Ever wondered how oil is extracted from oil sands? Canada’s massive bitumen reserves are unlocked using surface mining and in-situ recovery techniques, such as SAGD.

Canada has the world’s third-largest oil resource. However, they are trapped in the sand. So, how do oil companies extract that oil from the sand?

Canada has massive oil resources. That’s why investors need to have a basic understanding of these resources. Last time, I explored a basic overview of the resource base and its importance to global oil producers. This time, we’ll take a closer look at how producers produce oil from sand.

Oil Sands Geography

Canada’s oil sands are located in three deposits – Athabasca, Peace River, and Cold Lake – primarily in Alberta. In Athabasca, some of the bitumen is situated closer to the surface and can be mined in open pits. The rest of the deposits, especially those in Peace River and Cold Lake, are too deep and must be extracted in situ or place. Let’s take a closer look at both of these processes.

Mining

About 20% of the oil contained in the region can be mined. Shell (NYSE: RDS-A) is one of the many companies mining oil, which is found in deposits that are within 250 feet of the surface. Companies utilize mechanical shovels to excavate the sand, and it’s hauled by large trucks to treatment areas. Only about 3% of the land containing the oil sands is close enough to the surface to be mined.

Mining the sands has its advantages and disadvantages. One advantage is that producers can extract approximately 90% of the original oil in place, which is a significantly higher amount than conventional oil production, which typically recovers only about 35% of the original oil. The downside is that this creates large open-pit mining operations, as well as what are called tailing ponds, which eventually need to be reclaimed. This process can take a decade or more for the industry and is something that environmentalists frown upon.

For oil sands producers, the advantages of mining are well worth it. Homegrown Canadian producer Suncor Energy (TSX: SU) (NYSE: SU), for example, sees the potential for 6.7 billion barrels of oil equivalent resources that can be mined from its current asset base. That’s nearly as much oil as the entire company’s current proved and probable reserves. It’s currently considering two projects, including the Fort Hills Mine, which is part-owned by diversified Canadian miner Teck Resources (TSX: TCK.B). The mine, if brought online, would have the capacity to produce 164,000 barrels per day. Furthermore, even though Teck only owns 20% of the project, the cash flow produced from just the first phase would equate to 10% of the company’s 2018 cash flow. These oil-rich cash flows are what have producers flocking to the oil sands.

In Situ

For the oil trapped farther underground, producers access it in situ, or place. A producer typically drills two wells: one to inject steam and the other to recover the oil. These techniques can recover between 20% and 75% of the original oil in place.

One of the more common in situ processes is called Steam Assisted Gravity Drainage (SAGD). Devon Energy (NYSE: DVN) is one of the many companies using this innovative process through its Jackfish project. The company has a video detailing its process, which can be accessed by clicking here. It has developed a highly repeatable process with a significantly lower environmental footprint compared to a mining operation. Consequently, Devon has experienced notable annual oil sands production growth of 17%-20 % through 2020.

Another spin on SAGD is called SAP, or solvent-aided process. Companies combine the stream injected in the SAGD process with a solvent, such as butane, to bring more oil to the surface. Cenovus Energy (TSX: CVE) (NYSE: CVE), for example, is utilizing this approach to enhance the economics of its Narrow Lake project, expecting to increase full-field recovery rates by 15% while decreasing sustaining capital and non-fuel operating costs. This approach also lowers emissions and water usage; however, it does come at a higher upfront cost.

Final Thoughts

The oil sands of Canada show the extraordinary lengths oil companies will go to supply the world with more oil. That’s why investors need to have a better understanding of how oil companies extract the oil. In the next part of this series, we’ll take a closer look at some of the key producers in the oil sands and then dig a little deeper into what the future holds for Canada’s world-class oil play.

Learn more: 

• Part 1: Oil Sands 101: What Are the Oil Sands Anyway?
• Part 2: Oil Sands 102: How Does Oil Come from Sand?
• Part 3: Oil Sands 103: What Companies are Key to Developing Canada’s Oil Sands?
• Part 4: Oil Sands 104: Are the Environmental Concerns Worth the Risk?
• Part 5: Oil Sands 105: What is Diluent and Why is it Important?

From Sand to Crude — The Real Story of Oil Sands Extraction

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