Black Pearl

BlackPearl Resources is using a new yet long-proven technology to help build a company

by Deborah Jaremko and Jim Bentein

Junior producer BlackPearl Resources has three heavy oil properties it considers the gems in its development crown — one of these, a project that president and chief executive officer John Festival calls a “company maker,” is thermal. Today, the Blackrod steam assisted gravity drainage (SAGD) project is a small, single well pair pilot under construction, but it could eventually provide up to 50,000 barrels per day for 25 years.

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Festival says that the best attribute of this project, located in the southwestern Athabasca region and targeting the Lower Grand Rapids formation, is its uniformity.  

“The resource is simple and homogeneous, with no thief zones above or below the main formation in addition to being aerially extensive,” he explains, comparing the reservoir to the McMurray formation, from which most commercial SAGD production comes. “Unlike the McMurray formation, which can change every 100 metres, the depositional environment of the lower Grand Rapids formation is such that it is very predictable. In other words, all we need to do is use plain old SAGD without any modifications to extract the oil, and our biggest risk is the ability to execute in a timely and cost-effective manner.”

BlackPearl received final regulatory approval to proceed with the Blackrod pilot in early November 2010. The company plans to commence steam injection by the end of the first quarter, with initial results to follow later in the year. Total project cost is pegged at about $25 million. Festival says that Blackrod, along with the junior’s other two core projects, is expected to bring a 15 per cent rate of return on capital at a WTI oil price of US$60.

"It's our best property in terms of ultimate size," he says. "But it will take a few years and a lot of money."

The BlackPearl management team is familiar with making money off heavy oil — Festival and colleagues Don Cook, Ed Sobel and Chris Hogue led their former company, BlackRock Ventures, into a $2.4 billion sale to Royal Dutch Shell in 2006. From 1999 to 2006, when Shell took the company over, the BlackRock executives had turned the firm into one of the largest heavy oil producers among Canadian juniors, with its Seal project in the Peace River block, its Pelican Lake heavy oil project in the western Athabasca area and its Orion SAGD project at Hilda Lake in the Cold Lake area. In total, the company held 268,000 net acres of land, with more than one billion barrels of estimated oil initially in place.

The former BlackRock team took over the leadership of BlackPearl Resources in January 2009: Festival, an engineer by training; Cook, a chartered accountant, as chief financial officer; Sobel, a geologist, as vice-president of exploration; and Hogue, with a diploma in petroleum engineering, as vice president of operations.

The executives have experience with SAGD piloting from their work at Hilda Lake, but were not part of Shell’s commercial Orion operations — the performance of which they hope to exceed as Blackrod goes from pilot to full-scale. Shell has not grown Orion production beyond 5,000 barrels per day against its 10,000 barrel per day capacity since start up in 2008.

“In reservoirs like the Clearwater [Hilda Lake] and the lower Grand Rapids [Blackrod], the position of your horizontal wells is critical,” says Festival. “The entire sand package may have several facies and placing your horizontal wells [in] the facies with optimal permeability and oil saturation could mean the difference between success and failure.”

He explains that often operators will place their wells too low within the sand package in order to capture the maximum amount of oil above the producer, which can be a mistake.
“None of the Shell wells matched the performance of the original pilot at Hilda Lake because we believe they placed the wells too low in a much poorer facies from a reservoir standpoint. That is why we [at BlackPearl] studied very closely the Canadian Natural Resources–operated Wolf Lake SAGD project, which happens to be the only commercial project in the lower Grand Rapids formation.”

Festival says that the company is also trying to stay current with the numerous other learnings that relate to well pair warm-up strategy, slot sizing in the liners, water treatment and other operational issues. “We will do this with our own pilot at Blackrod and through our contacts within industry. The number of people and operators in the SAGD arena has increased significantly since 2004, when we made the decision to go commercial after operating our pilot for seven years at Hilda Lake.”

He notes that the Blackrod project fits nicely alongside BlackPearl’s other two heavy oil projects: a conventional oil play at Onion Lake, Alberta; and a polymer flood at Mooney, Alberta. 
“What all three core projects have in common is size, operatorship, robust economics and the use of conventional technology. [They] have the capacity to grow well beyond their current production because they are sitting on a huge, well-delineated resource. We [also] operate and own 100 per cent which means we control the pace of development and the type of technology that is employed,” says Festival. “From 2009 to exit 2011, we will more than double our production, and from there we will multiply our production many more times as we bring on additional phases of all three projects.”

The Blackrod project is anticipated to cross a major milestone towards commercialization in 2011.

"Next year we plan to apply for a 40,000-barrel-per-day commercial project there," said Festival in late November. "We would build it in phases, with the first phase being 10,000 barrels per day. That phase would cost us $300 million. We think we'll be able to accelerate after that with larger phases. Seven to 10 years from now we'll be producing 50,000 barrels per day there."

He says that the company anticipates no major problems in raising funding. "There are a lot of shareholders who made a lot of money from our previous company. It's a simple relationship. We take their money and invest it and it turns into more money."

Furthermore, he says investors in the company see that management is also committed. "We have a significant portion of our own net worth invested in this company."