogen that would have been converted). I don't think one in four of the test blocks did very well. Further, with insitu pump and treat methods for oil spill remediation, there is a lot left behind un-extracted. Note that the steam flood (or "stimulation") tests by Imperial Oil (Cold Lake), Shell Canada (Peace River) and Canadian Natural Resources (Primrose) in western Canada in the 1980's and '90's yielded only about 20-25% of the oil.

Now I'm not saying all of these are similar sorts of deposits, and usually oil sands fields appear to be more porous than the others. However, the point is that gases and liquids underground won't do what you want them to do just because that's what you want them to do. The other problem with oil sands is when they are shallow, and the "cap" is thin and perhaps porous, so one is either drawing air in (cooling and condensing the vapors) or the vapors are escaping (hot vapors rise is paths are available) before they reach the extraction well.

And, finally, there is the problem of what happens to the oil between extraction sections. If you don't leave some sort of seal, then the vapors and liquids will leak into these regions and probably become "stuck" with maximum perverseness.

So while THAI may sound neat and clever, there is nothing I see in the history of in-situ methods that provides much hope of high recoveries. Open pit mining will get it all, so you balance that cost and return with depth of overburden vs. THAI's results. The pictures and diagrams make it look like a real comer. However, if you can't make money with 50% recovery, I'd give up on it. And I doubt they could hit 50% in their field tests three times running. Yeah, I know, the SAGD (steam assisted gravity drainage) tests have yielded up to 60% of the bitumen. But I'd like to see the long term results. And 60% is still not 70%.

Something else to sober up all you optimists. Back in the late 1970's, Rand Corp did a large study of performance of first of a kind plants. Some were working with liquids, some with solids, some with other systems. Of those on solids (15 of 40 total projects), the average performance was less than 50%. Only two projects had as high as 85%. Costs on all these usually maybe doubled.

Processes working on solids just have too much to go wrong that without a thorough understanding of all the variables, you're simply tossing the dice. I've known solids-based processes to consistently do much better than the Rand study examples, but this was because the designers were really good and had thoroughly thought though the problems and worked out solutions.

Problems in above ground systems are one thing, problems in below ground systems are "an itch you can't scratch".

Augurelli