CALGARY — Devon Canada Corp. sees development of its Kirby joint-venture with BP PLC unfolding in a similar manner to its Jackfish oilsands project nearby, a vice-president said Monday.
Oklahoma-based Devon (NYSE:DVN) and Britain’s BP (NYSE:BP) announced a US$7-billion deal last week that entails, among other things, the two working together on the Kirby oilsands lease south of Fort McMurray, Alta. Devon would be the project’s operator.
The first 35,000-barrel-per-day of Devon’s Jackfish project is up and running, and construction on a second phase is nearly complete. Devon plans to file a regulatory application for a third phase later this year.
Each phase of Jackfish is virtually identical, save for a few improvements here and there, said Will Yakymyshyn, Devon’s vice-president of thermal heavy oil.
“At the end of the day you can get down to a way to control your costs by building the same thing over and over,” he said in an interview.
“We feel that our design is very robust. So we’re imagining that we’re going to use that same design in Kirby.”
Repeating the same project design phase-by-phase is a good way to ensure contractors, pipe fitters and other workers do not need to learn the plan from scratch every time.
The “current game plan” for Kirby is to develop it in 35,000-barrel-per-day phases. One reason is that the standard equipment the industry uses for these types of developments can readily fit that capacity.
Devon and BP still have a lot of work to do on appraising the land at Kirby, so the final design might differ from the current vision.
However, Jackfish and Kirby sit side by side and share a lot of the same geological characteristics.
“Not all geology is created equal. But we’re in a position within that south part of the Athabasca oilsands where we feel that the geology, that the quality of the rock, the bitumen quality is very, very good,” Yakymyshyn said.
“It’s very challenging to change the geology. You can change your surface facilities, but you’ve got to live with your geology. We’re quite confident that with the number of holes that have been drilled on Kirby, that the geology is very similar to Jackfish.”
Like Jackfish, Kirby would use the steam-assisted gravity drainage, or SAGD, method of extracting heavy oil from the clay and sand. SAGD operators inject steam into the oilsands reservoir by pipeline, softening the molasses-thick bitumen enough that it can flow freely to the surface through a second collector pipeline. The vast majority of the oilsands reserves are so deep underground that they can only be exploited using SAGD instead of open pit mining.
On a conference call with analysts last week, Devon’s executive vice-president of exploration and production outlined a “tentative” schedule for Kirby.
Devon could potentially file a regulatory application in late 2011 and start construction in late 2013. First steam would be around the middle of 2015, with peak production coming in 2016.
The deal between Devon and BP marks an extension of a trend the oilsands sector has been seeing for a few years now, said University of Calgary business professor Bob Schulz.
BP and Husky Energy Inc. (TSX:HSE) inked a deal in late 2007 that sees the two evenly split ownership of BP’s refineries in the United States and Husky’s oilsands leases. Each company would operate their own side of the venture.
Cenovus Energy Inc. (TSX:CVE), formerly part of EnCana Corp. (TSX:ECA), and ConocoPhillips (NYSE:COP) have a similar arrangement that involves the Christina Lake and Foster Creek oilsands assets and refineries in Illinois and Texas.
Under the BP-Devon deal, each company gets a bigger slice of assets that play to their respective strengths. Devon grows its foothold in the oilsands, while BP gets a bigger stake in offshore operations in the Gulf of Mexico, Brazil and elsewhere.
“I think what you’re going to see with larger companies is more and more combination deals to rationalize their assets on both sides,” said Schulz.
“You have offshore companies doing offshore things and you have oilsands companies doing oilsands things. The companies then have a portfolio of assets, but they’re not expected to run all of the assets.”