This paper investigates the economics of enhanced recovery schemes in Alberta. Lack of data precluded analysis of all 370 schemes in the province. Calculations were confined to the estimation of a long-run supply price (unit costs) for 13 enhanced recovery schemes in Alberta, but these represent about 40% of enhanced recovery reserves. The supply price is defined as the price just sufficient to recoup all relevantinvestment expenditures, including return on capital and operating costs, over the project life. Thus, the supply price is confined to real costs and excludes transfer payments, such as taxes, royaltiesand bids. Data for four variables are required: incremental production, incremental operating expenditure, incremental development expenditure and a discountrate. Information on the first three variables was supplied by industry. In 1973 dollars, estimated supply prices by scheme ranged from a low of some $0.25/barrel to a high of $2. 35/barrel, at a discount rate of 12%. The average reserve weighted supplyprice for the ER schemes examined was estimated at $0.83/barrel. Thus, enhanced recovery production of conventional crude oil in Alberta enjoys a substantial economic rent, before application of transfer payments The results suggest additional recoverable reserves acquired by implementing ER schemes have been significantlycheaper than those resulting from new discoveries, given current average finding costs. The analysis provides justification for emphasis on research directed towards recovering a higher fraction of oil in- place.


At present, enhanced recovery schemes account for a significant portion – about one third – of Alberta's conventional crude oil reserves. As exploratory prospectsin Alberta become depleted and new discoveries more scarce, the importance of augmenting reserves through recovery of a higher fraction of the oil-in place increases.

This article concerns the estimation of the unit cost of additions to crude oil reserves obtained by the installation of enhanced recovery schemes in Alberta. Since suitable data for most of the 370 or so schemes approved in Alberta were unavailable, costs are estimated for only a limited selection. However, the concentration of enhanced recovery reserves in a few large schemes means a small sample can cover alarge proportion of the population. The cost estimates in this article cover approximately forty percent of total enhanced recovery reserves.

The article is divided into two main sections. Section I develops the method of analysis used to estimate unit costs and discusses the data employed. Section II deals with results and conclusions.

(1) Method of Analysis

It is customary to classify expenditures in the petroleum industry under three headings: exploration, development and production. Exploration costs are not relevant to this analysis, since it concerns the estimation of the unit cost (supply price) of enhanced recovery reserves. Such reserves only depend on exploration to the extent that Exploration determines the reserve base.

In terms of evaluating the economics of enhanced recovery, the basic situation is illustrated in Figure 1, where the shaded area indicates those incrementalreserves achieved through enhanced recovery.

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