Resource World Magazine

THE OIL PATCH REPORT J o e l Ch u r y Archer Petroleum targets US-based oil sands W hen investors think of oil sands, they typically think of northern Alberta. But a new surge in the development in oil sands, found south of the US-Canada border, could have the potential to change the landscape of how we picture oil sands operations. In Logan County, Kentucky, not normally thought of for petroleum production, a potential oil sands renaissance is about to take place. Field units utilizing a state-of-the-art, surfactant chemical compound are set to extract bitumen from oil sands previously thought to be unexploitable. The surfactant chemical compound, which lowers the surface tension of liquid, is biodegradable, non-toxic and EPA approved. Vancouver-based Archer Petroleum Corp. [ARK-TSXV; A6VA-FSE] has targeted affordable oil sands concessions in three states, including Kentucky, Utah and northern Alabama. At per-acre prices in the $10-$20 range, the company is quickly open to accruing a large amount of land in a short amount of time, utilizing a first mover's advantage. While cheap land can be impressive, it's what's under it that counts. On Archer's three states in question, there have been some sizeable estimates made to their potential. Kentucky is Archer's starting ground, which has been estimated to contain the potential for 3.4 billion barrels of oil in its oil sands. Alabama has been estimated to have 6.4 billion barrels. Utah is the biggest of the three with an estimated 32.3 billion barrels. If Archer can even scratch the surface of these untapped regions, then they're looking at great economics. The reasoning being that the cost of setting up the facility is miniscule to that of its large-scale Alberta oil sands cousins, while producJULY 2013 ing almost Bakken-like numbers that have helped put North Dakota on the oil patch's map. "We can construct a 1,000 barrel a day facility that costs approximately $3 million," says Colin Bowkett, President of Archer Petroleum. "Each additional unit we put into that facility after will only cost approximately $1.5 million, which can process another 1,000 barrels per day." Equivalent production at the $1.5-3 million price tag is almost unheard of. A fair comparison would be to North Dakota Bakken operations, which cost in the $8-10 million range. However, Bakken plays carry a steep production drop-off that requires added re-entry work, including costly water flooding techniques. "Our field units, once installed, will have near zero decline rate for the life of the resource," says Bowkett. "There may be fluctuations as you encounter different densities of ore, but over the long term we expect to see a flat production rate of 1,000 barrels a day, per machine, for a life of production that can last 20 years." Archer's predictions are that the production life per operation will be more easily to forecast, much like a mining play. The company will be targeting 20-50 feet of pay zone, in areas that have up to 2:1 overburden-to-pay ratios. "We just drilled an 85-foot hole on our Davenport Project which returned 48 feet of pay zone in one drill hole," says Bowkett. "In order to know if it's a continuous target or not, we'll still need to drill the whole property. But we believe what we've seen so far is a fairly good indicator of what we're looking at. Most of what we've encountered is 1:1, which is positive when looking at the payout that's possible on this type of resource." Archer has no intention of targeting any- thing below 80-100 feet on their property, as they've been quite conscious of strip ratios and other environmental impacts. On a positive note, their chemical surfactant composition is highly-reusable and requires neither tailings ponds, nor energy-intensive heat. Should this method of extraction work to Archer's expectations, there's a highlikelihood that there will be others that follow. When the oil and gas industry finds something that works, that didn't before, it changes quite rapidly. "I think a very good parallel to this is the earlier days in the Bakken Shale," says Bowkett. "There was a time when the land within the Bakken cost very little, despite knowledge that the area was oil bearing. Nobody at that time had the ability to produce oil out of it." "It wasn't until multi-stage fracking hit the scene that acreage values jumped in the Bakken. It was the early players in the area that had access to horizontal fracking technology who profited the most before the space became more crowded and costs sharply rose." Only one other company is looking to use this method on the US oil sands, like Archer is. But it is a privately-held company with a slightly different formulation that requires tremendous amounts of heat to remove its chemical solution from the petroleum it produces. Archer is set to move forward on its proof-of-concept phase in Logan County this year. Should they succeed in proving their technology works, others will follow and start looking to grab up some of the important acreage leftover in play for US oil sands. But they'll have to hunt around the areas that Archer will have already picked over. n www.resourceworld.com 41

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