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August 10, 2011

SAGD "Continues To Work Well" In Bitumen Carbonate Pilot At Saleski-Laricina

Nickle's Daily Oil Bulletin

By Pat Roche

Laricina Energy Ltd. says SAGD continues to work well at its pioneering pilot in the bitumen-bearing Grosmont carbonate formation at Saleski.

No commercial bitumen has yet been produced from Alberta's carbonate rock, which may hold enough in-place oil to rival the conventional oilsands. Several cyclic steam pilots produced mixed results some years ago, but Laricina says it was the first to test SAGD on that resource.

Steam injection at Saleski in northern Alberta began last Dec. 23. In the second quarter, Laricina began selling bitumen produced from the pilot and says it will continue to ramp up production through the rest of 2011.

"SAGD through the first six months of operations ... continues to work well in the Grosmont and the reservoir suggests strong initial performance in terms of permeability and well productivity," Laricina said in its second quarter report.

During the quarter "the Saleski pilot progressed through a number of production and injection cycles in the Grosmont D and C zone well pairs. These cycles provide data critical to substantiating the overall validity of our plan to produce bitumen through [SAGD] in the carbonates and, in particular, to selecting the right combination of operating input parameters, such as steam injection rates, pressures and duration," the company said.

Following an operating period with steam alone to validate longer-term conventional SAGD performance, the second stage of solvent-cyclic SAGD (SC-SAGD) will begin in the first well pair.

Closely held Laricina, which is still in start-up mode, reported total corporate revenue of $255,000 for the second quarter as the first trickle of blended bitumen was shipped to market. The oilsands developer had no revenue in the same period last year.

The company reported a net loss of $5.76 million (11 cents per basic share) for the second quarter compared with a net loss of $1.76 million (four cents per basic share) in the corresponding 2010 quarter. Capital spending in the first six months totalled $84.77 million, up from $53.26 million in the first half of last year.

Besides ramping up pilot production and preparing for the next phase at Saleski, Laricina is currently constructing a commercial demonstration project in the Grand Rapids oilsands formation at Germain.

The Saleski pilot will be closely watched. The Grosmont carbonate resource has been on industry radar screens since Royal Dutch Shell plc paid about half a billion dollars for bitumen rights in that formation a few years ago. Shell is currently awaiting a regulatory decision on an application related to the first small pilot it hopes to do in the Grosmont.

Athabasca Oil Sands Corp. (AOSC) recently began testing electric heat (instead of steam) in a bitumen-bearing Leduc carbonate reef at its Dover West property, also in northern Alberta. AOSC calls its process thermal assisted gravity drainage (TAGD).

Meanwhile, Husky Energy Inc. plans to do a bitumen carbonates pilot on its large Saleski property, though it hasn't disclosed the timing or technology. Husky plans to drill about 30 vertical stratigraphic wells and to complete an additional 144 kilometres of 2D seismic data at Saleski next winter.

In its second quarter report, Laricina said it continued injection and production test cycles on its first two horizontal well pairs "to support early-time history matching of results at Saleski against simulations and established SAGD production in other reservoirs."

Laricina said its Saleski results to date indicate output can be expected to ramp up through this year. Laricina declined to release production figures for the pilot, which has confidentiality status with the Alberta Energy Resources Conservation Board.

Meanwhile, Laricina is doing the regulatory groundwork for the proposed next phase of its Saleski bitumen carbonates project, which will have a design capacity of 10,700 bbls a day.

The company held an open house in Wabasca to provide local residents with information on the planned Phase 1 expansion, which would bring total approved capacity to 12,500 bbls a day gross. Supplementary information requests received in the first quarter from the ERCB and Alberta Environment were completed and submitted as planned in the second quarter.

Laricina also completed the design basis memorandum for the Saleski Phase 1 expansion. With the completion of its recent financing, the detailed engineering and procurement are planned to start in the third and fourth quarters, respectively, to remain on track for first steam at the end of 2013.

Laricina's first phase of development at Germain -- a 5,000-bbl-a-day commercial demonstration project -- remains on track for first steam at the end of 2012.

All major equipment has been procured for the Germain project. To manage the larger number of modules (twice as many as at Saleski), as well as the project schedule and the anticipated expansion of capabilities for future phases, Laricina now has four fabricators under contract versus only one for the Saleski pilot.

The next stage of construction at the Germain commercial demonstration project will include drilling of piles for the modules and remains on schedule for the fourth quarter.

Laricina said construction of its contracted slant drilling rig for the Germain well pairs was completed as planned in the second quarter. Delivery of the rig to the Germain site occurred in July and positioned Laricina to initiate drilling of the first six of the 10 well pairs mid July.

In April, ATCO Electric received approval from the Alberta Utilities Commission for the Livock substation and the Livock-to-Germain transmission projects. This means Germain will be tied into the provincial power grid in time for commissioning and start-up.

Laricina is also involved in the development of other bitumen-related technologies.

The company is involved in a consortium planning to test a bitumen extraction process called enhanced solvent extraction incorporating electromagnetic heating (ESEIEH), which would use radio waves to heat the reservoir before starting vapourized solvent injection.

Laricina said the ESEIEH project remains on schedule for completion of Phase 1 by year's end. Activities currently underway will test the performance of a proprietary antenna design in bitumen ore on surface.

In the first quarter Laricina announced receipt of the United States patent for its passive heat-assisted recovery method (PHARM), a way of capturing additional resource in a lower bitumen zone using heat previously injected into the primary, higher target zone. The company's Canadian patent of PHARM was confirmed in the second quarter.

Neil Edmunds, Laricina's vice-president of enhanced oil recovery, had his appointment as adjunct associate professor at the University of Calgary extended as the company continues to foster, support and advance its work on various initiatives with the university.

The Alberta government recently announced Laricina was selected to receive funding of $10 million (gross) under an energy technologies program for its Saleski Grosmont pilot.

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