FOCUS - Canadian oil shale firm closer to breaking ground for eastern Utah project
2 days 6 hrs ago
By Andrew Haley
The Enterprise
U.S. Oil Sands Inc. has moved closer to breaking ground on an ambitious project to extract oil from bitumen deposits in eastern Utah.
With a favorable decision in late August from Administrative Law Judge Sandra Allen, U.S. Oil Sands overcame a significant permitting obstacle to its proposed operations. Allen, appointed by the Division of Water Quality (DWQ), decided against two environmental groups, Living Rivers and Western Resource Advocates, which argued that U.S. Oil Sands’ proposed Uintah County mine would contaminate groundwater.
“U.S. Oil Sands [is] not going to discharge [contaminants] into groundwater because the nearest ground water is 1,500 feet underground,” said U.S. Oil Sands’ lawyer, A. John Davis III.
“I think the administrative law judge’s position was well taken and we certainly agree with it,” he said.
With the ruling, Davis, who is a partner in the Salt Lake office of Holland and Hart, said U.S. Oil Sands will face a final hearing before the DWQ “followed by what I think will be a very brief hearing before the Division of Oil, Gas and Mining.”
U.S. Oil Sands, a Calgary-based company, holds bitumen leases for over 32,000 acres of public land in Utah through a wholly owned U.S. subsidiary. According to the company, Utah possesses more than 50 percent of U.S. stocks of bitumen, also known as tar sands and oil sands. The company intends to develop its bitumen properties using a patented extraction process that utilizes a biodegradable, citrus-based solvent to wash oil from the sands in which it is found.
The words “tar sands,” particularly when conjoined with “Canada,” are a war cry for environmentalists, who point to ongoing, large-scale bitumen strip mining operations in Alberta as one of the most allegedly egregious examples of corporate greed and environmental degradation in recent memory. But U.S. Oil Sands’ proposed Utah operation is vastly distinct in both technique and scale from the tar sands mining under way in Canada, said Barclay Cuthbert, the company’s vice president of operations.
Cuthbert said the traditional tar sands mining ongoing in Canada differs in almost every way to the operation that U.S. Oil Sands is proposing in Utah. Most of the bitumen deposits being mined in Alberta are so far underground that they can be efficiently developed only by stripping away hundreds of feet of overburden, resulting in large open-pit mines, he said. Canadian tar sands mining employs variants of the Clark Hot Water Process, patented in 1926, which uses very hot water and mechanical mixing to separate the oil from the tar sands, he said.
One chief complaint of environmental groups is that Canadian tar sands oil production is highly inefficient, since vast amounts of oil are required to power the machinery that removes overburden and heats and mixes the slurry during separation. In addition to a large carbon footprint, Alberta tar sands mining is also allegedly to blame for contaminating tracts of Canadian wilderness with a hazardous byproduct of the separation process. Potential groundwater contamination was the central argument of Living Rivers’ and Western Resource Advocates’ complaint.
“The problem [with traditional oil sands mining] is the mixing of the hot water and sand is very vigorous. It creates a sludge, composed of very fine solids, oil and water, that sits in tailing ponds,” Cuthbert said. “The tailing ponds get to be enormous. The old mines sit. Instead of recovering them, they turn them into tailing ponds, so you create these lakes with oil in them. If wildlife get in that, they’ll die. Environmentally it is very challenging. And lots of water gets tied up in that because it has to be at a very large scale to be successful. Exxon’s oil sands project produces 100,000 barrels per day. It is Exxon’s largest project anywhere. Oil sands development in Canada is the largest industrial development in the world.
“We’ve got a brand new technology. Instead of mixing hot water vigorously, we mix a solvent and not so hot water and mix it gently. Because the process has small mechanical mixing, you don’t get a sludge, so there’s no tailing pond. Our byproducts are clean water, clean sand and clean oil. We don’t require much water, because we reuse it as we go. It uses much less energy and you get clean products.”
U.S. Oil Sands’ initial development proposal is for a 213-acre site called the P.R. Spring mine. The bitumen deposits at P.R. Spring consist of oily sands that lie on the surface and reach depths of 150 feet. The site lies in the arid uplands of the Book Cliffs, east of the Green River, between I-70 and U.S. 40, about 10 miles from the Colorado border.
In a nutshell, U.S. Oil Sands will dig up the oily sand, wash the oil out of it, and put the sand back where it came from, Cuthbert said. Both the water and the biodegradable, orange-peel-based solvent will be brought to the site, reused on site, and removed on completion, he said. Cuthbert said it would take three years to return the site to its pre-mining condition, compared to 50 years for reclaiming Alberta tar sands mines.
“We reclaim as we go. At any one time, we’ll probably only have 30 or 40 acres open. The operation is very straightforward. The extraction is very straightforward. The solvent is a bio-solvent. It comes from citrus. It’s biodegradable. We recycle all our solvent, but if there’s any trace left over, it’s biodegradable,” Cuthbert said.
Even if it weren’t, the potential for contaminating area groundwater at the P.R. Spring mine site is nonexistent, Davis said; the only groundwater in the area lies more than 1,500 feet underground, beneath an impervious rock layer. Davis said Living Rivers and Western Resource Advocates had changed their reasoning multiple times over the course of the year-long hearing, ultimately arguing that damp sands would mobilize residual oil and contaminate aquifers, which he said was not only impossible but disingenuous, since oil is already present at the site, and if anything U.S. Oil Sands was making the site cleaner.
“My view is that it has become the poster child for all the alternative fuels. It’s become this cause célèbre. What they’re comparing it to is nasty — using tons of water, strip mining. It’s nasty, and if that was going to be what happened in Northeast Utah it would be a disaster, but that’s not what’s going to happen,” Davis said.
Cuthbert said he thought environmental opposition to the P.R. Spring mine was motivated less by the specific allegations made in the hearing than by an anti-oil agenda using the permitting process to delay and run up the costs of development.
“Environmental groups are against all oil. The better it is, the more they hate it. [People who say,] ‘I don’t want to develop it, but I do want to fill up my car’ just made a choice to import it from Venezuela,” Cuthbert said.
“People have a hard time imagining that an oil sands project won’t just get bigger and bigger, but it won’t. We have the smallest surface footprint, the smallest water footprint, and the smallest greenhouse gas footprint of any oil program. There is higher quality oil in Utah than in Canada. Most global heavy oil is high in sulfur, which means costly sulfur refining. If you don’t have the sulfur [like in Utah] you save on costs and greenhouse gas. All in all, from the environmental side, there are a lot of benefits to Utah oil in Utah refineries.”
If U.S. Oil Sands can overcome environmental opposition, the company stands to make a fortune. According to a 2007 paper by J. Wallace Gwynn of the Utah Geological Survey, “Utah’s measured tar sand resource, though small in comparison to that of Canada, is the largest in the United States.”
“Utah’s tar sand deposits contain 14 to 15 billion barrels of measured oil in place, with an additional estimated resource of 23 to 28 billion barrels,” the article states.
According to the U.S. Energy Information Administration, the United States had 25.2 billion barrels of proved reserves as of 2010. With as much oil in its bitumen deposits as the entire U.S. proved oil reserves, Utah could become one of the largest oil-producing states in the country, if companies like U.S. Oil Sands can figure out an economical solution to tar sands development. According to the Utah Division of Oil, Gas and Mining, Utah is currently ranked 11th in the country in crude oil production.
“This is a highly economic project. It’s very economic at a small scale. You can spend a lot less money to do it [than in Alberta], and then it generates a lot of revenue, including for the royalty owner, [with] $2 million per year going into royalties,” Cuthbert said.
According to Davis, the royalty owner of the P.R. Spring mine is the state of Utah’s education fund.
“Utah’s oil sands are large, quite a bit larger than the country’s conventional reserves — 30 billion barrels,” he said. “Unlike in Alberta, where over 80 percent is deeper than 300 feet, in Utah it’s mostly shallow. You can get at it from the side of a hill. That’s how they are up at P.R. Spring. If you can only get 10 percent out, that’s 3 billion barrels. If you get $100 a barrel, that’s $300 billion. We’re not dreaming that big yet. We’re talking about 2,000 barrels per day.
“So far we’ve invested about $25 million in leases, tests, development. We expect to invest an additional $30 million more in local construction, storage tanks, and surface structures mostly built in the Salt Lake area, so that $30 million will be driven into the local economy,” Cuthbert said.
Cuthbert said the P.R. Spring mine would employ 25 full-time workers, with an additional “100 or more” hired during the construction phase. The mine would operate year-round. Workers at the mine would live in a mining camp operated by a camp outfit from Grand Junction, Colo., with food supplied from there and Vernal.
“Most of our operators will live in the camp. They’ll work for a week then go home for a week. Most of the skills we’re looking for are available locally. Vernal and Moab would be easy for people to work from. A significant part of this is service and support. If you have 40 guys living in a camp, you need to hire someone to feed them. [There are] mechanics and yearly overhauls. In any given year we expect to spend $20 million in support and service, and much of that is local,” Cuthbert said.
U.S. Oil Sands expects to break ground next spring. After the spring runoff, large tanks and other infrastructure manufactured in Salt Lake would be transported to the remote site on skids. Though two hearings remain before its permit is officially approved by state agencies, Cuthbert said he expects to ultimately win an approval process that started in 2005.
“The $25 million we invested [is] because we are confident this will be approved. This recent win is one of many. We expect to be active out there in the spring. I have quiet confidence we’ll continue to meet expectations and show people a better way to do stuff,” Cuthbert said.
“We’re always telling people, if you guys have a better solution, please let us know.”
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