Crude Oil Tar Sand Companies

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Oilsands 'in every direction' Company excited by bitumen deposits in northern Sask.
Murray Lyons, The StarPhoenix
Published: Wednesday, March 21, 2007

AXE LAKE CAMP — An Alberta company that has shelled out millions exploring for bitumen in northern Saskatchewan is excited by a deposit that shows fairly conclusively that the Alberta oilsands don't run out at the border.

Oilsands Quest Inc.
(Amex-BQI) has spent two winters building roads and doing seismic work and core drilling, including more than $40 million spent in the last five months.

Oilsands Quest president and CEO Christopher Hopkins points from his seat in a chartered Cessna Caravan on the way to his project's makeshift ice runway, indicating that Encana's Borealis oilsands project is only a few minutes flying time west of the border.


A helicopter view of a truck-mounted drill rig operating off one of more than 100 drill pads cut out of the jackpine forest in the Oilsands Quest Axe Lake project
Murray Lyons/The StarPhoenix

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Font: ****Hopkins and his colleagues say their work so far has shown that the formation that Oilsands Quest has been drilling into this winter is remarkably similar to the land Encana is exploiting nearby in Alberta.

"Borealis is our next door neighbour and they are only about six miles across the border and that project is currently in development," he said. "They are looking at an in situ project (where steam or a solvent is injected into the formation to make the bitumen flow to the surface), and we would say what they're doing is analogous to what we hope to do here.

"The resource that we discovered is analogous to what they've got. We're at similar depths and have similar characteristics in the reservoir."

What excites Hopkins, as he shows a 3-D model on his laptop, is that the 36-square-mile formation Oilsands Quest has drilled in so far may be just the beginning.

"We haven't found any edge. We're in the middle of something and it's extending in every direction," he said. "North. South. East. West. It doesn't matter.

"On average, it's running 20 metres thick. That's a good Alberta pay thickness. As a discovered resource, this is an amazing start."

So far, the bitumen samples being pulled have averaged about 14 per cent petroleum content, with Hopkins and his geologists pointing out that the bitumen on the Saskatchewan side is embedded in more of an ancient river fan sediment with more sand and less clay, which is harder to separate from the oil.

"We've got high average grades compared to most of Alberta's projects and we would suggest it is better than best by nature of the geology -- technical jargon for meaning better saturated sands and coarser sands -- so easier to refine," Hopkins said.

Oilsands Quest, which trades on the U.S. Amex exchange and has many American investors, has applied to trade on the main TSX exchange in Canada. It raised $25 million US on its most recent share offering. Most of the shares in that offering were sold to Canadian investors eligible to get flow-through tax benefits.

The results of that money raising can be found in three well-equipped mining camps and a network of roadways cut through the spindly jackpine forest. Using that road network, eight truck-mounted core drilling rigs have punched more than 100 holes into the Saskatchewan glacial sand and gravel deposit.

Last year, Oilsands Quest drilled just 19 holes into the formation and the independent "high estimate" of the bitumen in place amounted to slightly more than 500 million barrels. Results won't be in from this winter's drilling for about six months.


For now, company officials are prohibited by market regulations from saying much about how the reserve will grow after this year's work, except to say it will be a multiple of last year's figure.

On a tour of its drill sites, Hopkins points out his staff are not allowed to do any recording of the material coming up the drill pipe. Geologists with Norwest Corp., an independent consulting company, log each bitumen core.

The logged core is kept frozen and sent to an independent lab that specializes in examining core from western Canadian oilsands projects. Hopkins says this follows the required process for resource companies under stock market rules in Canada to assure investors of the veracity of what is being reported.

How soon might the Saskatchewan oilsands exploration turn into a project?

Hopkins and his geologists say another two to three years of drilling are needed to prove the size and quality. By next year, the project could see a drill hole placed every 100 metres to ensure the formation is consistent.

Down the road, Hopkins says his company hopes to attract the interest of outside investors who would want to spend the billions necessary to make further oilsands exploitation possible. The last project Hopkins and his group were associated with in Alberta -- Synenco -- is being taken to development stage, partly with money from a Chinese state oil company.

However, the future of oilsands in Canada took a bit of a hit in Monday's budget. Even as Hopkins and his key employees were leading the media on a site tour at Axe Lake, in Ottawa, Finance Minister Jim Flaherty delivered a blow to the oilsands industry by dropping an accelerated capital depreciation that had helped oilsands project financing.

In a phone interview Tuesday from Calgary, Hopkins noted Oilsands Quest stock had dropped 1.3 per cent Tuesday. That's on top of falling several dollars in the past few months as concern over the regulatory future of the oilsands increases.

"Uncertainty breeds fear and fear breeds inaction," he said Tuesday. "Anything that disturbs the fiscal regime creates uncertainty and this is more uncertainty."

Hopkins says the federal decision won't have a direct impact on future exploration in Saskatchewan. But he says investors from outside Canada will see oilsands investment as less stable now than it was in the most recent past, and may place their money on other countries.

"Overall, capital is fleeing the oilsands. We saw it today and we will see it in the future."

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