A few recent and upcoming events are prompting me to finally write a new blog post. I recently gave a talk about RF XL at the Canadian Heavy Oil Association’s fall conference, where there was a lot of buzz about making Alberta’s bitumen and heavy oil more competitive. Along with partial upgrading and reducing diluent requirements (a necessity with constrained pipeline capacity), oil sands and heavy oil producers are obsessed with operating costs — with good reason. A lot has been said recently about the competitiveness of oil sands and heavy oil, particularly from a Canadian perspective. There have been many articles on the subject in the press including an excellent one by Jesse Snyder of the Financial Post. The general theme of these articles is that the Canadian oil sands and heavy oil industry has a rich history of technological innovation. This innovation capability has been and will continue to be applied to existing oil sands mining, steam assisted gravity drainage (SAGD) and other production methods to drive down operating costs. Mr. Snyder reports that some oil sands producers already enjoy operating breakeven at West Texas Intermediate (WTI) prices below US$40 per barrel (bbl). These are levels unheard of as recently as 2014, and they are a real testament to the sector’s capacity to innovate. While oil sands producers have benefitted from lower natural gas fuel costs, they have also significantly reduced non-fuel costs as well. Producers have responded to the downturn by reducing both internal labour costs and external supplier costs. However, mining and SAGD have an inherently high labour component to their operations. One has to wonder then what happens when the oil sands labour and service market gets tight again — whether through increased oil prices driving demand up, or through participants leaving the industry and constraining supply. To truly meet the competitiveness challenge, oil sands producers need a production method that is inherently lower in energy requirement, shielded from natural gas price swings, and less labour intensive. RF XL meets these requirements. Acceleware estimates that the best performing oil sands producers have operating costs in the US$7.25 per bbl this year. By taking advantage of the structure of Alberta’s electricity market, and with its inherent low labour content, we believe RF XL’s operating costs are less than US$6 per bbl. As natural gas, labour, and electricity input costs rise in the future, we expect RF XL’s cost advantage over the best SAGD operations to grow from US$1.25 per bbl today to nearly US$6 per bbl in ten years.
However, one thing is missing here – operating expenses are only one component of competitiveness. In order to grow the market share for our oil sands, new capital investment is required. To achieve the operating breakevens mentioned above, multi-billion-dollar investments in facilities are required. Once we add the capital expenditure and the associated cost of that capital, often in the order of $15 - $20 per bbl, we still see that oil prices have to rise significantly before new oil sands facilities become a reality. This is why It has proven so difficult for producers to raise capital over the past three years — and it’s leaving a significant resource undeveloped. In order to achieve rapid growth, a new production method is required that not only has a low capital cost per barrel, but is also scalable from a 1000 bbls per day to 100,000 bbls per day — RF XL is designed to provide precisely that. RF XL is designed to allow new oil sands operations to commence with a modest capital investment of under $100 million, compared to over $1 billion required by state of the art SAGD and mining operations. RF XL is designed to be scalable with mobile capital investment.
To put this undeveloped resource in perspective, let’s look at how much bitumen in Alberta’s oil sands will not get produced unless new facilities are built. Currently Canada has 173 billion bbls of proven oil reserves - 97% of which are found within Alberta’s oil sands. Yet this is only a fraction of the total oil in place. Alberta contains 1,928 billion bbls of oil resources in place. The reason that only a small portion of the total oil in place is considered to be reserves is based on current technological and economic conditions. Today’s conditions suggest that the oil sands contain 165 billion bbls of established reserves, split between SAGD and other in situ (133 billion bbls) and mining (32 billion bbls) recovery methods. What if a new technology came along that dramatically changed the economic reality of bitumen?
We believe Acceleware’s RF XL technology can be applied to Alberta’s oil resources that are not yet considered reserves due to its ability to safely, cleanly, and efficiently produce deposits that are either too shallow, too deep, or too thin to be produced using existing technologies. RF XL not only has the ability to produce oil within the existing 165 billion bbls of reserves being recovered by surface mining and in-situ techniques today, it also has the potential to unlock an additional 1 trillion or more bbls of in place bitumen. If RF XL is successfully commercialized, it could increase Canada’s remaining oil reserves significantly, potentially moving the country into the top position globally.
The freedom that RF XL can offer oil sands and heavy oil producers is staggering. You might be thinking “oh great, more oil to depress prices.” However, the impact is not just about adding more oil to the market, but giving operators the freedom to choose to produce from resource pools that offer better economic returns and environmental performance. By increasing the size of the ‘oil sand box’ we can help ensure Alberta oil sands can be globally competitive, both in terms of the cost of production and carbon footprint.
Acceleware is commercializing RF XL to address known issues with existing oil sands production techniques. Surface mining has significant environmental impacts due to water use, usage of tailings ponds, and surface land disturbance. Mining also has a break-even oil price in the US$65-US$70 WTI per bbl range. While mining represents 32 billion bbls of total proven reserves, industry experts do not anticipate any new mining operations will be approved or even proposed, which could leave the majority of those proven reserves untapped. RF XL can eliminate the use of water and tailings ponds, shrink the surface land disturbance significantly, and can offer break even prices below US$40 WTI while potentially unlocking more 'mineable' resource than has been possible to date.
While SAGD has been a powerful technology for the development of the oil sands for over 20 years, it has operational and economic limitations that have required operators to accept lower quality reserves over time as the best assets have already been identified and are in production. RF XL opens up a significant new base of in situ resource for operators to explore and develop where economic returns and environmental performance can be globally competitive.
So, while RF XL may certainly be a game changer in altering the competitiveness of Alberta bitumen from an economic perspective – what if RF XL could actually help brand Alberta oil sands as “Green Oil?” Don Pittis recently examined this concept in an article on the CBC website. Producing oil using RF XL would provide a clear path to “Green Oil” — no external water use, no tailings ponds, no solvents and a clear road to zero carbon emissions. If Canada and Alberta are serious about value added branding for commodities such as oil, then game-changing innovation, not just incremental innovation is required. Industry and governments at all levels must come together to seize this opportunity and make it happen.
Acceleware continues to do our part — develop the technology and extend the base of intellectual property surrounding the RF XL technology. Research and development work continues to focus on increasing the efficiency and reach of the technology to allow it to efficiently produce oil from a wider range of resources, increasing the choice and opportunity for operators to develop resources in the oil sands. The company has filed six patents to date and expects to file five more relating to RF XL in 2017. The most recent patent Acceleware has filed expands the range of antennas available to address the needs of different reservoirs with a system that self-forms in the formation, and is constructed with standard materials used in the oilfield.
Beyond intellectual property development, Acceleware has continued to work on practical and operational aspects of the commercialization process. In order to ensure that the technology is designed for success not only in the planned commercial scale test, but also for commercial deployment, Acceleware is building partnerships with oil and gas service companies. These partnerships will serve to continue to evolve and refine RF XL to make it simple to deploy using standard oil field processes, maximize its efficiency, and ensure it is robust and able to operate despite the challenges of deployment into oil bearing formations.
Next week I will participate in a panel discussion at Spark 2017, a conference hosted by Emissions Reduction Alberta and Alberta Innovates. We will be discussing Accessing Investments to Scale Up Technology in Canada’s Oil Sands. A topic we have first-hand knowledge of as we assemble a consortium of partners to conduct a commercial-scale test of RF XL in the Alberta oil sands through 2018 and 2019. The commercial-scale test will build on the success of our 1/20th scale field test completed this year where we were able to prove that RF XL can deliver power as designed and heat the sub-surface as predicted. With those results in hand we are now in position to move ahead as we continue to work with GE and round out a consortium of other partners to complete the commercial-scale test.
On the seismic software front we recently attended SEG 2017 in Houston, Texas. SEG is the primary trade show and conference for geoscientists in North America. I was pleasantly surprised by the turnout and optimism compared to recent years. We had an excellent response to new features such as elastic modelling in AxWAVE, and enabling cloud capability across our seismic fleet. Enabling cloud is a real benefit for oil and gas companies and seismic service providers as it provides them with a low capital investment way to scale up seismic processing capability during the recovery. We had many good conversations with old and new customers, and it was great to see how Houston was recovering phenomenally well after hurricane Harvey.
Stay tuned, I’ll try my best to update this blog more frequently.
This blog post contains “forward-looking information” within the meaning of Canadian securities legislation. Forward-looking information generally means information about an issuer’s business, capital, or operations that is prospective in nature, and includes disclosure about the issuer’s prospective financial performance or financial position.
The forward-looking information in this blog post includes information about the market size of its RF XL technology, the operating and capital cost expectations for RF XL, the expectations for future intellectual property development, and developing commercial partnerships with oil and gas service companies to complete a commercial-scale field test of RF XL. Acceleware assumes that the methodology used to quantify and classify the Alberta oil sands resource base is reasonable given the characteristics expected of the RF XL technology, that its current economic, electro-magnetic and reservoir simulations underpinning its commercial cost structure estimates are reasonable, that current research and development effort will result in future patent filings, and that the Corporation will eventually succeed in developing the partnerships required to test and commercialize RF XL.
Actual results may vary from the forward-looking information in this blog post due to certain material risk factors. These risk factors are described in detail in Acceleware’s continuous disclosure documents, which are filed on SEDAR at www.sedar.com.
Acceleware assumes no obligation to update or revise the forward-looking information in this blog post, unless it is required to do so under Canadian securities legislation.