Devon announced that its Board of Directors sanctioned the company's third development project on its Jackfish oil sands leases in Alberta, Canada. Pending approval of the regulatory application filed last month, Devon expects to begin facilities construction at Jackfish 3 near year-end 2011, with plant startup targeted for 2015.
Once fully operational, Jackfish 3 is expected to produce an average of 35,000 barrels of oil per day before royalties. Like Jackfish 1 & 2, the third phase represents an estimated 300 million barrels of recoverable oil before royalties. Devon expects to deploy $1.2 billion of capital on Jackfish 3 through startup.
"We are pleased to initiate our third phase of Jackfish," said John Richels, Devon's president and chief executive officer. "Devon's oil sands projects provide visible, low-risk oil production growth through the end of the decade while serving as a natural hedge to North American natural gas."
All three phases of Jackfish employ Steam-Assisted Gravity Drainage (SAGD) technology. Devon's SAGD projects burn natural gas to produce steam that is injected into the reservoir. The steam heats the oil thereby reducing its viscosity and enabling it to flow to the surface. In total, the three phases of Jackfish represent approximately 900 million barrels of gross estimated recoverable reserves and more than 100,000 barrels per day of oil production before royalties. Devon has a 100 percent working interest in each of the three Jackfish projects.
Devon is currently continuing full-scale operations at its original Jackfish project, which began operating in 2007. Jackfish is among the best performing of the major SAGD projects in the industry with high per well production rates, a low steam-oil-ratio and industry-leading operating costs. These results reflect the efficiency of the project and the high reservoir quality in the Jackfish area.
Construction of the company's Jackfish 2 project is now roughly 85 percent complete. Devon expects capital expenditures through startup to approximate $1 billion. Jackfish 2 remains on schedule for startup in late 2011.
To further leverage the company's SAGD expertise, earlier this year Devon announced a joint-venture with BP in which it acquired 50 percent of BP's interest in the Kirby-Pike oil sands leases. These leases are immediately adjacent to Jackfish and are believed to be of similar quality. Devon will conduct additional delineation drilling and 3D seismic acquisition work on the Kirby-Pike acreage beginning in the fourth quarter of 2010. Ultimately, Devon will develop this acreage through multiple phases similar to Jackfish. Devon expects its Kirby-Pike and Jackfish projects to drive its thermal oil production to between 150,000 and 175,000 barrels per day by 2020, net of royalties. This represents a 17 to 19 percent compound annual growth rate.
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