Penwell July14-09 Oil Sands Workshop-FINAL-Adobe

An Introduction to Oil Sands and Heavy Oil
Industry, Technology & Economics

Presented by: Len Flint, Ph.D, P.Eng.
(403) 238-0484 / lenef@telus.net
The Oil Sands and Heavy Oil Technology Conference & Exhibition
July 14-16, 2009
Calgary, Alberta, Canada.
Owned and Produced by
Introductory Remarks
on Agenda
& Terminology
LENEF Consulting (1994) Limited
The material presented in this workshop covers

the technology, economics and environmental
challenges to oil sands development
Over the last year, two very important developments
have occurred:
1) Crude prices are a pale shadow of their levels
this time last year
2) The environmental and sometimes political lobby,
especially in the US, has placed additional issues
before the industrywe are labelled Dirty Oil
To the extent possible, some of our discussion will
address the implications and the reality
The Changing Challenges

2006 to PRE -2008 CRASH
- capital costs in Alberta
- impact of the new Royalties in 2009
- environmental challenges getting air time
POST CRASH
-
Oil prices less certain

New President / Carbon management
dirty oil label begins to stick
Land reclamation & water use priority issues
Section
Introduction
Section Topics
What we will cover
Terminology HC -101
What is Bitumen ?
Location of Main Deposits

Quality v. Conventional crudes
History of Development Landmarks
Production Projections
Markets
Bitumen Recovery
Mining
Extraction & Froth Treatment
Tailings Management
Water use
Costs
Alternatives
min
10
15
40
In Situ Recovery
Thermal Methods and Costs
Reasons and Alternatives to SAGD
New Technologies
4
Why Upgrade ?
Field Upgrading: moving to markets

Full Synthetic Products
Upgrading
Coker-based Upgraders/Crude Quality

Hydro-Conversion Alternatives
Natural Gas use and impact
New Approaches to Upgrading / Quality
Hydrogen Management
Upgrader By-Products
Break
20
40
30
min
Section
Section Topics
Oil Sands Industry

Economics
Light Heavy Oil Differentials

Recovery & Upgrading
Cash Flows/Investment Returns
Impact of New Royalty Proposals
Government & Industry: Who gets what ?
30
Where to Upgrade
Recent Plans in Alberta / Shifting Sands ?

Canada v. U.S. Refineries
Current Plans both sides of the border
15
Environmental
Challenges
Greenhouse Gas Intensity

Water Use & Management
Land Management
30
elephant in the room

Lunch
9
Summary
10
Q&A
30
Overview of Key Points
15
30
Hydrocarbons 101 Basic Terminology

Downstream Refining
Naphtha Gasoline boiling range
(not covered in this workshop)
Light Products
Distillates Jet/Diesel boiling range

Gasoline
Jet Fuel
Diesel
Heavy Gas Oil

Needs to be cracked/converted
to naphtha/distillates
Residue
needs to be cracked/converted
- to naphtha/distillates
- orasphalt
- orblended to Very Heavy Fuel Oil
Major Crude Properties: oAPI Gravity
~ 40 for light crudes
~ 20-38 for Conv.Hvy.
~ 8-12 for Bitumens
Heavy Products
%wS
< 0.5
2 to 3 %
4 to 5 %
What Is Bitumen ?
Location of the main deposits
Quality (fractions) v. Conventional Crudes
History of Development Landmarks
Production Projections
Markets
What is Oil Sand?
What is Bitumen ?
8
Oil sand deposits in Alberta

~ 2% of reserves mineable
Albian
Bitumen
1,600 billion bbl
in place
Saudi
270
AB-Can
Recoverable
175
4 billion
produced
to date
9
Comparative Boiling Ranges

100%
80%
60%
Naphtha
40%
Distillate
20%
Gasoil
Residue
0%
n
vy
e
a
m
e
u
H
t
Bi
ab
r
A
y
a
M
10
Oil Sands Historical Production

all products
Million barrel per day
5
actual
planned
2030
2
1
1960
1980
2000
2020
2040
11
Hows that Vision coming along ?

unfactored announcements
all Bitumen recovery
4
Peace River In Situ
million
barrels
per day
2
1
Athabasca Mining
2000
2010
2020
2030
12
The Oil Sands Bitumen Value Chain
PRODUCTION
OR
RECOVERY
UPGRADE
TO
SYNTHETICS
REFINING
MARKETS
DILBIT/SYNBIT/Variants
DILUENT
may still need some
PARTIAL
FIELD
UPGRADE ?
in situ or above ground
13
Upgraded vs. Dilute Bitumen

unfactored announcements
5
4
million
barrels
per day
but will partial

upgrading be
part of this ?
will more
move to US ?
(see later)
2
1
Alberta Upgraders
2000
2010
2020
2030
14
Source: CAPP-2008
15
Current and Future markets
Pacific rim
Fort McMurray
Edmonton
PADD V
PADD IV
PADD II
existing
pipelines
PADD I
PADD III
Courtesy Enbridge
new markets
Canadian
supplied today
Mexico
16
Bitumen is too heavy and viscous to transport in long

distance, common carrier pipelines without dilution
Dilution agent
Potential Issues
C5+ Gas Condensate (naphtha)

Dil-bits
Refinery capacity for light naphtha

Back shipping costs
Periodic shortagesbut can now
import off west coast
Light synthetic crude (SCO)

mixtures of SCO/Condensate
Syn-bits or Syn-dil-bits
Refinery capacity for

sometimes quality
challenged SCO
Sell at discount
IF ISSUES A PERSISTENT PROBLEM
will some form of water-based emulsion be used long term?

17
Does railing bitumen make sense?

In the last year there has been a move by CN
and the Altex pipeline project (Edmonton to the USGC)
to suggest a pipeline on rails as an economical
intermediate step during buildup of bitumen shipments
to that location, towards an eventual pipeline.
Presentation to CHOA, April 30, 2009
might it also work as an interim step for the AB to

West Coast pipeline (Gateway) ?
18
Bitumen Recovery
Mining
Thermal in situ
and each may see new developments
19
Mining Based Recovery

(less than 50-100 m overburden)
Warm Water Extraction to Froth
Froth Treatment
Tailings Management
Tracking Water Use
Recovery Costs
20
MINING
EXTRACTION
tree clearing
bitumen
froth to
treatment
truck & shovel
overburden
slurry
crusher & cyclofeeder
tailings
MFT & CT
containment
sand
storage
TAILINGS MANAGEMENT
tailings oil
recovery
tailings settling
basin
water recycling
Courtesy Syncrude
21
EXTRACTION:
EXTRACTION
tree
clearing produces froth
- Primary
MINING
- Froth Treatment
bitumen
froth to
treatment
truck & shovel
overburden
slurry
crusher & cyclofeeder
tailings
MFT & CT
containment
sand
storage
TAILINGS MANAGEMENT
tailings oil
recovery
tailings settling
basin
water recycling
Courtesy Syncrude
22
Naphtha
Inclined Plate
Settler
99-98% Bitumen Recovery
Scroll
Centrifuge
60% B
30% W
10% S
Froth Tank
Second
Stage
Feed Drum
Cuno Filter
to added
centrifuging
(plant 67)
and Diluent
Recovery
Unit (DRU)
Disc
Centrifuge
Naphtha
Recovery
Unit (NRU)
Tailings
FROTH TREATMENT (Syncrude & Suncor)

23
PRIMARY TREATMENT (Shell et al)

Extraction and Tailings
Primary
Conditioned Separation
Cell
Slurry
Deaerator
PSC Froth
Middlings
Primary Flotation
Steam
Froth Screen
Froth Feed
Tanks
Froth
Primary Flotation
Tailings
Screen
Bitumen to
Froth
Treatment
Secondary
Flotation
Thickener
Cyclones
Overflow
Sec Flot
Tailings
Warm
Water
Tank
Froth
Underflow
Tailings
Pond
Recycle
Water Pond
Courtesy: Shell Canada Limited
24
Comparing Froth Treatment Methods

Naphthenic
solvent
Syncrude/Suncor
Gravity sepn.
solvent recovery
Similar
Froth
Shell
Gravity sepn.
solvent recovery
Paraffinic
solvent
~98% bitumen recovery

from froth
but 1-2 %solids/water
~90% lighter bitumen

recovery
but solids/water free
+ heavy asphaltenes
(like coffee grounds)
24a
Bitumen Losses
as % of Bitumen on Mined Sand
Froth Treatment
2%
Primary Extraction
Mining 2-3%
8-10%
Source: Syncrude
& others
25
TAILINGS MANAGEMENT
MFT &
gypsum
cycloned total
tailings
CT storage
water recycling
from
plant
beached
total tailings
tailings sand
storage
beach runoff
beached
total tailings
tailings settling
basin (water
MFT & inventory)
water recycling
MFT to make CT
Courtesy Syncrude
26
TRACKING WATER, SOLIDS & BITUMEN IN MINING-BASED WARM WATER EXTRACTION
all figures
are VOLUME
all figures
in m3 based
Key:
make up water
ex. Upgrader
recycle water
7.1
sand storage &

tailings pond
tailings streams
combined
water
9.4
feed ore
4.7
0.5
sand
& clay
~5
bitumen
1.1
froth
Froth
Treatment
4.9
0.8
water & bitumen trapped

in sand matrix
0.1
1.0
1) all figures approximate & will vary

with ore quality and other factors
2) solid volumes include interstices
3) overburden / bitumen losses / mine
rejects & diluent not included
0.63
7.1
bitumen product
tailings pond
water
Hydrotransport
& PSV
sand storage
1.4
2.6
Solids
Water
consolidated
sand, trapped
fines & trapped
interstitial
water
recycle
water from
sand runoff
recycle
water from
pond settling
1.7
0.3
solids
in MFT
water trapped
in pond
water in MFT
30+% w solids
(water /solid traces not incl.)
27
Operating Costs
Estimated $ Cdn (2007) / WTI= $90
total $ 18.50
Tailings 2.50
Froth
Treatment 2.00
Primary Extrn
7.00
Source: LENEF/Various
Overburden 2.00
Mining & 5.00
Hydrotransport
energy portion
approx. $ 5.00
@ $ 8 / GJ
Note: initial capital cost recovery NOT included

28
Alternatives to Mining and/or

Water Based Extraction
Old
- Taciuk kiln (1970s)
- Solvent extraction (Shell1960s)
New
- At Face Mining (Suncor patents)
- Tar Sands Combine (TSC) (Google it! )
- Kruyer Oleophilic Sieve (US Pat.4730311)
29
In Situ Recovery
Why?: too much overburden for mining
- Thermal Methods (with Natural Gas) & Costs

- Reasons for Alternatives to SAGD
- New Technologies
30
Cyclic Steam Stimulation
31
Steam Assisted Gravity Drainage
SAGD Facility
EAST
Oil Producer
Steam Injector
Steam Chamber
Slots
Oil Sand Formation
Steam Flow
Oil Flow
Q:\Facility\SAGD\Sag-0022.cdr
32
Bitumen Cleanup
diluent
produced gas
produced
fluids
Dilbit
product
produced
water
sand to
disposal
tanks,pumps
etc. not shown
steam to
SAGD
chemicals
STEAM
BOILERS
natural
gas
WATER
TREATMENT
make up
water
brine to
disposal well
33
Operating Costs
estimated $ Cdn (2007) / WTI=$90
total $ 16.00
miscellaneous
0.90
oil separation
3.50
Capital
water treatment
drilling
1.00
0.60
reservoir
stimulation 10.00
3.00
Source: LENEF/various
energy portion
approx. $ 11
Note: initial capital cost recovery NOT included

34
The Oil Sands Bitumen Value Chain
PRODUCTION
OR
RECOVERY
UPGRADE
TO
SYNTHETICS
REFINING
MARKETS
2 major cost elements
DILBIT or SYNBIT
- Recovery Energy
- Diluent for Transport
DILUENT
PARTIAL
FIELD
UPGRADE
other recovery cost

recovery
energy
10
net loss on diluent
5
35
diluent for
transport @ $90 WTI
35
Reduced Energy or Alternative Energy

Below Ground
Solvent Assisted
In situ combustion/gasification
(old & new!)
Above Ground
Reduced bitumen residues
(raw or emulsified)
along with
NG replacement, all
involve, or
potentially involve,
an element of
partial upgrading
and
reduced diluent
Direct Partial Upgrading

(see next session)
Not included here: in-situ electrical heating very new development !
36
Below Ground
reminder
SAGD Facility
EAST
Oil Producer
Steam Injector
Steam Chamber
Slots
Oil Sand Formation
Steam Flow
Oil Flow
Q:\Facility\SAGD\Sag-0022.cdr
Below Ground
(Alternative Recovery Options)
Solvent Assisted
-
solvent co-injected with reduced steam

solvent alone (no steam addition) - VAPEX
solvent assists the mobilization of the bitumen
solvent potentially enhances heat transfer to bitumen
- all still at pilot stage

- recovery of solvent and obvious economic issue
- no breakthroughs reported
37
Below Ground
(partial Combustion/Gasification)
produced
fluids
air
Old
- advancing firefront mobilizes bitumen

- premature air breakthrough an issue
~ 500 m
produced
fluids
air
- lower path length to producer

- initial pilot results promising
New
Hz well
38
THAITM PROCESS
Hot gases heat oil
in front of
combustion zone
Air injected in
near vertical
combustion
front
mobilized oil and hot

gases co-produced
COLD HEAVY OIL

FRONTAL ADVANCE
OF MOBILE OIL
TOE
Horizontal well is low

pressure region
Courtesy Petrobank
HEEL
Coke is deposited on the sand

and is fuel for the process
39
Operating Costs
estimated $ Cdn (2007) / WTI=$90
total $ 16.00
miscellaneous
water treatment
drilling
0.90
oil separation
3.50
Capital
1.00
0.60
reservoir
stimulation 10.00
3.00
Source: LENEF/various
energy portion
approx. $ 11
THAI would
eliminate ~ 80-90% of
the direct energy cost
40
Above Ground
Reduced bitumen residues *

(raw or emulsified)
Direct Partial Upgrading
(see next session)
note that other alternatives to natural gas have been proposed

such as nuclear and coal. These are straight fuel substitutions
with no potential beneficial impact on produced bitumen quality
41
Reduced Bitumen Residues

for recovery energy
less diluent
Atmospheric/Vacuum
distillation and/or
Solvent Deasphalting
Bitumen
lighter
product
Residue
direct combustion
emulsion combustion
could be gasification?
Issues:
- cost vs. benefits
- flue gas desulphurization
- increased CO2 emissions
42
Bitumen & Heavy Oil Upgrading

Why Upgrade?
too much bitumen
not enough refinery conversion capacity
Field Upgrading: moving bitumen to markets

Full Synthetic Products
43
Field Upgrading: moving to markets

Objectives:
lower viscosity
less/no diluent for long distance transport
residue reduction/destruction (partial upgrade)
energy by product for SAGD recovery
economic at smaller scale (15 to 30,000 b/day)
Other Features:
- Go beyond simple physical processes distillation & deasphalting
- Include thermally bases residue reduction
Two recent offerings targetting this market
Ivanhoe HTP
ETX Systems
44
Ivanhoe Energy Heavy-To-Light (HTL) Process
45
ETX Systems Coking Process
46
As we are beginning to see

UPGRADING IS A CONTINUUM
the objective is to get bitumen to markets and

eventually to finished transportation fuels
it can occur underground (solvent assisted SAGD, THAI)
it can occur above ground at the production site
more extensive upgrading at central upgraders
it can be achieved in specially equipped refineries
47
The Target for Full Upgrading

reminder of how far we have to go
Conventional
Light / Heavy
crude blend
% volume
o API
32-35
Typical
Sweet SCO
bitumen
100
some ideal
properties
80
60
40
20
naphtha
Jet Fuel
smoke point
> 21
24
Diesel
Cetane
> 45
50
Gas Oil to
conversion
units
UOPk> 11.75
11. 9
30-35
mix
15
~ 11.3
35
residue
11. 3
residue
questions
lowsome
volume
hydrocarbon
lowonquality
poor quality
high
volume
distillates
low quality limit
many refiners
to 10% or less
of crude diet
high volume
high
volume
high
metals
of low
quality
high
coke
feedstock for
precursors
cat cracking
refineries
0
48
Full Upgrading
Original Coker Based Upgraders
Ebullated Bed upgrading
Natural Gas use and impact
New Approaches to Upgrading
Changing View of SCO Targets
Hydrogen Management
Upgrader By-Products
49
PRIMARY UPGRADE
original
SECONDARY UPGRADE
gas treatment
hydroprocessing
units
coker
bitumen
synthetic
crude oil
bitumen
coke
ebullated bed
hydroprocess
hydrogen
natural gas
residue
users: Syncrude, Suncor, CNRL
50
Light gases
& LPGs
Unstabilized
Naphtha
fractionator
250-300 kPa
Gas oil
stripper
950oF
steam
coke
steam
FR Coker
Gas oil
coke
feed
Delayed Coking
(several licensors)
51
reactor products
to fractionator
flue gas to CO boiler
and cleanup
scrubber
steam
reactor
feed
burner
coke
steam
air
Exxon-Mobil Fluid Coking

52
Courtesy UOP - Unionfining
Hydrotreater
53
Hydrogen production a natural gas addict !

fuel gas
Pressure
Swing
Absorber
unit
HT
Shift
SMR
CO2
CO
hydrogen
steam
steam
generation
trace
sulphur
removal
Steam
Methane
Reforming
(SMR)
natural
gas
54
Typical Offering from Coker-HT Upgraders!

(without further processing)
Conventional
Light / Heavy
crude blend
% volume
32-35o API
Sweet SCO
100
some ideal
properties
80
60
40
20
some questions
on hydrocarbon
mix
naphtha
Jet Fuel
smoke point
> 21
24
Diesel
Cetane
> 45
50
Gas Oil to
conversion
units
UOPk> 11.75
11. 9
15
35
11. 3
residue
poor quality
distillates limit
many refiners
to 10% or less
of crude diet
high volume
of low quality
feedstock for
cat cracking
refineries
55
PRIMARY UPGRADE
SECONDARY UPGRADE
gas treatment
hydroprocessing
units
coker
bitumen
synthetic
crude oil
bitumen
coke
ebullated bed
hydroprocess
hydrogen
natural gas
residue
Second generation
users: (Syncrude), Shell, Husky

56
Ebullated Bed Process

gives somewhat better quality SCO than Coking/HT
Courtesy: Axens
Conversion limited by feedstock qualitybut working on it !

Main commercial offerings: Axens H-Oil (Husky Lloyd Upgrader)
Chevron-Texaco LC Fining
(Syncrude, Shell, Husky,North West Upgrading)
57
Slurry Hydroconversion
a new breed of hydroconversion
Similar to Ebullated bed, but replaces solid catalyst with fine

particles/emulsified liquid carried by process streams
Achieves higher conversion with stable residue
Licensor Offerings
H-CAT (Headwaters Inc.)

UOP SRC-Uniflex (sub-licensing NRCan Canmet Technology)
ESP (Enichem, Italy)
HRH (Mobis Energy Inc.)
Micro-Cat RC (Exxon-Mobil)
CASH (Chevron)
None yet commercialized as full units !
58
Drivers for Change in Central Upgraders
reduction/freedom from Natural Gas use

eliminate the coke by-product
higher synthetic crude quality
59
where does the oil sands industry use Natural

Gas in Production & Upgrading ?
Standard cubic feet NG / barrel

Bitumen Recovery & Upgrading
all figures are estimates, and will vary
Upgrading
Hydrogen
production
added 250
quality
synthetic
quality
today
400
80
Recovery
Mining 300
In Situ 1250
varies!
upgrader fuel
(no coke burning)
Source: OSTRM / various
60
Natural Gas Use .v. Supply (west)

Trillion cubic feet per year
8
7
6
5
4
3
2
1
0
2000
Source: NEB / OSTRM

CBM
MacKenzie
WCSB
Oil Sands demand

business as usual
2005
2010
2015
2020
2025
2030
61
Improving Synthetic Quality

C5 - naphthene content
Aromatics .v. CRU hydrogen make
Kero Smoke Point & Aromatics = WTI or better

Cetane = WTI or better
S & N handled by conventional HTs or better
gas oils with UOP/Watsonk = 11.8 or better
Asphalt qualityseasonal
DAO for FCCU feed
62
Energy & Hydrogen Self- Sufficiency Options

more severe processes
to provide zero
metals/asphaltenes
in tops products
coking
ebullated bed hydroconversion
slurry hydroconversion
SAGD
+ Upgrading
Upgrading
Metals &
Asphaltenes
physical separation alone
20
40
60
noncoking thermal
or deasphalting
combinations
80
% volume of
100 original bitumen

residue hydroconversion
(or maybe coking)
likely best option
residue needed for energy

and hydrogen is in this range
63
Hydrogen Production Economics

directional trend
Basis: 200 million scf/day - stand-alone facility
SMR
SDA Residue
Gasification
Coke
Gasification
NG
$8/mmbtu
$15-20/ barrel
SMR equivalent
$ 5-8 / tonne
SMR equivalent
3
2
feedstock
cost /
000 scf
$ US
capex
other
opex
not including upgrader capex / opex benefits

64
Serendipity supply concerns for natural gas will

help us in the long run
replace natural gas with heaviest residues
need for less severe primary conversion
now need higher secondary conversion

(e.g. hydrocracking)
higher quality now easier to accomplish !
65
energy self-sufficiency is already changing

the face of full upgrading
HYDROGEN
PLANT
Hydrogen
Natural Gas
COKING
OR
ORIGINAL
Bitumen
H +RESIDUE
CONVERSION
HYDROTREAT
Synthetic
Crude
OK quality
HYDROCRACK
Synthetic
Crude
Higher Quality
coke
Bitumen
NEWER
NG-FREE
APPROACHES
HYDROCONVERSION
SDA &/OR
MILD THERMAL
GASIFIER
Hydrogen
66
fuel
gas
Atmospheric
distillation
AGO
Hydrotreater
Vac
column
Frac
hot
HPS
VGO
product
or blend
streams
Hydrocracker
Bitumen
Primary
Upgading
Vac
VGOs
& lighter
VGO
bleed
to gasifier
to gasifier
only main oil flows shown
growing trend
67
an example of milder thermal conversion (non-coking)
Visbreaking
Light gases
& LPGs
Soaker
drum
Atmospheric
Distillation
Unstabilized
FR Naphtha
Vacuum
Flasher
steam
steam
Visbreaker
LGO
steam
Visbreaker
VGO
feed
steam
Visbreaker
Tar to fuel ,
Gasifer, or
DA Unit
68
Deasphalting
make up
solvent
DAO
separator
Solvent selection controls yield &

quality of DAO
Extractor
Feed
100
Pitch
stripper
DAO
stripper
l
su
u
ph
Pitch
40
Not all stripper &

Separator details shown
ic
ke
a
an
di
um
20
% of contaminant
60
DAO
CC
R
solvent
circulation
80
0
0
20
40
60
80
100
% deasphalted oil yield
69
1/
Courtesy: GE
70
Does integrated gasification/H2 make economic sense?

2 cases:
Coking + SMR to SCO

Thermal/DAU + Gasification to SCO (plus added hydrogen)
150 kb/day, $ 90 WTI / 25 year project /2% inflation/30% tax rate/10% DCF
cash flow
$ million/yr
Coking/SMR
Thermal/DAU +Hydrogen
5,000
Capex
@ 12% IRR
4,000
3,000
revenues
opcosts
2,000
1,000
380
0
Capex
IRR
NPV10
$ 7,000 mil.
15%
$ 3,100 mil
margin
555
margin
$ 7,800 mil.
16%
$ 4,200 mil
71
How are projects responding ?

Operators
Primary
Conversion
Secondary
Processing
Hydrogen
Existing
Suncor
Syncrude
Husky, Lloydminster
AOSP (Shell)
OPTI/Nexen
CNRL (S/U now)
Delayed Coking
Fluid Coking/Ebullated Bed H+
E-B H+ / Delayed Coking
E-B H+
Thermal Cracking/De-asph.
Delayed Coking
Hydrotreating
Hydrotreating
Hydrotreating
Hydrotreating
HYDROCRACKING
Hydrotreating
SMR
SMR
SMR
SMR + 3rd party
Resid gasification
SMR
De-asphalting/Pyrolysis
none
none
E-B H+
HYDROCRACKING
Resid gasification
New Projects (engineered, but not yet operating)

BA Energy
* North West
*
New Projects Planned (excl. expansions of existing plants)
*
*
*
Petro-Can/UTS
Total
Statoil
Delayed Coking
Hydrotreating
SMR
details not yet declared

details not yet declared
all full upgrader projects have signalled intent to consider gasification in later expansions
* Total / Fort Hills/NWU & BA all delayed pending better times/next stage of funding
72
Hydrogen management
fuel gases
54%
distribution
of added
hydrogen
to products
10
2 10
C5+ product
added
hydrogen
ammonia
propane
7
17
butane
to SCO
net
butane
hydrogen
sulphide
20%
80%
total hydrogen
in system
Hydrogen in bitumen feed
73
the convention-breaking upgrader !
Courtesy: BA Energy
74
By-Product & Waste Streams from Upgrading

Upgraders have a number of by-products and waste products
By-Products
1.
Petroleum Coke: by-product typically 15% w of original bitumen

higher thermal HV than coal
but higher sulphur (6-8% v.1-2 % for coal)
can be
considered
similar
streams
1.a. Asphaltenes
BA Energy & Shell expansion (maybe)
2.
produced as liquid, but typically shipped as

slate or pellets for offshore markets via West Coast
Sulphur:
(great netbacks todaybut will it last?)
3.
Carbon Dioxide
(see Environmental section)
75
1.
The Pet Coke Market Today and to 2015
metric-t/day
Fort McMurray
Suncor (some used for energy)
Syncrude **(some converted to energy)
CNRL
Present
8,200
8,200
_______
16,400
2012
2015
16,000
16,000
8,500
40,500
16,000
16,000
8,500
40,500
Alberta Industrial Heartland

PetroCanada (refinery)
BA Energy (solid asphaltenes)
Statoil (previously NAOSC)
PetroCanada/Fort Hills
Other expansions (coke/asphaltenes)
400
800 ?
800 ?
4,200 ?
3,200 ?
8,200 ?
?
_____
400
800
16,400
800
400
800
400
800
400
Saskatchewan
Husky Lloydminster
Newgrade/Coop Refinery
putting in perspective 40,000 tpd would produce 4,500 MW of power

about 35-40% of current Alberta production
76
2.
World Production:
Canadian Production:
Est. by 2030:
Canada Seaborne exports:
Sulphur Business
75 million tonnes per year

~ 8 to 9 million tonnes per year
~13 to 20 million tonnes per year (added Oil sands)
~ 6 to 7 million tonnes per year (#1!)
Big Challenge .fluctuating priceshistorically $30 to $60 /t FOB Van.

(currently above $ 600..but how long?)
- World supply/demand now back to short supply (thank you, India & China!)
- but Oil Sands will probably put it back into surplus within 5-10 years
is injection of Acid Gas into deep formations a solution ?

much smaller volumes than the CO2 problem !
77
Oil Sands Industry Economics

Heavy-Light Oil Differentials
Production & Upgrading
- Cash Flows and Investment Returns
Impact of New Royalty Proposals
Government & Industry: Who gets what ?
78
Current and Future markets
Pacific rim
Fort McMurray
Edmonton
PADD V
PADD IV
PADD II
existing
pipelines
PADD I
PADD III
Courtesy Enbridge
new markets
Canadian
supplied today
Mexico
79
WTI (Cushing, OK) vs. Lloyd Bitumen Blend (Hardisty, AB)

100
today
80
% WTI
60
40
2000
2001
2002
2003
2004
2005
2006
2007 2008
Source: Sproule
80
Bitumen has Two Kinds of Marketed Products

each with variants
Diluted Bitumen Blends (~19-22 oAPI)

- Dilbit
20-30% Condensate (seasonal adjust)
- SynBit
~ 50% Synthetic Crude
- SynDilBit
~25/15/60
(e.g. Western Canada Select)
lighter blending components needed for pipeline transport
Light Sweet Synthetic Crude

- Original Coker Based ~ 33-35 oAPI
- Newer targets
~ 38-40 oAPI
81
1.
This section introduces the term Capital Charge in some slides.

This is the income per barrel required to pay out investment with
a 12 % Internal Rate of Return.
So, Capital charge is a useful way to relate capital costs on

a per barrel basis for considering/comparing margins from a
recovery or upgrading project.
2.
All IRR calculations are based on 2 year construction period for

recovery projects and 4 years for upgrading, and a 25 year
operating life for all projects. Other economic factors are:
2% inflation, 10% discount rate, 30% tax rate, and 20% declining
balance Capital cost allowance.
Project capital (Capex) in Alberta at this time is declining from

relatively recent unsustainable levels. But this does vary a lot
depending on reserve quality or on upgrader scale.
82
Tracking Bitumen Value and Margins to Production Site

WTI = $ 90, Dilbit Blend* = 67.5% WTI @ Hardisty
All figures based on bitumen barrel
$ (US or Cdn)
Value of blend *
Less:
Shipping to Hardisty
Cost of Diluent
Value of Bitumen at Production site
Cost of Production (@ 30,000 b/day) (excl. capex)

Recovery Energy
Other opcosts (not incl. sustaining capex)
Pre-Royalty Margin at Production Site
84.40
( 1.50)
( 36.65)
46.35 (51.5% of WTI)
( 10.00)
( 6.00)
30.35
* Blend = 72% Bitumen / 28% Naphtha

Greenfield site
83
Royalty Changes 2009

Pre Payout *
Post Payout **
20
6
5
$/barrel
4
$/barrel
10
3
2
1
current
60
90
120
60
light crude, $ /barrel
120
light crude, $ /barrel
Example @ $ 90 Light Crude/WTI

Previous Royalty
pre-payout post-payout
Pre-Royalty Margin
30.35
30.35
Royalty
( 0.45)
( 7.10)
Post Royalty Margins
29.90
23.25
* typically 4-6 years / based on % of gross margin

** on typical 30 kb/day SAGD, based on % of net margin
90
New Royalty
pre-payout post-payout
30.35
30.35
( 2.40)
( 9.45)
27.95
20.90
84
Tracking Costs and Netbacks for SCO Production

WTI=$90, Nat. Gas = 50% of light crude energy equivalent ($7.50/GJ)
Upgrading to Light Sweet SCO *
all $/barrel of bitumen feed

Value of Products (95% vol. yield/105% WTI)
Less shipping to markets
Cost of feedstock (SAGD market value)
Operating costs
Operating Margin
89.75
( 1.00)
(46.45)
( 9.00)
33.30
The impact of Capital cost escalation:

Capital charge @ $12% IRR (2004/05)
Margin over 12% IRR
12.00
21.30
Capital charge @ $12% IRR (mid 2007)

Margin over 12% IRR
24.00
9.70
* new type of upgrader with integrated gasification / Greenfield

the capex
issue in a
nutshell
85
Unleveraged Economic Returns

IRR,% *
40
Based on Alberta Capital Costs (2007)
Greenfield Developments
30
20
12% IRR
10
0
* unleveraged
60
80
100
120
Light Crude, $ US/barrel
** SAGD @ 30,000 b/day ; Upgrading @ 150,000 b/day

86
The Great Debatewho gets what ?

$ / barrel bitumen
WTI= $90/35 year life/estimated royalties/taxes averaged/no inflation
capex recovery charge @ 8% included
New After-Royalty Margins

SAGD
10.40
8.00
After-Royalty & Various Taxes

from the Commercial Development
6.00
15.00
includes
royalty
SAGD
+ UG
27.50
Industry
8.00
15.70
24.60
Alberta Gov.only
Alberta/Federal Gov
87
Where to Upgrade
Recent Plans for Alberta
Whats Happening to Change the Picture ?
Canada v. U.S. Refineries
88
2004-06 Announced Upgrader Plans for Alberta

in period 2015-2020
Current or close to startup
Other projects proposed
status not very encouraging !
million barrels / day
3.5
Petro-Canada et al
Will likely proceed but delayed
3.0
Total / Synenco
Statoil (NAOSC)
Likely at some stage

Likely at some stage
2.5
NWU
First phase delayed pending partner

First phase delayed indefinitely
B A Energy
CNRL
Nexen-OPTI
2.0
Husky
First phase now operating

Some future exp. may move East/South
Marathon may move their share to U.S.
Expansion likely to move to U.S. refinery
Syncrude
Expansions will proceed
Suncor
Expansions will proceed but delayed
Shell et al
1.5
1.0
Expansions will likely proceed
0.5
0
2015-2020
Projections
89
Looking at it another way.

other pre-crash plans
fairly solid for Alberta
millions of barrel per day

5
risked
additional
potential
announced
intentions
by U.S. refiners
3
CAPP Projections
some may
never get built
upgraded in
Alberta
Bitumen
largely shipped
to US
but always remember

2nd and 3rd phases
are less costly
0
Current
Bitumen Prod.
Upgrading
2015-2020 projections
90
Environmental Challenges
the elephant in the room
Greenhouse Gas Intensity
Water Use & Management
Footprint & Land Reclamation
91
The Changing Challenges

2006 to PRE -2008 CRASH
- capital costs in Alberta
- impact of the new Royalties in 2009
- environmental challenges getting air time
POST CRASH
-
oil prices less certain

new President / carbon management
dirty oil label begins to stick
land reclamation & water use priority issues
the environmentfrom air time to prime time !

Greenhouse Gases
Oil Sands compared to other crude sources
kg CO2E per cubic meter crude

4000
production
3500
transport
refining
3000
by-product
combustion
2500
end use
0
2000
Canadian Mexico
Light
Heavy
SCO
Bitumen Venezuelan
Blend Upgraded
Source: T.J.McCann & Associates

92
Exploring the CO2 issue more closely

over next few overheads
a reminder on main energy inputs based on
equivalent natural gas
Standard cubic feet NG / barrel
Bitumen Recovery & Upgrading
all figures are estimates, and will vary
Upgrading
Hydrogen
production
added
quality 250
Recovery
Mining 300
synthetic
quality
today
400
80
In Situ 1250
varies!
now lets take a

look at the CO2
impact alternative
energy sources
upgrader fuel
(no coke burning)
Source: OSTRM / various
Upgrader fuel equivalent adjusted to 300 scf/barrel

to account for internally generated energy used in upgraders,
and which converts to more CO2
93
Alternative Fuel: Comparisons of CO2 Emissions

Natural Gas vs. Bitumen-Based Alternatives for Energy & Hydrogen
Basis: 1000 scf NG / Residue & Pet Coke comparisons to match Energy and Hydrogen
Energy
Hydrogen
(0.95 GJ HHV)
kg CO2
kg CO2
100
100
(2,400 scf)
5
5
50
50
98
104
20
79
80
53
33
0
NG
Bitumen
Residue
Note:
- Expected increase in CO2
Pet Coke
CO2 dilute
CO2 capture ready
NG
Bitumen
Residue
Pet Coke
Note:
- Expected increase in total CO2
- Res./Pet coke have lower dilute CO2
data sources: Jacobs/SFA Pacific/NETL / LF
94
Some Updated Comparisons of Carbon

Dioxide Emissions
kg CO2 / cubic meter transportation fuel
CO2 only. other CO2E not included
kg CO2
per m3
35 API
crude
blend
22 API
crude
low
6,000
Coker based refinery
Bitumen Recovery
Upgrading and Refining
high
Capture
ready CO2
5,000
Dilute CO2
?
4,000
3,000
2,000
Production
Refining
By-Products
Trans.Fuel
end use
Sources: T.J.McCann & Associates, LENEF Consulting, NETL, SAE/Argonne Lab
95
Comparison of Carbon Dioxide Emissions

but what if we change the basis to
equal energy outputs?
kg CO2
per m3
35 API
crude
blend
Bitumen Recovery
Upgrading and Refining
worst case
Dilute CO2
5,000
4,000
Capture
ready CO2
by-product
credits
3,000
2,000
by-product
credits
Capture-ready
impact
Production
Refining
By-Products
Trans.Fuel
End use
Sources: T.J.McCann & Associates, LENEF Consulting, NETL, SAE/Argonne Lab
96
Recent Numbers From AERI Study US Consultants

Relative, WTW % in US Refineries
% relative to
O/S Mining
150
new technology
potential
100
50
96A
now lets switch to a review of

the potential for Carbon Capture and Storage
Carbon Dioxide
Canada:
Alberta:
700 mega-t/year
220 mega-t/year
- Oil Sands (Alberta)

.
55 mega-t/year
Projected Production ~ 2020

000,000 barrels/day
Fort McMurray Area

(lower quality SCO will improve/SMR Hydrogen)
Edmonton- Alberta Ind. Heartland
4
3
(av.quality higher-more gasification / more H2)
Other Locations (Long Lake, Lloyd)
(av.quality higher-more gasification / more H2)
current
~2020
97
Estimated CO2 from Oil Sands in Alberta

basis: net energy & hydrogen from natural gas
add approximately 50-60% for complete NG substitution by residues
total
Mega-tonne/yr CO2
150
125
100
75
50
est. capture-ready
25
0
Current
~ 2020
98
Carbon Dioxide Use / Capture Potential

-
producers and potential EOR users are making plans

but EOR may not be a large sink
CBM industry has yet to develop opportunity
capacity, Mega-tonnes CO2

gas & oil
pools
Coal Bed
Methane
15,000
9,000
2,000
10,000
EOR
potential
value-added
opportunities
aquifers
storage @ 100 M-t/year = 360 years

Source: CERI / T.J.McCann & Associates
for Alberta Provincial Government, carbon capture

is the favoured solutionthe train has left the station !
99
low value sequestration capacity, Mega-tonne CO2

top 240 oil pools
2,580
10,000
6,440
top 350 gas pools
saline aquifers
cost to sequester
$ / tonne
150
Source: CERI-2003
100
50
50
100 M-t/year
Dated, but recent $ figures are about the same

100
What about Carbon Taxes?

- Many suggestionsFederal and Provincial
- Few details on the rules
- Lets look at Alberta & Federal proposals
- Based on emission intensity / Cap & Trade
Take the average Recovery/Upgrader Combination

Current (and assumed Baseline) emissions: 120 kg CO2 per barrel
Assume total failure to deliver
Need to purchase credits @ $20/tonne
120 kg/b
106 kg/b
98 kg/b
91 kg/b
ALBERTA: 2% redn. per year from base

Over 6 years
Cost in year one :
Cost in year six+:
6 years
$ 2 cents/barrel
$ 12 cents/barrel
FEDERAL: 6% redn. per year from base

over 3 years; 2% per year thereafter
Cost in year one:
Cost in year six:
$ 6 cents/barrel
$ 59 cents/barrel
Canada continues to move slowly;

little Federal/Provincial consensus as yet
102
unit di volume di acqua per unit di volume di bitume

SAGD
10
5
4
3
2
1
0
Fabbisogno totale
Fabbisogno ricircolato
Fabbisogno netto
Mining
Upgrading
Water Use Data

Recent Numbers From Study for U.S. DOE
Production through Refining (1.5 of total)

8
Net Water Use

4
per unit volume

of Crude
2
103A
Water Use & Management .continued
Investment Costs for Pre-Competitive Extraction R&D
$ million / year
14
12
10
8
Universities
Govt.Labs
Totals
6
4
2
0
Extr
Support
Extraction
Support
Technology Technology
NRCan report - 2005
Total
Total
. industry internal R&D not included !

104
Land Management . The Challenge

Satellite Photo Of Mining Plants (2003)
5 km
Albian Sands
Athabasca
River
settling basin
Syncrude
Suncor
Courtesy Syncrude & Alberta Chamber of Resources
105
Land Management . continued

Investment Costs for Pre-Competitive
Tailings and Land Reclamation R&D
$ million / year
16
14
12
10
Universities
Govt.Labs
Industry Totals
Totals
8
6
4
2
0
Tailings
Tailings
NRCan report - 2005
LR
Land
Reclamation
Total
Total
. industry internal R&D not included !

106
The largest threat to freedom, democracy, the

market economy and prosperity, is no longer socialism.
It is instead the arrogant, unscrupulous ideology
of environmentalism
Vaclav Klaus,
President of Czechoslovakia
You be the judge!
106
Summary of Key Points
The oil sands industry remains a high cost source of supply
Secure supply for N.A. is an important consideration, but will

current NA environmental negativity also hasten
market diversification ?
Capital cost concerns recognized eating up crude price increases
12% IRR projects in 2007- 08 required around $45-50 for bitumen

production and $ 80 for full upgrading (Greenfield) in Alberta
The drive to freedom from Natural Gas use will impact

both production and upgrading economics positively
The recent economic crash accelerated an already evident

decline / delay in appetite for Alberta investments
Upgrading in established U.S. refineries will at this time

be more cost-effective, especially for new entrants
107
Summary of Key Points (2)
Environmental issues and solutions will command more public

attention and scrutinybut the worlds current addiction to
hydrocarbon fuels, and the heavier barrel generally will modify
the impact realism confronts idealism !
GHG emissions will be taxed, but at this stage it is likely

to be at a cents/b rate; below Carbon Capture & Storage costs
Carbon Capture & Storage (CCS) will accelerate, and the costs
will in the long run be borne by the consumer
Water and mining-based land reclamation are the next (and present !)
environmental frontiers to challenge the industry in Alberta
Economics and regulations, as well as infrastructure limitations

may clip the Golden Gooses wings but not kill it!
108
Lunch & Questions ?
Added reading
Oil Sands
Technology Roadmap
Alberta Chamber of Resources
2004 (www.acr-alberta.com)
Added reading

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An Introduction to Oil Sands and Heavy Oil

Industry, Technology & Economics

Owned and Produced by

LENEF Consulting (1994) Limited

The material presented in this workshop covers

The Changing Challenges

Oil prices less certain

LENEF Consulting (1994) Limited

Location of Main Deposits

Field Upgrading: moving to markets

Coker-based Upgraders/Crude Quality

LENEF Consulting (1994) Limited

Oil Sands Industry

Light Heavy Oil Differentials

Recent Plans in Alberta / Shifting Sands ?

Greenhouse Gas Intensity

elephant in the room

LENEF Consulting (1994) Limited

Hydrocarbons 101 Basic Terminology

Naphtha Gasoline boiling range

(not covered in this workshop)

Distillates Jet/Diesel boiling range

Heavy Gas Oil

LENEF Consulting (1994) Limited

What is Oil Sand?

Oil sand deposits in Alberta

Comparative Boiling Ranges

Oil Sands Historical Production

LENEF Consulting (1994) Limited

Hows that Vision coming along ?

The Oil Sands Bitumen Value Chain

Upgraded vs. Dilute Bitumen

but will partial

Current and Future markets

Bitumen is too heavy and viscous to transport in long

C5+ Gas Condensate (naphtha)

Refinery capacity for light naphtha

Light synthetic crude (SCO)

Refinery capacity for

IF ISSUES A PERSISTENT PROBLEM

will some form of water-based emulsion be used long term?

Does railing bitumen make sense?

might it also work as an interim step for the AB to

LENEF Consulting (1994) Limited

LENEF Consulting (1994) Limited

Mining Based Recovery

LENEF Consulting (1994) Limited

truck & shovel

truck & shovel

99-98% Bitumen Recovery

FROTH TREATMENT (Syncrude & Suncor)

PRIMARY TREATMENT (Shell et al)

Courtesy: Shell Canada Limited

Comparing Froth Treatment Methods

~98% bitumen recovery

~90% lighter bitumen

LENEF Consulting (1994) Limited

TRACKING WATER, SOLIDS & BITUMEN IN MINING-BASED WARM WATER EXTRACTION

sand storage &

water & bitumen trapped

1) all figures approximate & will vary

LENEF Consulting (1994) Limited

(water /solid traces not incl.)