BlackPearl Resources Inc. is planning a further expansion of its Onion Lake thermal heavy oil project after the current 6,000 barrels per day phase 2 expansion goes into production by mid 2018.
That’s the company’s long-term strategy, revealed with the release of third quarter results on Nov. 7 for the period ending Sept. 30.
Due to the prolonged period of low crude oil prices, the company is planning to accelerate the expansion of the Onion Lake thermal project.
It will also defer the first phase of commercial development of the Blackrod oilsands project in Northern Alberta.
Meanwhile, the company says construction of phase 2 at Onion Lake is currently ahead of schedule and costs are in line with original estimates of $185 million.
“We now anticipate construction to be completed and initial steam injection to occur as early as the end of Q1 2018, with first oil expected in Q3 2018,” said John Festival, president of BlackPearl.
The company anticipates peak oil production to be reached approximately 12 months after initial steam injection, a similar timeline achieved for the 6,000 barrels per day phase 1.
“We are going to see the full effect of phase 2 in 2019 when our production should be in the range of 15,000 to 16,000 barrels of oil equivalent per day with 12,000 boepd coming from Onion thermal,” said Festival.
He added BlackPearl will start working on a further expansion of Onion thermal production in 2019.
“We currently have enough reserves and resources to keep the expanded project at full design capacity for more than 20 years,” he said.
By the end of the third quarter, fabrication of the modules for the central processing facilities and well pads for phase 2 were approximately 85 per cent complete.
Modules continue to be shipped out to site for assembly and tie-in.
All 14 horizontal production wells have been drilled, as well as 29 of 39 planned steam injection wells, with drilling to wrap up by the end of November.
BlackPearl successfully completed a planned turnaround on the phase 1 thermal facilities at Onion Lake in the third quarter.
Thermal production from Onion Lake was temporarily affected by the turnaround, as well as the temporary shut-in of phase 1 wells, to allow for offset drilling of the phase 2 wells.
The thermal facilities and wells were successfully restarted, and current production is back up to design capacity of 6,000 bpd.
Festival was pleased to report that with the financing they put in place in second quarter, the phase 2 project is fully funded.
“This is a significant step for us to add 6,000 barrels of oil per day of low cost production to our existing 10,000 barrel per day base with no dilution to our shareholders,” he said.
He added the Onion Lake thermal assets will have low sustaining capital requirements, and will generate significant free cash flow which will allow for debt repayment and continued expansion at Onion Lake and other areas.
The company also expects to end 2017 with a total capital spending outlay of between $195 and $200 million, with the focus being the expansion of the Onion Lake thermal project.
Capital spending in 2018 is expected to be between $60 and $65 million.
The focus at the beginning of 2018 will be on completing construction of phase 2 of the Onion Lake thermal project.
For the remainder of 2018, the company plans to resume drilling on some of their conventional heavy oil projects (approximately 20 wells), and commence drilling a sustaining well pad for the Onion Lake thermal project.
They also plan to do some additional delineation drilling on their Blackrod lands.