The economics of SAGD plants

 Alberta and Saskatchewan  both have significant light and heavy oil deposits.The economics of each is different;both have several important factors to consider in their production and marketing processes.But at present day prices of heavy and light oil it is still more profitable to go the traditional way with light oil.And the main reason is still the price differential for light oil.
 The reserves of heavy oil are massive at 135 billion barrels in Alberta alone.There are two main ways of extraction- mining and the in situ process."In situ" means on site in latin and it is a smaller and less capital intensive process.There are quite a few mining operations ;they belong to bigger operators such as Suncor and Japan Oil and Canadian Oil Sands.Mining operations require a large capital outlay.                                                                            In situ operations have two well pairs;one is drilled at the bottom of the formation and the second one is above it.They are drilled into central pads and  can extend for miles.The SAGD operation or steam assisted gravity drainage operation can drain a large area and a large resource. Steam is pumped into the top well and goes down the liquid drains  into the bottom hole. Oil is then pumped up to an inlet facility where it is processed.Steam  pumped into the top well turns tar into bitumen which is a semi-solid then it is processed by removing lighter oil fractions from the heavy crude oil.  But the bitumen will not flow unless it is heated up.Once it goes into the separation vessel the coarse material  is removed ; the sand settles to the bottom and "the middlings" are suspended. The impure bitumen froth is removed.Later naptha (a byproduct) is added to reduce viscosity.You now have a layer of bitumen and other products and a layer of naptha and lighter oil products.     Sometimes there are "hot spots" or "dry spots" and this slows down the flow of oil that is being pumped up to the inlet facility.This can be remedied by using Inflow Control Devices that cost up to $1million per well.This improves the well conformance and the flow of oil to the inlet;the cost of the device is paid for quickly. As a well that is not performing may produce  only about 200 to 250 barrels per day while a performing well may produce up to 650 or 700 barrel per day.This makes a big difference to the economics of producing heavy oil.
  Factors in the Equation
   There are a number of factors that must be considered to determine which resource is more economical.First,the heavy oil deposits tend to be bigger in size.The in situ process can have wells running for long distances.Also  a heavy oil plant will extract around 60% of the oil in place whereas only 5 to 15% of light oil is extracted on the primary recovery and 30 to 35% of the remainder on the secondary recovery.So total extraction is about 30 to 40% of the reserve in comparison to 60% for heavy oil. But the all important factor is the netback which is the price minus the cost of recovery or the contribution added by each barrel to the bottom line. Presently the netback for light oil is $52 per barrel and the netback for heavy oil is $34 per barrel.The differential in the netback favours producing  a barrel of light oil over a barrel of heavy oil in today's environment.And there are less barrels of light oil around to extract.