Devon has received regulatory approval from the Alberta Energy Resources Conservation Board and Alberta Environment and Water to move forward with the company's third oil sands project in Canada. Construction of the 100 percent Devon-owned Jackfish 3 project will begin next month with startup targeted for late 2014.

Jackfish 3 will utilize a recovery method known as Steam Assisted Gravity Drainage (SAGD), the same method currently employed at the company's two previously completed Jackfish projects. Once fully operational, Jackfish 3 is expected to produce an average of 35,000 barrels of oil per day before royalties. Like Jackfish 1 & 2, Jackfish 3 represents an estimated 300 million barrels of gross recoverable oil. Devon expects to deploy approximately $1.3 billion of capital on Jackfish 3 through startup.

Devon's original Jackfish project continues to produce near facility capacity and is among the best performing SAGD projects in the industry with high per well production rates, a low steam-oil-ratio and industry-leading operating costs. Jackfish 2 began producing in June of 2011 and net production volumes are ahead of plan, currently at 13,000 barrels per day. The company expects to reach full production capacity at Jackfish 2 of 35,000 barrels of oil per day in late 2012.

"We are eager to move forward with the third phase of Jackfish," said John Richels, Devon's president and chief executive officer. "The success of our first two projects gives us tremendous confidence and speaks to both the high reservoir quality in the Jackfish area and the technical competency of our thermal heavy oil team."

To further leverage Devon's SAGD expertise, last year the company announced a joint-venture with BP in which it acquired 50 percent of BP's interest in the Pike oil sands leases. The Pike leases are immediately adjacent to Jackfish and are of similar quality. Ultimately, this acreage will be developed through multiple phases similar to Jackfish. Devon expects its Pike and Jackfish projects to drive the company's net thermal oil production from its current 44,000 barrels per day to between 150,000 and 175,000 barrels per day by 2020. This represents a 17 to 19 percent compound annual growth rate.

Devon is the only U.S. independent with active operations in the oil sands and was among the first in the industry to use SAGD technology. The innovative method allows production from oil sands reservoirs that are too deep for conventional mining operations. Steam injected into the reservoir heats the thick oil allowing it to flow to the surface. SAGD requires less surface disturbance per unit of production when compared with other methods of oil production. In addition, Devon's Jackfish projects are specially designed to utilize saline water rather than fresh water thus minimizing environmental disturbance.

Tags: Devon Energy Corporation