Features and Occasionals

Making a High-Stakes Oil Sands Play on the Tavaputs Plateau

By Katherine Pioli

Since 2005, a small Canadian oil firm by the name of US Oil Sands, Inc. has been slowly pulling together the pieces to develop the first oil sands mine in the United States, PR Springs, located on the Tavaputs Plateau in Utah’s Uinta County. Last year, US Oil Sands finally locked in the investment they needed to fund the mine and earned a favorable ruling from Utah’s Supreme Court after a lawsuit led by the Moab-based conservation organization Living Rivers.

Already six years behind their original production schedule, US Oil Sands announced to their investors last year that they were ready to commence production by mid-2015. Then, the market crashed.

Since June 2014, when oil sold at around $115 per barrel, prices have fallen to a low of $55 per barrel (as of the writing of this article). We can see the real-time effects of this drop playing out at the gas pumps. Around the country, effects are also emerging in the oil fields.

Last December, The Economist and Canada’s National Post reported that, while all fossil fuel companies are taking a hit, it’s the small, un­conventional extraction companies such as those mining oil shale and oil sands that are feeling most insecure in the changing market. A handful of already indebted small Canadian oil sands firms might go the way of the now defunct OPTI Canada, Inc., while in the US, oil shale investors are starting to jump ship and analysts predict that investment in costly new wells – no longer breaking even at current market prices – may slow by as much as 50%.

US Oil Sands, Inc. CEO Cameron Todd, however, says he isn’t worried.

“Our production methods use new technologies that are highly efficient and very economical. We are already working at lower cost than most producers, so in this low price environment, we win,” says Todd. The company expects operating expenses at the Utah mine to be around $26 per barrel, which even at the current low allows the company to turn a profit.

Todd believes US Oil Sands has two additional advantages that set them apart from struggling Canadi­an producers: funding and location.

US Oil Sands’ operations are fully funded with no debt to compromise production costs, he says. The company also expects to benefit from its proximity to Utah’s refineries, saving big on transportation costs.

The dip in the market may have actually come at a beneficial time for US Oil Sands. While firms already in production are selling to the market at a rate that can’t fund the production of new wells, US Oil Sands will not be selling for at least another year during which time the market is likely to rebound. Cur­rent prices, Todd says bluntly, “just don’t matter to us.”

Although the six-month-long dip in the oil and gas market has created a lull in the industry—even in Utah, applications for fracking permits were down in Novem­ber —the market will rebound, says Hans Ehrbar, professor of economics at the University of Utah. He says this will leave US Oil Sands in good shape if they weather this storm.

If environmental groups are hoping this market downturn will work in their favor long term, Ehrbar says, think again. In fact, Ehrbar believes that as lower prices close oil shale mines, more companies might be turning towards [oil] sands in the future.

“Environmentally, [oil] sands extraction is more devastating than fracking,” says Ehrbar. “If you want to get away from fossil fuels, you can’t wait for the market to do the job for you. You have to do it through regulations.”

Living Rivers, a 14-year-old conservation organization based in Moab, isn’t waiting to see if the market has any permanent power against US Oil Sands. According to Conservation Director John Weisheit, the group has long held that PR Springs will compromise important ground water. Along with Peaceful Uprising and the Center for Biological Diversity, Living Rivers first challenged US Oil’s drilling permit in 2010. Last summer their case was dismissed on a technicality. Living Rivers, working with attorney Rob Dubuc from Western Resource Advocates, has renewed an attempt to get environmental arguments against the drilling heard in court and is waiting for a response from the Utah Supreme Court on a new petition for hearing.

As for US Oil Sands, Todd says they are keeping on budget and on track to begin extraction this summer. “We are planning to finish construction in the third quarter and be producing in the fourth. We are very enthusiastic.”

About oil sands

Oil sands are different from oil shale in that the hydrocarbons are more mature in oil sands, making them easier to refine. The term “tar sands” is a colloquialism used to describe the oil sands deposits found in northern Alberta, according to the Canadian Association of Petroleum Pro­ducers; oil sands is a more accurate term.

The largest known oil sands deposits are in Alberta (Canada), Venezuela, the Middle East and Utah. Our state is thought to hold up to 19 billion barrels of oil sands, mostly on public lands. Utah’s PR Springs will be the first oil sands mine in the US.

Oil sands are a combination of clay, sand, water and an oil called bitumen. In Utah, sometimes naturally exposed fragments of bitumen appear on the soil surface and look much like chunks of asphalt. Because of its solid rock state, this kind of oil is not pumped out of the ground but is ex­tracted using open pit or strip mining, then the oil is separated from the sand and clay. After processing, the oil created is similar to that from conventional wells.

Environmental concerns

About two tons of tar sand produce one barrel of oil. Normally, 75% of the bitumen is recoverable. US Oil Sands claims that with new technologies and practices they will be able to extract 96% of the bitumen, without creating the large tailing ponds that cause such environmental degradation in Canada. The company will also be the first in North America to separate the oil using d-limonene, a citrus-based solvent they claim is non-toxic, biodegradable and environmentally friendly.

The main concern with oil sands extraction in Utah, according to the US Depart­ment of the Interior, is the large amount of water required. Processing, they say, will “require several barrels of water for each barrel of oil produced, though some water can be recycled.” US Oil Sands expects to be able to recycle some water and most of the d-limonene solvent.

About the company

Recent reporting from the Calgary Herald says that US Oil Sands plans to begin production at 2,000 barrels per day, increasing to potentially 20,000 bpd. Current construction costs for US Oil’s processing center are estimated at $60 million —$10 million more than previously estimated. The bulk of funding for the project comes from three American private investment firms: Blue Pacific Investments Group Ltd, Anchorage Capital Group, LLC and Spitfire Ventures, LLC. These firms now hold eight seats on the board of directors and control 63% of the company.

Katherine Pioli is Catalyst’s staff writer.

This article was originally published on December 30, 2014.