It is widely recognized that the development of the oil sands deposits of Alberta will be required to sustain Canada's self sufficiency in crude oil. What is perhaps not as widely recognized is that the development of these deposits will generate large revenues for both the federal and provincial governments and to an equal extent for the developers.
The task of exploiting this great potential is very difficult and to date only one commercialmining project is in operation, producing some 50,000 barrels of oil per day. There are no commercial in situ projectscurrently in operation even though most of the oil-in-place must be recovered by in situ techniques.
To stimulate the development of in situ projects, the Alberta Government, through the Alberta Oils Sands Technology and Research Authority (AOSTRA), has made available to industry a $100 million fund to be used forin situ experimental purposes. Industry's reaction has been most favourable with more than 20 applications received by AOSTRA tojointly fund experimental in situ pilot projects.
The development of the technology for a feasible heavy oil recovery scheme will be difficultand expensive. The objective of developing a process that will recover themost oil at the least possible cost, can be accomplished only through continued research as being proposed by industry to AOSTRA. However, industry's efforts to maximize profits are subject to variations in the valuesof such factors as product price, inflationary trends, royalty and tax structures, over which the developer has little or no control.
This paper examines a hypothetical in situ commercial project and presents a summaryof the economics under today's environment. Sensitivities to various economic parameters are presented to illustrate the areas in which the developer can best maximize his profits through continued research. Economic- sensitivities are also presented to showthe effect on the project economics of changing the values of certain key factors over which the operator has little, or no control The results from this paper should be useful to both industry and government in their respective roles of pursuing the development of this great resource.
The basic economic model used to analyze the various cases presented in this paper istypical of those models generally used by the petroleum industry. The cash flows are computed by deducting from gross revenue the operating costs, royalty payments, and income tax. Each evaluation was done on a standalone, no-debt basis because the financial positions of potential in situ oil sands developers vary widely. This assumption tends to make the economics slightly conservative because the parent company does not use the depreciation, depletion, and other tax credits accruing early from the project to lower its taxable income base.
Since in situ projects differ appreciably from typical conventional oil projects, the computations of their respective royalty payments and taxable income bases also differ appreciably. Hence, the basic economic model included the additional computations as they presently pertain to commercial in situ developmentsand are described as follows: