The Oil Sands Weekly
CNRL sued for $213 million in unpaid bills at Horizon . . .
The Globe and Mail is reporting that Canadian Natural Resources (CNRL) is being sued by Italian engineering firm Saipem for unpaid bills and early termination of a contract related to the Horizon upgrader.
Saipem signed a lump-sum contract worth $480 million for construction of a hydrotreater at Horizon's Phase 2B expansion. The hydrotreater was said to be a carbon-copy of the original unit built for the initial Horizon development, therefore requiring minimal engineering.
Under the terms of the contract, construction was to be completed by July 2015. The engineering firm alleges CNRL had demanded numerous changes, which added costs and pushed the completion date to April 2016. Saipem claims that CNRL initially accepted the revised schedule, but later filed a formal notice to the engineering firm claiming it had breached its contract agreement.
Saipem maintains the delays were the fault of CNRL and that perhaps the contract cancellation had more to do with plummeting oil prices, which had fallen from US$100 to just US$57 a barrel by the time the termination notice was served in December 2014.
The engineering firm apparently billed CNRL $370.7 million but the actual expenses were $509.2 million. The lawsuit points to numerous added costs incurred by Saipem, which were not covered under the original contract. Saipem is seeking to recover at least $213 million.
CNRL did not comment on the matter and has yet to enter a plea.
Energy East hearings descend into chaos in Montreal . . .
The National Energy Board (NEB) has suspended Energy East hearings due to security concerns and claims of conflict of interest. The latest series of complaints stem from a meeting between two NEB panel members and former Quebec Premier Jean Charest while he was working as a consultant for TransCanada.
Montreal mayor Denis Coderre expressed disappointment that protestors robbed him of the opportunity to voice his opposition to the project. Coderre doesn't think his province needs another pipeline since an existing Enbridge line already feeds Alberta oil to Quebec refineries.
The federal government has kept their usual distance on the matter. Natural Resources Minister Jim Carr issued a statement noting it's important that Canadians with an opinion have the right and freedom to express themselves.
The NEB has yet to provide a revised schedule for the hearings. The next round of panel sessions is scheduled for October 3-7 in Quebec City.
Alberta drags national GDP into contraction . . .
As expected, Canada's GDP contracted 1.6% in the second quarter, blamed squarely on the Alberta wildfires, the Fort McMurray evacuations and oil production cuts that ensued. This was the largest quarterly decline since the 2009 financial crisis.
Exports of crude oil and bitumen fell almost 10%, while exports of refined petroleum products fell almost 20%. Business investment edged down slightly for the sixth consecutive quarter. However, the pace of the declines appears to be levelling off. Exports of metal concentrates, materials, auto parts and consumer goods also fells in the second quarter.
However, June GDP data was slightly better. After a dismal May, June GDP growth came in at 0.6% y/y, as bitumen production in Fort McMurray rebounded after the wildfires. Improvements were also seen in conventional mining (+2.5%), manufacturing (+1.8%) and utilities (+3.1%).
Statistics Canada also reported that the nation's current account deficit widened by $3.3 billion in the second quarter to $19.9 billion. Surprisingly, exports of energy products increased $700 million, as higher oil prices more than offset declines in volumes exported. Unfortunately, other sectors of the economy are not improving despite the lower loonie.
For the month of July alone, StatsCan reported better than expected export data, with non-energy products leading the charge. Despite a good performance in July, non-energy exports are still down 7% from the same time last year. The dollar value of energy exports were down 1% for the month and still down 28% year/year due to lower oil prices.
Smoking pot on your coffee break may soon be legal, but . . .
Oil & gas safety advocates Enform are raising a red flag over the impending legalization of marijuana for recreational use. The group has sent an open letter to the federal government's Task Force on Marijuana Legalization outlining concerns that widespread marijuana consumption will undoubtedly make worksites unsafe.
The group points out that employers have a legal obligation to ensure the safety of its workers. But the laws are blurred as to how far employers can interfere into the personal lives of its employees.
A prime example is Suncor's ongoing battle with its Unifor 707A union over random drug testing. The union maintains that certain drugs and alcohol can remain in the employee's system several days after consumed. A positive result on a drug test does not necessarily mean the worker is impaired and infringes on the worker's privacy.
Petroleum Services Association of Canada (PSAC) president Mark Salkeld points out that it may soon be legal for workers to light up a joint during their coffee breaks. It is unclear if employers will be allowed to ban marijuana from their worksites or camps in the same way they ban alcohol. Unlike alcohol, there is no breathalyzer test for marijuana that would show if the worker is impaired.
The federal Liberals promised to legalize marijuana for recreational use during the last federal election. Under current regulations, purchasing marijuana requires a "prescription", although the current laws around medicinal marijuana are also fuzzy at best.
Other notable Canadian energy news . . .
Calgary-based Twin Butte Energy has filed for bankruptcy after bondholders rejected a plan to sell the company to a Chinese firm. Its creditors have instead asked the company to file for creditor protection. Twin Butte produces primarily medium/heavy oil from the Lloydminster region. The company's shares will also be delisted from the TSX.
Bankers Petroleum has won a $57 million tax dispute with the Albanian government. The government had questioned Bankers' $250 million worth of expenses claimed in 2011 and froze the company's Albanian accounts pending a $75 million payment for back-taxes and fines. Third party auditors concluded the expenses were legitimate. Bankers Petroleum was recently purchased by Chinese oil and gas company Geo-Jade Petroleum for $575 million.
Husky Energy has been again been forced to temporarily suspend shoreline clean-up along the North Saskatchewan River due to high water levels brought on by heavy rainfall in the region.
Enbridge officially pulls the plug on Sandpiper . . .
Enbridge Energy Partners has officially withdrawn its regulatory application for the Sandpiper Pipeline, which would have brought oil from North Dakota to refineries in southern Ontario and the US Midwest.
Enbridge says Sandpiper is beyond its 5-year plan and will instead focus its funds on the Bakken Pipeline, which instead bring Bakken oil to the Gulf Coast.
Colorado's anti-frackers suffer a set-back . . .
Anti-fracking groups in Colorado failed to gather enough support around a proposal to move regulatory power from the state to local governments. Earlier this year, Colorado's Supreme Court struck down local fracking bans approved in the cities of Fort Collins and Longmont, noting that oil & gas regulations are state jurisdiction, not municipal. The anti-fracking groups were petitioning to put that law on the ballot during the next presidential election. Proponents of the measure still have 30 days to appeal the decision.
Other global energy news . . .
An estimated 350,000 bbl/day of oil and 350 million cubic feet per day of natural gas was taken offline earlier this week in the Gulf of Mexico due to Tropical Storm Hermine. The storm has since moved on to Florida, allowing operations in the gulf to slowly return to normal.
Reuters is reporting that Exxon Mobil has put its 60,000 bbl/day refinery in Billings, Montana up for sale. The refinery has an estimated value of about US$600 million. The Billings operation is the one of the company's two remaining US refineries that does not have an adjacent chemical facility. Chemical production provides a good cushion when refining margins are low.
A subsidiary of Royal Dutch Shell has agreed to sell a number of assets in its Gulf of Mexico Green Canyon Blocks for US$425 million in cash. The divested assets produce about 25,000 boe/day.
The company also announced it expects to reopen the Forcados pipeline in Nigeria somtime this month. The pipeline had been shut down since February when militants blew up the line that feeds into the Forcados terminal, forcing Shell to declare force majeure on Nigerian oil exports.
Bloomberg is also reporting that Shell is the first oil company to join Mexico's hedging program. Mexico's Finance Ministry has wrapped up its derivatives trade program, guaranteeing an average price of US$42/bbl for crude oil exports in 2017. Mexico's 2017 budget is based precisely on US$42/bbl.
Statoil has been busy unloading some shale assets in the US, using the funds to invest closer to home. The company is planning to ramp up exploration in the Barents Sea activity next year and also signed a partnership deal with Petrobras, signalling intent to bid for Brazilian assets.
Petrobras is also reportedly in the final stages of selling a natural gas distribution network to a consortium led by Toronto-based Brookfield Asset Management. The deal could be worth as much as US$6 billion. The consortium includes Singapore’s sovereign wealth fund, a Chinese investment company and a US-based private equity firm. Petrobras is hoping to sell US$15 billion worth of assets by the end of this year.
Schlumberger, Rosneft and BP signed a joined technology-sharing pact on cableless onshore seismic research.
UK-based Tullow Oil has been granted a number of production licenses in Uganda. The Ugandan government hopes to accelerate development of its oil fields, which has been hampered by taxation policy. A total of 9 licenses have been granted to Total, Tullow and CNOOC. The country hopes to produce 200,000 to 230,000 bbl/day from the fields and also has plans to build a US$2.5 billion refinery as well as an export pipeline to the Indian Ocean. Tullow and Total are expected to invest US$8 billion in infrastructure to support oil production. Uganda has 6.5 billion barrels worth of reserves located near its border with the Democratic Republic of Congo.
Wood Mackenzie is warning that oil exploration is at a 70 year low, potentially leading to a big supply shortfall in the next decade. Just 2.7 billion barrels of oil was discovered in 2015, the smallest amount since 1947. The firm says there's a 10 year lag between exploration and production, which would put the next major oil bull market in 2025.
Saudi Arabia's Energy Minister Khalid Al-Falih reminded the world that his country is able to pump as much as 12.5 million bbl/day, 2 million bbl/day higher than current levels. The country's Energy Minister told reporters oil producers are increasingly moving toward a common position to stabilize crude prices.
OPEC is on track for a record-breaking August thanks to increased production from Iraq and the addition of new member states. OPEC's market share is now about 40%.
A surprise contraction in US manufacturing and disappointing jobs numbers kept a lid on the US dollar this week. As in Canada, US manufacturing has been a steady decline for decades as the service sector takes over a larger part of the US economy. The probability of a September rate hike is now about 50%.
In contract, UK manufacturing, housing and tourism is on fire, post Brexit, sending the pound higher for the week.
Oil prices declined for much of the week, rebounding slightly on Friday on comments from Vladmir Putin that his country hopes to reach agreement on a production freeze deal with OPEC, even if Iran doesn't participate.
This week's 52-week highs on the TSX include Canadian Natural Resource (CNQ), Teck Resources (TCK.B), Parkland Fuel (PKI).
- Canadian Natural Resources (TSX:CNQ): Upgraded from Buy to Top Pick at RBC. The company has a price target of $51.
- Pioneer Energy Services (NYSE:PES): Upgraded from Buy to Hold at Jefferies.
- Joy Global (NYSE:JOY): Downgraded from Outperform to Neutral at Baird.
- Marathon Oil (NYSE:MRO): Downgraded from Buy to Neutral at Seaport Global Securities.
- Twin Butte Energy (NYSE:TBE): Downgraded from Hold to Sell at Canaccord Genuity.
PRICE TARGET CHANGES
- Crew Energy (TSX:CR): Price target increased from $7.50 to $8.50 at National Bank.
- Devon Energy (NYSE:DVN): Price target increased from US$45 to US$50 at Barclays.
- Marathon Oil (NYSE:MRO): Price target increased from US$15 to US$18 at Barclays.
NEXT WEEK'S EVENTS
- Canadian and US markets closed for Labour Day
- G20 Summit wraps up in China
- World Heavy Oil Congress kicks off in Calgary
- API Weekly Statistics Bulletin released @ 4:30pm ET
- Bank of Canada Interest Rate decision @ 10:00am ET
- Barclays Global CEO Energy/Power Conference 2016 kicks off in New York, NY
- ECB Interest Rate decision @ 7:45am ET
- Q2 Industrial Capacity Utilization released by Statistics Canada @ 8:30am ET
- EIA Petroleum Status Report released @ 8:30am ET (delayed due to Monday holiday)
- EIA Natural Gas Report released @ 10:30am ET
- August Labour Force Survey released by Stattistcs Canada @ 8:30am ET
- Baker-Hughes Rig Count released @ 1:00pm ET