Evaluation of the Economic Feasibility of Heavy Oil Production Processes for West Sak Field

Abstract

The West Sak heavy oil reservoir on the North Slope of Alaska represents a large potential domestic oil source which has not been fully developed due to difficulties with producing viscous oil from a cold reservoir. Past studies have evaluated the economic viability of producing from West Sak, but given the rising demand for oil, a fresh evaluation of the economic feasibility of heavy oil production processes from West Sak is warranted. Therefore, the objective of this project was to design a set of possible processes for recovery of heavy oil from West Sak and identify any economic barriers to production. Discounted cash flows were used to determine the investor’s rate of return (IRR) for each process assuming oil sold for either a fixed price or followed a given price forecast. Capital and operating costs were estimated primarily using the methodology suggested by Seider et al. (2008). Three different scenarios were analyzed using this methodology: a base case and two alternatives for oil transport (dilution with gas-to-liquids and upgrading via hydrotreating). Polymer flooding was selected as the recovery method for all scenarios and production rates were estimated from recovery curves published by Seright (2011). Each scenario also investigates the possibility of using oxy-firing for CO2 capture as an alternative method for providing process heating. Results of the economic analysis show that the base case would produce an IRR of 41% (dilution would produce a 45% IRR, and upgrading a 6% IRR). A sensitivity analysis performed on the model’s inputs gave a range of possible IRRs for the base case of 30% to 50%, dilution’s range was 24% to 62%, and upgrading ranged from -2% to 29%. Both the base case and dilution scenarios have no economic barriers to development. If West Sak heavy oil as produced can be delivered via pipeline, then the base case would be the economically preferable scenario. Upgrading is not economically feasible due to high capital costs which drive up the required oil price and result in large severance tax liabilities.

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