May 12, 2008

Oil and Gas Development

Long Lake oilsands project moves to production phase

RICHARD GILBERT

staff writer

The first phase of a massive oilsands project has been built and oil should start flowing later this year.

OPTI Canada Inc. completed construction on the first phase of the Long Lake project and crude oil production should begin in mid-2008.

The company, in a 50/50 joint venture with Nexen Inc., is building Phase 1 of the Long Lake project, which will produce high quality synthetic crude oil.

The project is located about 42 kilometres southeast of Fort McMurray in the Athabasca oilsands region of northern Alberta.

The Long Lake project is unique because it uses petroleum coke, a common byproduct of upgrading, as a substitute for natural gas to turn bitumen into synthetic crude oil.

On April 29, the Calgary-based company announced the results for the first quarter ending March 31, 2008.

The company achieved multiple milestones this quarter.

“Most importantly, we completed construction of the upgrader and are well into commissioning activities to prepare for a mid-year start-up,” said Sid Dykstra, president and CEO of OPTI.

“We also achieved first bitumen sales and our steam assisted gravity drainage (SAGD) rates continue to ramp-up as we turn over additional wells to production.”

According to the first quarter results, now that construction of the Phase 1 Upgrader is complete, the construction workforce has been reduced.

The project remains on-track for first production of high quality Premium Sweet Crude in the third quarter.

Another key milestone for the Long Lake Project is the ramping up of volumes of steam assisted gravity drainage as wells are converted to SAGD production.

SAGD involves drilling two parallel horizontal wells, between 2,300 and 3,300 feet deep, with about 16 feet of vertical separation.

Steam is injected into the shallower well, where it heats the bitumen, which flows by gravity to the deeper producing well.

The first steam injection of the SAGD operation began in mid-April 2007 and production will ramp-up to full capacity over a 12 to 24 month period.

“To date, 29 well pairs have been turned over to production,” the report stated.

“As a result of the start-up of SAGD operations and the recent completion of construction of the upgrader, the company is closing construction cost centres related to the SAGD and upgrader construction areas of the project.”

The project has been plagued by cost overruns and the Phase 1 cost estimates reached $6.1 billion.

Costs are allocated between the following construction cost centers.

These are: SAGD and Upgrader construction ($5.365 million), Upgrader start-up ($165 million), steam expansion project ($395 million) and ash processing unit ($175 million).

The SAGD and Upgrader construction cost portion is complete and is being closed.

The other three portions reflect the remaining areas of ongoing activity.

Upgrader start-up costs represent the remaining costs from April 1, 2008, to first commercial production in the third quarter.

The steam expansion project is expected to be completed in the third quarter of 2008.

Construction of the ash processing unit is expected to be completed in the fourth quarter of 2008.

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