By Scott Haggett
CALGARY, Alberta, July 8 (Reuters) - Pilot projects in anas-yet undeveloped oilfield could remake Canada's energy map, ifproducers can successfully wrest a sludgy, tarry substancecalled bitumen from porous rock in remote northern Alberta.
The bitumen in the caverns and cracks of the dolomite andlimestone rock is a vast resource, estimated by Albertaregulators to hold close to 500 billion barrels of oil, or morethan the combined recoverable oil reserves of Saudi Arabia andVenezuela, the world's top two oil states.
The bitumen, an asphalt-like form of heavy oil, doesn'tcount in international tallies of Canadian energy reservesbecause nobody has yet succeeded in extracting it on a largescale, despite small-scale attempts in the 1980s. So Canadastill ranks third in the world by oil reserves.
The high price of oil and technology developed for thenearby oil sands may change that equation, and a few projectsare already testing whether the long-ignored deposits can bedeveloped profitably.
One effort is led by Glenn Schmidt, an energy executive whosold oil sands developer Deer Creek Energy Ltd to France's TotalSA for nearly C$1.7 billion ($1.62 billion) in 2005.
With partner Osum Oil Sands Corp, Schmidt's closely heldLaricina Energy Ltd is operating the first pilot project inthree decades in the West Athabascan Grosmont, about 100kilometers (60 miles) west of the oil-sands center of FortMcMurray, Alberta.
"Like all oil companies, you ask 'Where to next?'" Schmidtsaid in an interview. His answer was the carbonate fields,tested but abandoned by Unocal in the 1980s because of issues atthe well and a low oil price.
Though Laricina has made its pilot work, there's no tellingyet if other projects in the region can be developed at areasonable cost.
The area lacks infrastructure and the rock is as costly andas grubby to mine as the oil sands, the world's third-largestoil deposit, where the bitumen is trapped in sand.
The "technology development is uncertain," Robert Bedin, ananalyst with ITG Research, wrote in a research report earlierthis year about the Grosmont. Even the new application ofexisting technology, "is fraught with blind alleys andunanticipated setbacks," he wrote.
BILLIONS OF BARRELS
Experts have known for years about the oil in areas like theGrosmont, but the oil sands had better infrastructure andattracted development first.
The Grosmont bitumen has the consistency of peanut butter.Insiders call it dolofudge, after the dolomite rock that holdsit. The Grosmont is the largest of the fields, with an estimated406 billion barrels of bitumen.
Canada now has 175 billion barrels of proven oil reserves,behind the 262 billion barrels credited to Saudi Arabia andVenezuela's 211 billion.
So if regulators judged that roughly a fifth of the 500billion barrels of bitumen were economically extractable - a bigif - Canada would leap to first place in global reserves.
"We would need to see that commercial operations arerepeatable before an entire deposit is added," said TravisHurst, a technical adviser for the Alberta Energy Regulator,which compiles the province's reserve estimates.
Extracting the Grosmont oil can use the sameenergy-intensive processes developed for the oil sands.Companies drill one well that pumps in steam to heat thebitumen, and a second, lower down, to collect the heated sludgeand pump it to the surface.
Laricina and Osum are using this thermal steam-assistedgravity drainage technique to tap their 1.7-billion-barrelSaleski field, adding solvents to make the bitumen ooze faster.
The technology was successful enough that independentevaluators let the two companies book about 120 million barrelsfrom part of the Saleski as recoverable reserves, a first forthe Grosmont.
The two companies' joint Saleski project could produce12,500 barrels per day by 2015. Osum's Sepiko Kesik project,planned separately, could produce 60,000 bpd. Canada produced atotal of 3.2 million bpd in 2012.
The two companies are private and don't give details on thecost of their projects, but a 72,000 bpd oil sands project usingsimilar technology would cost about C$2.5 billion. Such adevelopment would need oil prices of around $80 a barrel to beprofitable, while recent prices have topped $100 a barrel.
Laricina has backing from the Canada Pension Plan InvestmentBoard, while Osum is backed by Warburg Pincus, BlackstoneCapital Partners, Korea Investment Corp and Goldman Sachs.
Royal Dutch Shell Plc is also an investor in theregion, after a C$468 million purchase of nearly 220,000 acres(89,000 hectares) of land in 2006. The company has begunconstruction of a small pilot project to test technology thatwould convert the bitumen into light oil by heating itunderground at very high temperatures, a much different methodthan one Laricina is using.
BIG HURDLES
But the expansion of the oil industry into bitumen willraise questions about the environmental costs and about howCanada would get additional oil to market.
Industry says bitumen projects will emit as little carbondioxide as the best oil sands projects, but green groups alreadysay the thermal projects in the oil sands are toocarbon-intensive to be sustainable.
"The world simply can't handle the development of morehigh-carbon fuels at this point," said Mike Hudema, an oil sandscampaigner with Greenpeace Canada.
Existing pipelines are already full, and the oil-by-railalternative is costly. The industry believes that new andexpanded pipelines to both the east and west coast, as well asto the United States, will be in place when needed.
"At its essence (the Grosmont) is a really good oilreservoir. That's what attracted us to it in the first place,"said Steve Spence, Osum's chief executive. "We just had tofigure out the right way."
