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Oilsands Quest Updates on Reservoir Test Program

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Oil Sands Mining
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Oilsands Quest has provided an update on its reservoir test program.

Exploration Programs

During the three months ended October 31, 2009, we focused on developing our 2009-2010 oil sands exploration plans for the Axe Lake, Raven Ridge, Wallace Creek and Eagles Nest areas and our oil shale exploration plans for the Pasquia Hills area. These planning activities included scouting seismic and exploration drilling targets, preparing regulatory applications and initiating consultation processes for approval of future drilling programs.

Specific activities we have been planning on our Axe Lake permits include an overburden core hole drilling and advanced logging program on permits 208 and 210 and running a 2-D seismic program on the permits to the north and south of Axe Lake in Saskatchewan. Both of these programs will further our geological knowledge of the deposits while meeting work commitments required to extend the exploration permits until May 31, 2010. We commenced the overburden characterization study on October 19, 2009 and presented some preliminary findings at the Canadian Heavy Oil Conference on November 10, 2009. The overburden characterization study will yield core material and advanced logging data (NMR, Dipole, sonic and standard suite geophysical) of the rocks overlying the bitumen-bearing McMurray (Dina) Foundation. Preparatory field work for the 2-D seismic program commenced in late November.

We are also continuing with the additional processing and interpretation of the 1,847 kilometres (1,149 miles) of 2-D and 3-D seismic data collected and initially processed in the 2007-2008 winter program. This interpretation is proving valuable in planning for the specific reservoir tests this year and in assessing the geological structures across our permits.

In early 2009, we drilled an additional 23 exploration and delineation test wells in Raven Ridge. The Raven Ridge drilling program has demonstrated continuity of bitumen characteristics extending from Axe Lake in Northwest Saskatchewan westward into Alberta. We released the updated resource estimates by McDaniel and Associates in mid-October.

Axe Lake Area -- Reservoir Development Activities

Test Site 3

The objectives of the field test are to: (1) reliably measure pressure and temperature changes within the reservoir and adjacent formations as a result of heating and, (2) use those measurements to calibrate numerical simulation calculations to the field measurements in order to optimize a recovery program for future testing, piloting, commercial applications and reservoir planning. The electric downhole heater in well 1OBS 5-29-94-25 provided heat to the reservoir and pressures and temperatures were measured and recorded continuously at ten locations in the hot heater well, 1OBS 5-29-94-25, and the cold observation well, INJ 5-29-94-25. The heater was removed from the well on June 26, 2009. Our detailed engineering and numerical simulation analysis has confirmed the formation characteristics and related fluid and thermal properties to be used in continued reservoir planning at Axe Lake. We presented a more detailed description of the conceptual reservoir simulation model, analytical heat transfer calculations, Test Site 3 geo-models, supporting laboratory work and numerical simulations at the Canadian International Petroleum Conference held June 16-18, 2009.

In mid-October we perforated the two vertical wells at Test Site 3, which are approximately 3.5 meters apart, and installed temporary water, heating and injection facilities. The objective of this test was to inject and produce water at different temperatures in order to:

  • confirm the establishment of early fluid movement;
  • confirm the ability to establish convective heat transfer at the
  • bottom of the reservoir;
  • recover bitumen by using both hot water and solvent injection; and
  • gather preliminary data on the horizontal displacement of fluids.

We commenced injecting cold water at low pressure and volume into the base of the McMurray formation on October 25, 2009 and established communication between the two wells. Cold water circulation was maintained for 24 hours, following which heated water was circulated, resulting in the mobilization of bitumen in the reservoir. On Thursday, October 29, 2009, a small amount of naphtha was injected and bitumen recovery commenced on Friday, October 30, 2009.

We continued to circulate hot water until November 5, 2009, at which time the facilities were removed. We are continuing to monitor the changes in temperature and pressure as we prepare for the next stage of our testing program.

Test Site 1

On October 18, 2009 the electrical, mechanical and boiler facilities at Test Site 1 were successfully commissioned. Construction is complete, experienced operating personnel are in place and the facility is ready to commence operations.

Phase One of the test program at Test Site 1 will include the injection of cold water and will be followed by the injection of hot water and steam into the reservoir. The purpose of the test is to measure heat and fluid movement under specific operating conditions on a field scale to complement our ongoing simulation and laboratory analysis studies. These Phase One tests are designed to confirm and demonstrate our "bottom-up" thermal recovery process and they will further enhance our knowledge and modeling of the thermal and geo-mechanical characteristics of our reservoir. We expect to commence Phase One testing at Test Site 1 by mid December.

In preparation for Phase Two of the testing program at Test Site 1, we have drilled and completed observation wells and commissioned the necessary surface facilities at the site. Water and steam injection into the 3 horizontal wells already drilled is planned to begin following the completion of the surface facilities associated with the horizontal test holes. This work will commence after the testing and analysis from Phase One is complete.

As part of the overall Axe Lake development plan, we continue to conduct advanced economic feasibility, financial planning and risk assessment studies for full commercial development and the commissioning of an independent study of infrastructure and bitumen markets to complement our development planning process. Development of a commercial project remains subject to regulatory and other contingencies such as successful reservoir tests, board of directors approvals, financing and other risks inherent in the oil sands industry.

Pasquia Hills Oil Shale Permit Area

In September and October 2009, we drilled and logged 12 exploration test holes on our oil shale prospect in eastern Saskatchewan with ten out of twelve holes drilled experiencing meaningful intercepts of oil shale of up to 37.0 meters in thickness. Detailed evaluation and interpretation of the drilling results is underway. We are currently processing core samples in the laboratory by using Modified Fisher Assay method and some of these samples will be tested using a commercially proven recovery process to measure recovery factors. We are continuing to research potential methods for kerogen recovery from the Pasquia Hills oil shales.

Environmental and Regulatory

We expanded our baseline environmental programs in the Axe Lake and the Raven Ridge areas in anticipation of a comprehensive Environmental Impact Assessment report required as part of the application for regulatory approval for development of Axe Lake. Other environmental work included initiating baseline environmental studies in the Wallace Creek and Eagles Nest areas. We commissioned an active (continuous) air quality monitoring station at Axe Lake during the period, the first of its kind in northwest Saskatchewan, in addition to our passive (periodic) air monitoring activities which have been ongoing since 2005.

Outlook

Over the next twelve months we plan to continue the activities necessary to increase our resource base and to demonstrate the recoverability of our oil sands resources. Subject to our financial resources, we will continue to pursue exploration programs on our permit and license lands.

We are continuing our testing program based on the current assumption/geological interpretation that there is no overlying Clearwater Shale Formation associated with our oil sands reservoir. While additional analysis is required, the early results of the overburden characterization study have confirmed multiple dense, low permeability units within the overburden. The results of our advanced laboratory studies and numerical reservoir simulations indicate that bitumen production can best be achieved using a reconfiguration of traditional SAGD methods, where we utilize horizontal wells configured in parallel at the bottom of the reservoir. Our analysis points to the three essential elements for a successful application of the bottom-up approach to bitumen extraction:

  • establish and maintain mobility at the bottom of the oil sands reservoir;
  • utilize the full length of the horizontal wells while the bitumen is being produced; and
  • implement a comprehensive reservoir monitoring system to observe and manage the growth of the swept zone.

A sequential approach to the reservoir test program is required, both in the scale of the field operations at Test Site 1 and by moving from vertical wells to short horizontal wells and then to commercial length horizontal wells.

In the Axe Lake reservoir test program, we are now concluding the testing at Test Site 3 and we will be commencing Phase One at Test Site 1 to demonstrate that we can establish and maintain communication between vertical wells at the bottom of the reservoir using water and steam. The following is an overview of key activities planned in the next twelve months.

  • We expect to proceed with the Phase One test program at Test Site 1 to inject water and steam in order to (1) demonstrate the feasibility of establishing and maintaining communication at the base of the Axe Lake reservoir, (2) evaluate reservoir behavior in relation to water and steam injection including geo-mechanical effects, and (3) calibrate the Axe Lake relative permeability curves for use in our reservoir simulators. Four vertical wells for micro-seismic monitoring will be drilled and completed and a baseline will be established prior to commencement of vertical well operations. The interpretation of micro-seismic signals is expected to enable more effective history matching of the horizontal fluid flow and convective heat transfer. This phase is scheduled to begin in early December, subject to regulatory and other approvals.
  • We may begin field activities related to Test Site 2, where we are evaluating the testing of other energy efficient and environmentally neutral recovery processes.
  • We expect to continue our reservoir characterization studies and continue to evaluate well data, perform petrophysical analyses, design and execute pertinent geophysical logging and perform advanced laboratory studies.
  • We expect to incorporate the results of the overburden study into our reservoir simulation models.
  • We expect to submit an application for a pilot project at Axe Lake in late 2009 or early 2010. The pilot project application will be partly based on a low pressure steam based bitumen recovery process currently being tested as part of the reservoir test program and the application will trigger an Environmental Impact Assessment.
  • We are continuing the planning of additional exploration programs to further define the location, extent and quality of the potential bitumen resource in Axe Lake, Raven Ridge, Wallace Creek, Eagles Nest, and adjacent areas as appropriate. We are considering an exploration program at Raven Ridge during the 2009/2010 winter drilling season.
  • Infrastructure remains a critical element for continued operations and we will continue to investigate various pipe line solutions for gas and liquids transport, different routing alternatives for permanent road access and possible solutions for the provision of power.
  • Efforts are also continuing on converting a portion of our Saskatchewan permits to lease pursuant to the Oil Shale Regulations, 1964, as amended. The permits will not be converted to leases until a development plan which will require an Environmental Impact Assessment has been developed.


 

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