Abstract Experimental data have shown that the solubility of water in the oleic (L) phase (xwL) can be significant at elevated temperatures. However, xwL was not properly considered in prior studies of SAGD and ES-SAGD. The main objective of this research is to present a detailed study of compositional mechanisms in SAGD and ES-SAGD simulation by considering xwL. The importance of properly considering xwL is shown in economic evaluation of these bitumen-recovery processes. The phase-behavior models used in this research are carefully created on the basis of experimental studies presented in the literature. Mechanistic simulation studies are then conducted for SAGD and ES-SAGD. Co-injectants used in ES-SAGD simulations range from propane through n-decane. Results show that xwL enhances bitumen production in both SAGD and ES-SAGD mainly because xwL results in reduction of L-phase viscosity. The enhancement is more significant when the chamber-edge temperature is higher, because xwL increases with temperature. The enhancement of bitumen production observed in the case studies is 7.66% for SAGD, 4.08% for C6-SAGD, and 4.85% for C8-SAGD for a fixed period of operation at 35 bars. It is important to consider xwL in SAGD and ES-SAGD simulations, because the relative performance of ES-SAGD to SAGD tends to be overestimated without considering xwL. On the basis of a sensitivity analysis for economic performance of ES-SAGD, a guideline is presented to leverage xwL to improve bitumen production in ES-SAGD. As discussed in our prior research, solvent becomes effective in diluting bitumen and reducing steam requirement, only when it sufficiently accumulates near the chamber edge. New results show that water can act as a diluting agent until solvent sufficiently accumulates near the chamber edge.