The Future of SAGD

How can we Make SAGD more Profitable and Sustainable?

Large SAGD projects in the Alberta Oil Sands have suffered an unfortunate reputation for cost overruns, delays and productivity issues over the past ten years.  These results have thrown the whole industry into question as to whether SAGD is a viable and investible solution for extracting bitumen from this oil-rich area of the country. Despite the criticisms and skittish investment community however; these challenges have invited a tremendous amount of analysis and an industry-wide awareness of the need to innovate new technology to prove it as a viable and sustainable solution. In this article, I’ll have a look at some of the lessons learned in recent years and a number of recommendations as to how we can apply better techniques and technology to make it a practical, sustainable alternative that we can all feel proud to be a part of.

SAGD stands for Steam Assisted Gravity Drainage and it is a common and growing technology in Alberta and worldwide to extract heavy oil that is deep below the earth’s surface. Invented in the 1970s, SAGD is relatively new to the oil industry, and has only been utilized in large-scale commercial projects over the last 15 to 20 years. This slow adoption rate was due to a number of barriers that SAGD projects presented.  It was not until horizontal drilling techniques were perfected, for example – and the price of oil was high enough – for SAGD to become a feasible option for oil producers.  Nevertheless, even with these barriers lifted, oil producers continue to struggle to try to make SAGD a practical solution going forward. The sheer size of these projects poses a broad challenge, as huge amounts of capital are required to get these projects up and running. Even when the capital is there, the magnitude and duration of these projects necessitates accurate planning and efficient execution to avoid large-scale capital overruns. At the best of times, the fluctuating price of oil means that profit margins on SAGD projects can be very low – so producers risk finding themselves in the red when it’s all said and done if they don’t run an efficient project.  Innovating new ways to improve the current SAGD planning, project execution and operations will determine its short and long-term viability.

Sustainable and Viable?

From a sustainability point of view, SAGD is a less invasive technique that results in lower environmental damage than conventional open-pit oil sands operations. It’s those older open-pit extraction projects that have been the target of all the shocking video of toxic sludge, putting that black-eye on the oil sands internationally.  SAGD also has a relatively high recovery rate of up to 80%. And, in recent years, brackish groundwater has replaced the previous use of fresh water used for steam. So, aside from the pervasive ballooning cost challenges, there’s a lot of positive to be said about the emergence of SAGD as the solution of choice. That’s not to say there isn’t room for continuous improvement, but things have got much better and will continue to improve as more tweaks and refinements are made through technology innovation. The big challenge remains: containing cost.

The Trends Don’t Look So Good

The table below shows a sampling of completed Oil & Gas projects in Alberta with their original estimates against final costs.

Results like these are common and are the reason for there being a perception of high-risk in this sector.  In fact, trends show that in many instances, rather than improving as an industry, we have actually been getting worse – which seems hard to believe. You’d think that the more tested the SAGD process is, the better we’d get at it. But the numbers don’t lie, and the trend is down. And here’s why: While tremendous improvements have been made in improving the extraction process and reducing technical mistakes over the years; there still remains enormous efficiency and communications problems that plague the engineering, procurement and construction of these projects.  This is due in part to the enormity of SAGD projects and the distribution of effort amongst many companies: there are typically dozens of companies involved in engineering, procurement and construction. Without a high-bandwidth of effective communication and real-time data flowing between the many players and the producer/owner, it becomes virtually impossible to monitor and implement proper controls throughout the entire project.  On top of that, owners, contractors and EPCMs in Alberta have been relatively slow  to update to current cost control and project management technology, and are dragging down the efficiency of SAGD projects, costing millions.

Lessons Learned

In a recent poll of engineering professionals in the Alberta Energy industry, individuals involved with SAGD projects were asked to come up with lessons learned from executing SAGD projects. The majority of the responses and recommendations focused on issues of communication and cost control. There is a widespread belief that most of the cost challenges can be solved by improved technology solutions and better cost controls practices. Additional concerns included a lack of a clearly defined scope during planning of SAGD projects; leading to unanticipated requirements surfacing throughout the project, and therefore adding additional costs. Producers wanting to fast-track these projects due to market and investment pressure, are thus challenged with the age-old Scope-Time-Resources predicament. Finding the right balance is key to achieving a successful outcome.  Creative solutions to this have emerged; such as the new Convertible Contract mechanism for controlling escalating costs. This is a relatively new arrangement where cost reimbursable contracts are converted to lump sum after scope has been established.

The following list was taken from a paper published by Alnoor Halari, MSc. and Dr George Jergeas, PhD., P.Eng and can be found by clicking here. In the original article, a short-list of 30 lessons learned are highlighted and further examined.  I’ve shortened that list a bit more here to focus on those lessons that have to do with project management, cost control or communication between stakeholders – which is 21 of the 30!

Lessons Learned in SAGD going forward

1. Communication improvements between Engineering, Procurement and Construction team
2. Knowledge/experience of management processes to execute large projects
3. Define/clarify vendor data requirements early
4. Have a clear and well-defined scope by EDS phase
5. Timely receipt of vendor data
6. Effective change management process
7. Identify and order long lead items early
8. Communication of scope/design changes/technical decisions
9. Set realistic key scheduling milestone dates
10. Clear definition of roles/responsibilities/accountabilities of work share office
11. Fix basic process design early
12. Early stakeholder (owner/construction/operations) involvement for design buy-in
13. Communication between stakeholders
14. Ensure owner quality requirements are met
15. After EDS, design changes to P&ID’s should be limited to minor items
16. Interface between engineering, construction and operations
17. Tie-in payments to vendors based on timely submittal of vendor drawings/data
18. Multi-discipline input into project planning
19. Simple, well defined and updated work processes & procedures
20. Vendor quality management for larger packages
21. Early involvement of and regular feedback from construction during engineering

There’s not much in that full list of 30 lessons that has anything to do with the technology of oil extraction or even SAGD. It mostly refers to the challenges of planning, engineering, procuring, and executing big projects. This could be the same list for constructing any other large project like a highway or bridge or a train-line. These are common challenges that can be addressed by better cost controls and project management tools and processes.

I’d like to hear what you think about this. Please feel free to comment below and I’ll be sure to get back to you!