Mining Innovation Aims to Turn Utah Sands Into an Oil Patch

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Mining Innovation Aims to Turn Utah Sands Into an Oil Patch


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VERNAL, Utah — Utah is a yawn amid the drilling frenzy that has upended the energy picture in recent years. It accounts for just one of every 100 barrels of oil produced nationwide.

But a couple of executives who have spent decades hunting for oil across the Middle East, South America and Canada are betting that the next energy patch will be near here, in a remote stretch of craggy desert known as Asphalt Ridge.

They are trying something that has repeatedly failed in Utah: mining the state’s enormous deposits of oil sands, an arduous process of extracting oil from hard rock.

The two oversee Petroteq Energy, a Canadian company that aims to have the first commercially viable oil sands production in the United States underway here by early September.

Petroteq’s claims challenge the notion that oil sands mining is in eclipse. The heavy oil produced from oil sands is among the most carbon-intensive fuels, a drawback as concerns about climate change grow.

Even in Canada, where oil sands production dominates the energy industry, some major oil companies have written off or withdrawn their investments. The Keystone XL pipeline designed to carry the fuel to American refineries has been stalled by environmentalists with protests and lawsuits. They typically call oil sands “a carbon bomb.”

David Sealock, Petroteq’s chief executive, is undeterred. He likens his tiny operation — with its modular mixing vessels, rock crushers and conveyor belt — to a humble Lego set. But when he picks up a canister of newly processed oil, he smiles at the acrid odor. “That’s the smell of money,” he said.

“We have a very disruptive technology,” said Mr. Sealock, who has worked for Chevron in several countries and managed two oil sands companies in Canada. “There was a treasure chest here that didn’t have a key, and this technology is the key.”

He says what makes his operation different from larger and deeper Canadian mining operations and all the past failures in Utah is a cocktail of solvents that can separate oil from rocks at little cost and with no water or air pollution.

He and the other veteran executive, Jerry Bailey, say that their approach will be far cleaner than oil sands mining in Canada, which is more water intensive and leaves vast toxic tailing ponds.

“What’s in Canada is an environmental nightmare,” said Mr. Bailey, a former ExxonMobil senior executive in the Middle East and now president of Petroteq. “With our operation, nothing goes in the air, nothing goes in the ground, and there is no water involved.”

At the same time, the United States is no longer starving for oil as it was at the beginning of the century, when experts thought reserves were in decline and Canadian oil sands investments climbed. The American shale drilling boom has produced an abundance of crude, enough to make the United States a major exporter.

Petroteq executives say the country can always use more.

Not surprisingly, environmentalists are skeptical. “If this project takes flight, then it risks vast strip mining and air, water and greenhouse gas pollution in a region that is already facing a dire climate and water future,” said Taylor McKinnon, a public lands campaigner at the Center for Biological Diversity.

Environmentalists say remnants of the solvents could go into the air, be eaten by wildlife and leach into groundwater. And once the crust of the land is removed in the strip-mining process, topsoil can become airborne dust and cover snow on nearby mountain ridges.

Dirty snow is more apt to absorb solar heat, leading to more evaporation and unreliable water flow — potentially hurting farming and leading to more forest fires.

Protests in recent years over oil sands development have focused on other projects, but Mr. McKinnon said that may now change. “We have our eye on these guys,” he said.

Under its system, Petroteq mines and crushes the oil-saturated sands into small chunks, then moves them along a 150-foot conveyor belt into a tank where they are mixed with solvents. The mix is then transferred to a second tank, where a centrifuge spins the lumpy liquid, separating the oil from the sands. Clean sand is moved to a reclamation landfill. Finally, the solvents are distilled out of the oily liquid and recycled over and over again.

The company says virtually no chemicals are left in the sand that is put back. Executives say their solvents and the rest of their operations have passed all regulatory procedures.

Mr. Sealock insists that his employees spray water on recycled sands so they do not blow away and that his solvent mix is “benign,” though he refuses to disclose its contents. “They are not going to have a major effect on plants, wildlife or water,” he added.

At the moment the operation here is tiny, employing 20 people. Its first pilot plant produced 250 barrels a day. When the newly expanded plant begins commercial output it will yield 1,000 barrels a day for shipment by truck to refineries in Salt Lake City, 150 miles away, where they can processed into diesel fuel. The production goal is to reach 5,000 barrels a day in three years.

That is a trifle in the global 100-million-barrel a day market, but the company has leased over 2,500 acres of private land, and executives say they will eventually be able to produce 10,000 barrels a day over 25 years.

Other companies could jump in with their own solvents, especially since Utah offers sizable tax credits for mining oil sands and oil shale. Also helpful has been the 40 percent rise in oil prices over the last year, which is an incentive for new investment.

“The price is now in a zone where Petroteq can possibly justify what they are trying to do,” said Kevin Birn, an oil sands expert at IHS Markit, an energy consultancy. “If the last decade has told us anything, I’d hesitate to rule out the potential for technology to generate new sources of energy supply.”

Petroteq executives say they are in good shape financially because the company founder and chairman, Alex Blyumkin, a fuel distributor from Ukraine, has invested roughly $10 million of his own money and the company has a mere $500,000 in debt.

Moreover, they say the economics of their project work, claiming that their break-even price is $32 a barrel, including all costs and taxes — less than half the current price for crude.

Thomas Liles, an oil sands expert at Rystad Energy, a Norwegian consultancy, said Petroteq’s business aspirations were “theoretically possible.” But he added, “It’s really a little early to say until these technologies are fully demonstrated.”

The demonstration is about to begin, and hiccups are always possible with new ventures. There have been logistical, electrical and mechanical challenges and glitches during equipment testing. Earlier this month, operations were halted for the day when a pump engine malfunctioned and a worker broke an arm.

Failure here could doom Utah oil sands once and for all.

“This is not baseball, where you get three strikes,” Mr. Sealock acknowledged. “You get one chance to get this right.”



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