The New Year will usher in a technological breakthrough from across the border in Canada that promises to deliver the first environmentally friendly oil sands in America, Bloomberg reports.
And the staging ground is Utah—home to more than half of America’s known oil sands.
Toronto-based MCW Energy Group (MCWEF: OTCQB; TSV: MCW.V) will begin producing cleaner, cheaper oil from oil sands next year at a newly built processing plant in northeastern Utah—home to some 32 million barrels of heavy crude buried in sand and silt.
According to Bloomberg, MCW says it can extract Utah’s oil sands “without creating the toxic wastelands that have resulted from oil sands projects in Western Canada.”
The technological trick is contained in a paint thinner-like solvent the company uses to separate the oil from crushed rock and sand. Significantly, Bloomberg noted, the process does not use any water, which is good news for Utah, where water is extremely scarce.
The end result is the absence of “massive tailing ponds filled with gallons of toxic sludge”.
Once the environmentally friendly extraction process is completed on site at the new plant, and 99% of the oil has been removed, the sand is returned to the site. The oil is extracted virtually without a trace—and without any toxic footprint on the environment.
For Utah, the prospects are boundless. A number of large players-- including Houston-based Marathon Oil (NYSE:MRO), EP Energy Corporation (NSE:EPE) and Newfield Exploration Co. (NYSE:NFX)—have already been attracted to the state’s Unita Basin, but the focus could now shift to oil sands.
A large swatch of land covering Utah, Wyoming and Colorado and known as the Green River Formation may hold some 3 trillion barrels of recoverable oil. Utah is the heart of this oil sands bonanza, and the heart of the heart is Asphalt Ridge, which is thought to contain nearly a billion barrels of oil on its own.
It is here, at Asphalt Ridge, that MCW Energy cut the ribbon last month on a new oil sands extraction pilot plant near Vernal, Utah.
Not only is the technology good news for the environment—it’s also stellar news for the industry because it’s a cheaper way of extracting oil from sand and silt.
As Bloomberg notes, “Processing a barrel of oil will cost MCW about $38, compared with roughly $75 for oil from Alberta.”
Since then, however, MCW has announced that the oil total oil extraction cost for larger plants will be around $30 per barrel.
Not only has the technology been validated, but the original extracted oil API guidance was projected at 22, while the actual output at the Vernal plant, which opened on 1 October, measured in at 32 API—an even higher-quality crude that sells at a premium to WTI crude.
This means very high margins for this project of around 50%+ per barrel—even with $70 oil, according to the company.
MCW’s new pilot plant can handle only around 250 barrels a day, but this is just the beginning. The immediate significance of the plant is that it proves the commercial viability of the proprietary extraction technology.
The near-term significance is that next year MCW is planning extensions at Asphalt Ridge, with several additional extraction units, all larger than the pilot plant. The second phase of this project will be the construction of two 2,500 bbl/day extraction plants on the company’s 1,100 acres of oil sands property at nearby Temple Mountain, estimated to cost about $80 million.
And over the medium-to-long term, MCW is poised for major gains once it starts licensing its new oil sands technology across the region—and beyond. The “beyond” will also include MCW’s planned purchase of property from Temple Mountain Energy for $10 million, which will add a 50-year supply of oil sands and reduce operating costs by another estimated $5 per barrel.
MCW is the pioneer here, and as of yet has no rivals, but others are catching on. According to Bloomberg, Calgary-based US Oil Sands (USO:CN) is planning to open a similar plant in Utah next year to produce about 2,000 barrels per day.
With production costs coming in at under $30 a barrel using this new technology, not even slumping oil prices can derail the Utah project, which has the ability to hit profits even if oil prices drop to $65 a barrel.
We could be looking at a parallel American oil boom here—once again spawned by fast-moving new technology.
By. James Burgess of Oilprice.com
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