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Japan Petroleum Exploration Co (Japex) and Nexen Energy ULC—a wholly owned subsidiary of China’s CNOOC—started last week the production ultra-heavy crude oil from the Hangingstone Oil Sands Project in Alberta, Canada, the Japanese company said on Tuesday.
Japex and Nexen launched production last Thursday using the Steam-Assisted Gravity Drainage (SAGD) method, at a current bitumen production rate of 1,000 bpd. After wells get switched to full production mode, the companies expect production volume at the Hangingstone project to reach 20,000 bpd by the second half of 2018.
Japex’s subsidiary Japan Canada Oil Sands Limited (Jacos) holds a 75- percent interest in the project and is its operator, while Nexen owns the other 25-percent stake.
Jacos will aim to optimize expenses and capital investments, as well as the SAGD method to improve production efficiency, in order to boost the project’s competitiveness, Japex said in its press release.
Together with the start of production at the Hangingstone project, however, Japex announced today that it had decided not to restart operations of bitumen production using the SAGD method in Hangingstone Demonstration Project area, known as the 3.75 Section Area.
In May last year, Japex said that it was temporarily suspending production in the so-called Demo Area as a response to the sharp decline in oil prices.
In today’s statement, the Japanese firm noted that “However, the wildfires in May 2016 forced suspension of operations, and aiming at improvement of our financial results under the stagnating oil prices environment, we decided to leave the operations suspended rather than re-start later that year.”
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Canada’s oil sands, considered to be one of the most expensive projects to develop, especially in the current oil price environment, have seen international oil majors—including Shell, ConocoPhillips, and Statoil—sell off Canadian oil sands assets to Canadian firms in large deals.
However, the lowered exports of OPEC heavy crude grades to North America are tightening the price spread between WTI and Western Canadian Select (WCS), cutting into the refining margins of U.S. refiners while helping Canadian oil sands producers sell their heavy oil at a higher price, Fitch Ratings said last week.
By Tsvetana Paraskova for Oilprcie.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.