UTS Energy Resurrects $3 Billion Canadian Oil Sands Mine and Upgrader

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). These days in Alberta you can't take a step without hearing about another oil sands development project, and UTS Energy Corporation (TSX:UTS) (Calgary, Alberta) has brought a big one back to life. In June of 2004, UTS Energy put together a $100 million CND offering of common stock units with matched warrants to purchase the remaining 78% of TrueNorth Energy LP that it did not already own. The transaction was completed in July of 2004. TrueNorth itself was not the prize; the prize was the project TrueNorth owned, the Fort Hills oil sands project.

In more recent news, and further increasing the feasibility of the project, Petro-Canada Incorporated (NYSE:PCZ) (Calgary, Alberta) has inked a deal and has committed itself to a 60% stake and operatorship in the project by contributing CN$300 million to the UTS Energy cause. Furthermore, UTS Energy and Petro-Canada have agreed to jointly fund the first CN1$ billion of the project and have agreed to reduce ownership in ratio if a third party mining company is brought into the project. Since signing the agreement, Petro-Canada has decided to put the project on a fast track to development.

The Fort Hills oil sands project is a proposed multi-phase oil sands development of gargantuan proportions. Accept for the proposed upgrader, the project has government approvals and can be developed into a 190,000-barrel-per-day (BBL/d) mining operation with a 40-year plus project lifespan. The project could reach 230,000 BBL/d through amended permitting. The resource itself is estimated to equal 4.8 billion barrels of heavy crude in place, of which the mine will be based on an economically recoverable resource of 2.8 billion barrels.

UTS Energy and Petro-Canada are studying an array of options to develop the property. The base case of development is seen as either a 50,000 BBL/d mine selling diluted bitumen on the market by 2009, or a 100,000 BBL/d mine and upgrader facility that could sell 37 Api weight synthetic crude on the open market by mid 2010 or 2011. In early 2005, UTS Energy awarded a preliminary engineering contract. UTS Energy awarded Fluor Canada (Calgary, Alberta) the early scoping phase contract for the planned upgrader option. Some of the upgrader scenarios being studied include a 47,500 BBL/d, 95,000 BBL/d, and a 190,000 BBL/d facility at the mine site and based on delayed coking technology. Another option is to construct an upgrader based on a hydrogen addition process in Fort Saskatchewan, or a mine site upgrader based on the Suncor model and possibly adapting the process of gasifying the asphaltens to act as a buffer to volatile natural gas prices. The Suncor model would sport delayed coking technology and have four coke drums with a capacity of 105,000 BBL/d, and debottlenecking would be achieved by the addition of a 150,000 BBL/d vacuum tower at a later time.

The majority of the upgrader studies include a cogen unit rated at 300 megawatts of power or better. The cogen would be based on two units each, comprised of a turbine generator set with an HRSG and steam turbine in a combined-cycle configuration. UTS Energy and Petro-Canada hope to select the engineering and construction companies and begin site work in 2007. Completion of the first phase of the Fort Hills project is expected in 2009 for the mine and 2010 or 2011 for the upgrader, depending on its permitting hurdles. Whichever way you cut it, this will be one huge oil sands project, whenever it is completed and whatever form it takes.

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