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Oil Sand Opportunities

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rossi   Tuesday, 10/16/07 12:26:16 AM
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Oil Sand Opportunities
By Kathryn Jones
Friday, 28 September 2007
Established in December 2006, Patch International has quickly become the most aggressive emerging junior oil sands company in Alberta, Canada, it says, thanks to its asset base of 60 gross sections of land within the Athabasca oil sands near Fort McMurray, Alberta.

“A couple of years ago, I don’t think anyone would have acknowledged the term ‘junior oil sands company,’” COO and Vice President of Operations Jason Dagenais says. “The reason being is that oil sands are, candidly, a very expensive business with literally hundreds of millions of dollars in investments.

“But, in the last couple of years as technology and infrastructure has improved, we’ve seen a huge emergence of junior oil sands companies in Canada.”

Location has a lot to do with that, Dagenais adds, because the Athabasca oil sands are the second-largest oil resource in the world. “That represents 14 percent of recoverage of world oil reserves, which is about 175 billion barrels,” he calculates. “We see the oil sands of Alberta as a world-class, politically stable environment and an attractive environment to partake business in.

“The asset itself is a predictable resource base. Geologically, there is a lot lower risk in doing your explorations locally than other asset basses in the world. [Plus,] these resources have an exceptional reserve life index. Because we’re flanked to the U.S. border, which is one of the strongest consumers of oil, we have a strong and predictable market demand from the states.”

Projects in the Works
Patch currently has lease holdings in two areas of the Athabasca oil sands: Ells River (formerly referred to as Dover) and Muskwa. Dagenais says the company is very excited about the Ells River project and has 80 percent working interest in it. “We’ve got two discoveries with multiple potential to add,” he says.

“With these two discoveries, we can economically verify that our assets have the requirements to become a commercial steam assisted gravity drainage (SAGD) project. An expandable 10,000-barrel-a-day project is a very capital-intensive program to undertake. The assets must demonstrate both the quality and the quantity in order to bear the economic burden to bring the resources to production. We have an independent third-party engineer who has confirmed that it is economically viable.”

Patch’s Muskwa asset includes 10 sections with an average 95 percent working interest. “We are intrigued with the Muskwa land because it may have cold flow potential,” Dagenais asserts. “Although it is considered an oil sands asset, we might be able to produce it without thermal recovery.

“This is substantial because it translates to less operating costs and less capital requirements, allowing producers to accelerate development time dramatically.

“There is no engineering value applied to it so far, so this winter we’ll be conducting some in-flow tests to determine its flow ability, as well as the oil viscosity test required to ascertain whether these resources will cold flow or flow on its own without thermal enhancement. Once we see positive results, we will proceed aggressively to get production started as early as 2008.”

Who Will Win?
“It’s important to note that when you’re looking at regulatory approval, we’ve established ourselves ahead of the other junior oil sands companies because we have already demonstrated in nine months that we’re ahead of the competition by getting production on stream in one to two years,” Dagenais asserts. “With our Ells River project, we have an aggressive plan to be on production as early as 2010.”

In Canada, the bulk of the oil sands are referred to as crown leases. The government provides 15-year leases that companies competitively bid on. “These leases have been taken up for the most part,” Dagenais says. “With the closing of the market, pretty much all the oil sands will be taken up by the fall of this year. What we’re starting to see now is the setting stage of the true development of oil sands.”

The future is not without questions, however, such as “Who’s going to be the one to build, explore, exploit and add value? Who are the ones who are going to merge with another company?” he says.

That said, “We are very excited to be part of this [industry], and we look forward to participating in that arena,” he adds.

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