Utah is home to more than half of America’s known oil sands, but getting it out of the ground requires an unusual twist in the technology flow: This time we’re bringing Canadian expertise to the US.
Until only a few years ago, largely brought to mind Alberta, Canada, but the US is experiencing its own oil sands boom across a massive swathe of land covering Utah, Wyoming and Colorado.
The land that makes up this Green River Formation may hold some 3 trillion barrels of recoverable oil, and Utah is the heart of this waking beast, with estimated in-place tar sands oil resources of 32 billion barrels. And at the heart of the heart is Asphalt Ridge, which is thought to contain nearly a billion barrels of oil on its own.
Utah is already on America’s shale revolution map, with the Uinta Basin in the state’s northeast, which has attracted large independent players, including Houston-based Marathon Oil (NYSE:MRO), EP Energy Corporation (NSE:EPE) and Newfield Exploration Co. (NYSE:NFX). Now, a new focus on oil sands extraction means that this area of Utah is shaping up to become the next Alberta.
With this in mind, and with Canada positioned as the king of oil sands, it is only appropriate that a Canadian company—MCW Energy (MCWEF: OTCQB TSV: MCW.V)—cut the ribbon earlier this month on new oil sands technology and a new pilot plant at Asphalt Ridge, near Vernal, Utah.
"After many years of engineering and research, we're extremely proud to finally bring this ground-breaking extraction technology to the market," Dr. R.G. Baily, CEO of MCW Energy Group said on the occasion.
The “breakthrough” technology, as described by the company, is said to offer Utah—where there has been a fair amount of controversy about producing oil sands—an environmentally friendly solution for extraction. The patented technology uses benign solvents, rather than toxic chemicals. Significantly, it also does not require any water, nor does it rely on high temperatures or pressures. Furthermore, an estimated 99% of the benign solvents used in the process can be recycled and re-used.
For Utah—where water is already extremely scarce—this no-water breakthrough technology is a poignant development.
The technology can be applied in “oil wet” oil sand deposits in the United States, as well as in “water wet” oil sands deposits in Canada.
But the highlight for MCW is that the pilot plant validates the technology. It proves the commercial viability and scalability of the company’s proprietary extraction technology, setting the course for very significant gains.
Not only has the technology been validated, but the original extracted oil API guidance was projected at 22, but 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.
An independent Chapman Engineering Report concludes that MCW’s extraction technology is an innovation with no rivals, particularly from an energy-efficiency perspective.
For potential investors, it’s a potential gold mind of oil sands extraction, with production costs coming in at under $30 a barrel across the board. This means that falling oil prices will not be a snag for the Utah project, which can perform profitably in a WTI oil scenario from as low as $65 a barrel.
Extraction capacity is also slated for extension following on the pilot plant, with several additional extraction units—larger than the initial—planned for next year in Asphalt Ridge.
The most important part of this second phase will be the construction of two 2,500 bbl/day extraction plans on the company’s 1,100 acres of oil sands property at nearby Temple Mountain, estimated to cost about $80 million.
The economics of this project are already solid, but when you add another 5,000 bbl/d to the capacity, the economics become stellar.
Beyond this, MCW is moving forward with the finalization of another acquisition—this time of property owned by Temple Mountain Energy LLC, along with other oil sands leases.
The Temple Mountain Energy acquisition converts to 50-plus million barrels of oil (proven/probable) under long-term lease to 100% owned. The total cost of the deal is $10 million and 10 million MCW shares, with $1 million is cash already paid down.
The company also holds an option to acquire the Asphalt Ridge lease for $10 million, which would add $15 per barrels to the equation.
Over the longer term, this $38-million market microcap stock is poised for a major boost as it proves its oil sands extraction project is technologically and environmentally viable and capable of extracting high-quality 32 API sweet crude oil at $30 average production rates.
This is a significant and transformational development for Utah and its eight major oil sands deposits containing an estimated 32 billion barrels of oil.
From a cost perspective, re-focusing on oil sands in Utah could unleash another major boom—with the economics in oil sands’ favor and heavily rivaling the costly process of hydraulic fracking in shale oil deposits.
And from where we are sitting, MCW poised for the long-term game: Once it starts licensing its new oil sands technology across Utah, the rest of the region, and beyond, the sky is the limit.
By. James Burgess of Oilprice.com
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