A Canadian company developing an oil sands mining and extraction project in Utah has announced a decision to "reduce the pace of field construction in order to maintain working capital flexibility," based on low oil prices.
Oil sands, also known as bituminous sands or "tar sands", are loose sand or partially
consolidated sandstone saturated with a viscous form of
petroleum called bitumen. US Oil Sands Inc. is a Calgary-based company that describes itself as "focused on oil sands exploration and production in Utah." Its wholly owned United States subsidiary US Oil Sands (Utah) Inc. has bitumen leases covering 32,005 acres of land in Utah’s Uinta Basin.
US Oil Sands' PR Spring Project area
consists of 5,930 contiguous acres near the East Tavaputs Plateau in
Utah. According to the company, construction of Phase 1 of the PR
Spring Project is approximately 85% complete with costs coming in below
budget. If completed, it would be the first U.S. oil sands mine to enter commercial production.
While the company has not yet entered production, US Oil Sands has described a proprietary extraction process using a citrus-based bio-solvent to extract bitumen from oil sands without the need for tailings ponds. The company pitched this technique as different from traditional Canadian oil sands production in Alberta, where wastewater management is a controversial environmental challenge. But the Utah proposal has drawn concern over impacts to groundwater flowing under the Book Cliffs
But the company said it conducted a detailed review of the project "in light of continued low oil prices and the closure of two key contractors’ Utah-based operations." Specifically, the press release stated, "The low price
environment has impacted the Project as two of the Company’s key
contractors have closed their operations in Utah and have caused delays
to the Project." Indeed, spot prices for West Texas Intermediate have ranged near $30 per barrel in recent days, with U.S. crude futures falling below $30 earlier this year for the first time since
2003. The press release also mentions that $10 million in previously-announced
royalty financing had not closed, causing the company to explore other
options including equity financing.
According to the press release, project work on the PR Spring Phase 1 project will continue at a reduced level, with an expected focus on "critical path items and areas that will lead to the most efficient
restart of full construction operations in the future. In spite of
delays and increased costs that will occur with restart of full
construction operations, the Company is still targeting completion
within the original US$60 million approved budget."
How will US Oil Sands survive the low oil price environment? How will economic, environmental, or other factors affect the fate of Utah oil sands mining?