Source: Devon Energy
When Devon (NYSE:DVN) announced its plan in 2003 to develop an Alberta oil sands project, a new term became a permanent part of the company’s vernacular.
Back then, the world scarcely knew about steam-assisted gravity drainage, or SAGD, a new concept for recovering heavy oil. Through that 2003 announcement, Devon affirmed its future as a SAGD pioneer. Today, Devon’s Jackfish facility is considered an industry leader in SAGD.
However, the company’s involvement with this still relatively new process predates Jackfish by several years. In 1998, Devon acquired a pilot SAGD project called Dover through its acquisition of Northstar Energy. That acquisition provided the necessary foundation for Devon to become a SAGD innovator.
“Our experience of operating Dover allowed us to step right into a commercial SAGD project with confidence,” said Cal Watson, vice president of Devon’s thermal operations group. “So instead of having to start out with a small pilot project of perhaps 7,000 barrels a day, we were able to go straight into something like the magnitude of Jackfish.”
The Alberta government, working with oil producers, initiated the Dover project in 1984. The mission: to determine whether heavy oil could be recovered through the use of steam and dual horizontal wells. Industry later took over the project. Devon operated the Dover project from 1998 until 2005, when the company sold it to concentrate on developing Jackfish.
Dover’s Dividends Still Felt
Drilling at Dover was conducted inside a mine shaft, before the advent of modern horizontal drilling. Testing the notion of horizontal wells required Dover’s creators to build a specialized rig capable of drilling upwards and then horizontally. It was antithetical to virtually any other drilling operation, because the oil reservoir was above the rig. Upon steaming, bitumen would collect in the producer well and then would flow down to pumps on the mine’s floor, where it was then pumped to the surface.
Devon’s experience at Dover prompted the company in 2003 to file government applications to build Jackfish, with a production capacity of 35,000 barrels of oil per day. Following more than two years of construction, Jackfish saw first production in late 2007. Its success prompted the company to develop plans for more phases of Jackfish. In 2010, Devon entered into a joint venture with BP to develop another SAGD project -- Pike -- adjacent to Jackfish.
Between the Jackfish projects and Pike, Devon expects its net SAGD production to reach 150,000 to 175,000 barrels of oil per day by 2020. Dover made this lofty expectation possible.
As Watson sees it, Dover continued to pay dividends for Devon years after the company sold it. Here’s why: The company began building Jackfish 2 during the economic crisis of late 2008 and 2009. This led to a construction savings of nearly $200 million. Because Dover had accelerated the company’s expertise with SAGD several years earlier, Devon was able to build Jackfish 2 at a time of great savings.
“Dover enabled us to develop the Jackfish projects in a much more concentrated time frame,” Watson said.
Oil Sands: Dover laid the groundwork for Jackfish, Pike
Source: Devon Energy