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Scimitar Hydrocarbons investing in Pakistan: Scimitar Hydrocarbons and the heavy oil industry.

Scimitar Hydrocarbons is an emerging Junior Canadian Oil and Gas Company with operations in Egypt and Pakistan. The company's business model is to acquire properties with exciting discoveries and enhance value by applying Canadian development and production technology. As a small company with low overheads, Scimitar targets discoveries made by larger companies that were deemed to be marginal and abandoned, some of which with further investment prove to be larger and more attractive than initially estimated.

The company was restructured in 1998 at which time its exploration portfolio in Mozambique, Ajman and Canada was divested to concentrate on the Issaran project in Egypt that was signed in late 1998. Prior to the 1998 restructuring of the company, its principals had been involved in several of the major discoveries in the North Sea. Middle East and South Asia through their association with other companies. The company's Chairman, Angus A. Mackenzie was a co-founder of four companies which grew over C$1 billion scale before being taken over by larger companies and was involved in the discovery of the Brae Field (North Sea), Heimdahl Field (Norway), Rashid Field (Abu Dhabi), Jalalabad Field (Bangladesh) as well as the founding of Dugas.

Issaran forms the core of the company's portfolio. It is a large shallow heavy-oil field that was discovered by a major US oil company in the early 1980's and subsequently abandoned after the oil price crash of the mid 1980's. The field is a block-faulted structure containing more than 500 million barrels of oil-in-place in a series of fractured carbonate reservoirs. The field can produce conventional "cold" oil production and the use of thermal enhanced recovery methods has been proven to be successful which will add to reserves and future production rates. The project was declared commercial in late 2001 after completing the World's first commercial pilot of cyclic stream stimulation in a fractured carbonate reservoir. Pilot production, currently 1,000-1,200 BOPD, will be increased to 4,000 BOPO over the next 18 months and then brought progressively to 10,000 BOPD as commercial scale steam stimulation facilities are commissioned.

The technology used to commercialize Issaran was developed largely in Canada since 1980 when government support through fiscal stimulus and R&D investment allowed an industry of 790,000 BOPD to grow. Although the technology used to commercialize Issaran was proven and tested in Canada, the application to the Issaran project was one of the world's few trials in a heterogenous carbonate reservoir as all Canadian (and US and Venezuelan) projects involve sandstone reservoirs. The only other known commercial project in a carbonate reservoir is in Texas and a similar project in Oman was recently declared commercial.

Scimitar's first venture into Pakistan was recently initiated with the signature of the Safed Koh Exploration License. Safed Koh which lies in dera Ghazi Khan District of Punjab has potential for gas an condensate production. Scimitar will re-evaluate the Rhodo discovery made in the early 1970's as well as exploring the potential of other structures on the block. This is the first exploration license to be signed under the 2001 Petroleum Policy.

The Heavy Oil Industry

In mot oil producing countries, including Egypt and Pakistan, heavy oil exists and is often discovered at shallow depths when drilling for deeper light oil or gas. It is usually left unexploited until most of the lighter oils have been produced as they are easier to produce and have a higher economic yield than heavy oil.

Heavy oil consists of viscous tarry oil that may even be a solid at normal temperatures. It generally occurs in shallow reservoirs or as tar sands at or pear ground level. Heavy oil is rich in residual petroleum compounds such as bitumen and asphalt as well as sulfur compounds and deficient in the lighter products that make up kerosene and gasoline. It is used as a source of bitumen for road surfacing and as a heavy fuel oil for power generation. Some countries specialize in upgrading this product to take advantage of the heavy oil price differential of $5-8 per barrel less than light oil e.g. the Canadian Syncrude process upgrades several hundred thousands of barrels per day into a light sweet crude that attaracts a premium price.

In Canada, which is a world leader in heavy oil production and technology, 36% of its daily oil production of 2.2 million barrels consists of heavy oil that is recovered from conventional production, thermally stimulated production and tar sand mining techniques. The production of Canadian heavy oil, at 790,000 barrels per day, is almost the same scale as Egypt's conventional oil industry. The industry is about 20 years old and has been developed with government support in the form of tax and royalty incentives that recognize the added technical and economic difficulties in developing this resource. The industry in Canada today generates about US$6 billion per year in revenues of which the government is now able to take more than US$1 billion in royalties and direct and indirect taxes as a return on its earlier support to establish the technology and develop the industry. It is estimated that direct employment in the upstream a heavy oil industry is about 30,000 with employment in associated services being a nother 60,000 Most of the heavy oil produced in Canada is exported providing valuable foreign exchange. The export of heavy oil technology and expertise is another benefit to Canada.

The heavy oil industry in the Middle East and South Asia is in its infancy as the natural focus to date has been on lighter oils that have been of greater economic benefit to the country. However, as light oil production declines, interest is growing in heavy oil production.
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Publication:Economic Review
Date:Apr 1, 2002
Words:958
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