Five questions with George Stapleton
Looking for oil where others don't
Jan. 24, 2008, 10:50PM
Moneymakers
Brett Clanton
Copyright 2007 Houston Chronicle
It's not Saudi Arabia. But there is oil in Kansas. In Montana and Missouri, too.
In fact, the lower 48 U.S. states contain enough heavy crude oil deposits to power the nation's economy for several years. But they've been largely overlooked in favor of much bigger heavy oil deposits in Canada's oil sands and elsewhere.
MegaWest Energy Corp. hopes to change that soon. The Calgary, Alberta-based firm, run from Houston, has been snatching up acreage in the U.S. and wants to prove heavy oils can be produced economically.
With light, sweet crude near $100 a barrel and demand rising, George Stapleton, president and CEO of MegaWest, said it's easier than ever to make a business case for extracting heavy crudes, which resemble molasses and must be treated before they can run in many oil refineries. Here are excerpts of reporter Brett Clanton's interview.
Q: How much heavy oil is there in North America?
A: In North America they estimate there's about 3 trillion barrels of heavy oil. The majority of that is in Canada, followed by a smaller amount in Mexico, and the U.S. is kind of the caboose, if you will. Between what the U.S. classifies as heavy oil and tar sands, there's about 155 billion barrels of that type of resource in the United States.
Q: Can you put that in context, what it would mean if we were able to extract 155 billion barrels of heavy crude?
A: Probably the best you could do would be to extract half of it, which is 75 billion barrels. States with the largest amounts of that oil would be California, Utah and Alaska.
These figures are basically going back to studies that were done about 20 years ago, trying to identify, during the last oil crunch, where heavy oil and tar sands were located.
But let's say you could produce a third of the total, which would be about 50 billion barrels. The U.S. consumes about 20 million barrels per day, so that says you've got about 2,500 days of production, which would be seven years.
Obviously, you couldn't bring it into production all at once and you couldn't produce it all in seven years. But what it does do is tell you that if all of the heavy oil were developed you would at least have an additional source.
This is another piece that we probably need to look at developing because it's in our backyard. We can control it. And anything we can do to trim our import requirements probably helps.
Q: You cited 20-year-old studies about the amount of U.S. heavy oil reserves. What's changed to make it an attractive investment?
A: The biggest single change in the last 20 years is pricing. We were looking at $30 per barrel back in the late '70s, early '80s going to about $10 per barrel. At those sorts of pricing levels, it was not economic to produce heavy oil.
Today you're looking at West Texas Intermediate at $75 to $100 per barrel. We estimate the heavy oil on our properties that we can be profitable or break even with a WTI price at $35 per barrel.
Q: You just started producing in Kansas. If California, Utah and Alaska have the most heavy oil, why don't you have projects there?
A: What we tried to do was go into areas where there was little or no competition for the leasing of the acreage. So we're in Kansas and Missouri, we're in Kentucky, Montana and Texas.
In each of the areas where we are, when we started leasing, frankly, we were about the only game in town. We've seen some other interest in the area since. In Canada right now, oil sands acreage goes for thousands of dollars an acre. We've been paying between $25 and $50 an acre.
As of today, we have about 115,000 acres under lease in the lower 48 U.S. states. Our high estimate of oil in place on that acreage right now is in excess of 2 billion barrels.
Q: By and large, you've got this market to yourself today. Do you think you'll have competition soon?
A: We're counting on it. If you look at the major oil companies, their refining assets are here, their distribution assets are here. If they could produce oil close to those refining assets, that has to be of interest to them.
We're doing the front-end work of delineating the resource and showing that it can be produced economically. But once we have done that, we probably need to look to a larger partner to expand production, and larger partners with downstream assets probably have to take a hard look at us. Because I think there's value we can bring.
brett.clanton@chron.com
http://www.chron.com/disp/story.mpl/business/energy/5484368.html
