The Oil Sands Weekly
Spectra and Enbridge join forces to become North America's largest pipeline operator . . .
Canada's largest pipeline operator got a bit bigger this week. Enbridge announced an all-stock acquisition of Houston-based Spectra Energy for approximately $37 billion.
The friendly deal will result in the formation of a new company to be named Enbridge Inc., valued at an estimated $165 billion. Enbridge CEO Al Monaco will continue to serve as president and CEO of the combined company, which will become North America's largest energy infrastructure player. The combined company has $74 billion worth of growth projects on the books, with $26 billion currently in execution.
Imperial puts Norman Wells for sale . . .
Imperial Oil announced intentions to sell its Norman Wells oil and gas operation in the Northwest Territories. The plant has the capacity to produce 15,000 bbl/day of conventional oil and NGLs and 140 million cubic ft/day of natural gas. The facility also provides gas and power for the town of Norman Wells. The company insists no decision has yet been made on whether or not to sell the assets. The estimated value of the transaction was not disclosed.
Suncor and Fort McKay First Nation join forces on Fort Hills tank farm . . .
Suncor Energy has divested a 34.3% equity interest in the company's East Tank Farm Development to Fort McKay First Nation. Under the terms of the agreement, Fort McKay First Nation will pay 34.3% of the capital costs associated with the development, but only after the assets become operational in 2017. Fort McKay's share of the project is expected to cost $350 million.
Suncor will operate the East Tank Farm, which is currently under construction just north of Fort McMurray. The tank farm will enable storage, blending, cooling and distribution of bitumen produced at the Fort Hills Mine, which is expected to start-up at the end of next year.
NEB takes a pause on Energy East . . .
All three members of the Energy East Hearings Panel have stepped down amid allegations of conflict of interest stemming from a private meeting with former Quebec Premier Jean Charest while he was a paid consultant for TransCanada. The National Energy Board (NEB) said the move is necessary to help preserve the integrity of the process. NEB Chair Peter Watson has also removed himself from any administrative duties related to the project. Hearings have officially been adjourned pending the selection of new board members.
The NEB has until March 16, 2018, to issue its final report on Energy East. It is unclear how the selection of new board members will affect the timeline. TransCanada says it accepts the decision and looks forward to resuming the hearings.
Glimmers of hope in Alberta's energy patch . . .
After an ugly July, Canada's labour market is starting to show signs of improvement with an estimated 26,200 jobs created during the month of August. The August gains almost completely reverse the 31,200 jobs lost in July. Despite the job gains, the national unemployment rate rose from 6.9% to 7.0% as more people re-enter the workforce.
Alberta gained 21,500 new full time jobs and lost 18,700 part-time jobs in August. Much of the new jobs created in August came from the oil & gas sector, an indication that layoffs in the energy patch might be coming to an end. Employment in the technical and professional services sector continues to be weak, losing another 23,100 in August. Much of those losses are concentrated in Calgary's corporate office and engineering firms. Calgary's unemployment rate now sits at 9.0%.
Over the past 12 months, full-time employment in the province is down almost 91,000 while 37,500 new part-time jobs were created. Alberta's unemployment rate fell from 8.6% in July to 8.4% in August due in part to a decline in the labour participation rate.
Quebec's $300 billion in equalization payments touches nerve in pipeline wars . . .
The Petroleum Services Association of Canada (PSCA) has recommended to the federal government that inter-provincial transfer of goods should be factored into Canada's equalization payments. PSAC president Mark Salkeld said he does not expect a response from the federal government but rather was trying to point out a huge hypocrisy in provincial politics.
Equalization payments are a hot-button item in Alberta and Saskatchewan, who consistently transfer funds to "have not" provinces. Quebec has received the lion's share of the country's equalization payments, almost $300 billion since 1957 and has never been a net contributor to the fund. Quebec's significant revenues from the sale of hydroelectric power are excluded from the equalization formula.
The current "have not" provinces are Quebec, Ontario, Manitoba, Nova Scotia, New Brunswick and PEI, with payments extending into the 2016/17 fiscal year. Despite Alberta's serious oil shock, payments are calculated on a 3 year rolling average, meaning the province will not qualify for several more years, assuming conditions do not improve. The last time Alberta qualified for equalization funds was 1963.
Pipeline problems south of the border . . .
The US Department of Justice has issued a temporary stop order on construction of the Dakota Access Pipeline following violent protests by several Native American tribes. The move came shortly after US District Court Judge rejected a request to block the project.
The government released a statement saying construction will be halted until it has fully assessed whether treaty-rights and environmental implications were fully considered when the project was approved.
The US$3.7 billion Dakota Access will cross four states and deliver in excess of 470,000 bbl/day of crude from the North Dakota Bakkens to the US Midwest.
Dakota Access is jointly owned by Enbridge, Marathon Petroleum, Phillips 66, Energy Transfer Partners and a subsidiary of Sunoco Logistics Partners.
Earthquake rumbles Cushing storage hub . . .
The state of Oklahoma registered one of its biggest earthquakes last week-end, measuring 5.6 in magnitude. The quake tied a record set in 2011 and was felt from Texas to Illinois.
Oklahoma is not a region that historically experiences seismic activity. Prior to 2008, only 2 quakes measuring 3.0 or higher were registered. Last year, that number was 890. The dramatic rise in seismic activity began in 2009 when companies began fracking for extraction of oil and gas. Fracked wells produce large quantities of wastewater, which are injected into deep underground disposal wells. According to the USGS, there are about 35,000 active wastewater disposal wells throughout the area but only a few dozen have been linked to quakes. State regulators have began limiting volumes that can be injected in an effort to reduce future seismic activity.
Oklahoma is home to very large midstream operations, including the Cushing storage terminal which holds an estimated 64 million barrels of crude. Officials for Kinder Morgan, Magellan and Enbridge have confirmed their facilities were visually inspected and did not sustain any damage.
Obama takes the first step to save the planet . . .
US President Barack Obama and Chinese President Xi Jinping formally joined the Paris climate agreement last weekend, leaving some to speculate the accord could be ratified by the end of the year. A total of 55 nations which produce at least 55% of global emissions must sign on to ratify the accord. So far, 180 member countries have signed the treaty but only 26 have ratified the agreement, representing less than 39% of the world's GHG emissions - 38% of which is the US and China.
The objective of the Paris accord is to limit future temperature rises to less than 2°C. GHG reduction targets are not legally binding, although countries must report on progress every five years. PM Trudeau is expected to put forward a plan to meet the targets sometime this year. Canada produces 2% of the world's GHG emissions
President Obama noted during a press conference that "Some day we may see this as the moment that we finally decided to save our planet." China has committed to reducing emissions only after levels peak in 2030. Hillary Clinton has promised to carry on Obama's legacy if elected. Donald Trump - well, not so much.
Other notable energy news this week . . .
Midstream player Gibson Energy announced plans to build two new 400,000 barrel crude oil storage tanks at the company's Edmonton Terminal. The new tanks should be in service by 2018. Once completed, Gibson's total storage capacity in Edmonton will be 1.7 million barrels.
Bonavista Energy has agreed to swap some of its non-core assets in northeastern BC in exchange for various liquids rich natural gas (NGLs) properties in Deep Basin and West Central, Alberta. Bonavista stock (BNP) was the best performing energy stock on the TSX this week, gaining 22%.
Brazil's Petrobras has concluded the sale of its natural gas pipeline division to a group of investors led by Canada's Brookfield Asset Management for an estimated US$5.2 billion.
France's Total confirmed it has exercised its rights to acquire a 75% interest in the jointly held Barnett Shale owned by Chesapeake Energy. Total now becomes the 100% owner of the properties, which produce about 65,000 bbl/day. Chesapeake stock (NYSE:CHK) gained 15.4% this week.
Pipeline operator Enterprise Products Partners has abandoned plans to merge with Williams Cos due to a lack of response from Williams. Enterprise made an initial pitch in the summer and increased its all-stock offer in August. However, the company claims the Williams' board have shown little interest. Williams has been busy reshuffling its board of directors and responded that they have indeed been in contact with Enterprise and were in the process of reviewing the offer. Enterprise CEO Jim Teague said he was disappointed but remains focused on growing his company.
Tropical Storm Hermine disrupted crude oil deliveries into the Gulf Coast, resulting in a whopping 14.5 million barrel drawdown in inventories, the largest decline since 1999. However, everyone expects a sharp rebound in inventories next week as shipments return to normal.
The Energy Information Administration (EIA) revised their 2017 US production forecast to 8.5 million bbl/day, 0.2 million bbl/day higher than August estimates. The upward revision reflects expectations for higher drilling activity and improved well productivity. The agency expects 2016 production to average 8.8 million bbl/day, down from an 9.4 million bbl/day in 2015.
Iranian oil production appears to be stuck at 3.6 million bbl/day over the past few months despite efforts to ramp production back up to pre-sanction levels. The country has said it won't consider a production freeze until production returns to at least 4 million bbl/day. Iran has allegedly set an internal target of 4.2 million bbl/day.
US natural gas working inventories at the end of August remains 11% higher than the previous five-year average (2011-15). The EIA expects US inventories to surpass 4,000 billion cubic feet by the end of October, which would be the highest end-of-October level on record.
The Bank of Canada (BoC) maintained its overnight lending rate to 0.5% this week, despite slower than expected growth for the first half of the year. The BoC expects the economy to improve through the end of 2016.
ECB President Mario Draghi expressed little desire to add more monetary stimulus, strengthening the Euro and sending bond yields higher. The Bank of Japan is studying options to steepen its yield curve, which should increase lending from financial institutions. US fed officials also expressed a deep desire to raise interest rates sometime before the end of this year, spooking global markets on Friday.
Oil prices spiked higher on Thursday after the release of US inventory numbers. However, prices retreated on Friday, along with all major global markets.
US retail gasoline prices averages US$2.24/gallon on Labour Day weekend, the lowest since Labour Day 2004.
Suncor Energy (TSX:SU) issued $1 billion in medium term notes. The company will use the proceeds to retire existing short term debt.
Crescent Point Energy (TSX:CPG) announced a plan to raise $650 million in bought-deal financing. The company will use the funds to increase its capital spending programs through 2017 and reduce debt.
Inter Pipeline (TSX:IPL) announced a $350 million offering of medium term notes priced at 2.608% maturing in September 2023.
52-week highs on the TSX this week include Spectra Energy (SE), Vermillion Energy (VET), Penn West Petroleum (PWT), Bonavista Energy (BNP), Inter Pipeline (IPL), Seven Generations (VII), Enbridge (ENB), Veresen (VSN), Teck Resources (TCK.B) and Parkland Fuel (PKI).
- ConocoPhillips (NYSE:COP): Upgraded from Underperform to Hold at Jefferies.
- Enbridge Energy Partners (NYSE:EEP): Upgraded from Neutral to Overweight at Piper Jaffray and Simmons.
- Enbridge (TSX:ENB): Upgraded from Sector Perform to Outperform at National Bank Financial, from Neutral to Buy at Goldman Sachs Group and from Market Perform to Outperform at FirstEnergy Capital.
- Gibson Energy (TSX:GEI): Upgraded from Sector Perform to Outperform at AltaCorp Capital.
- Precision Drilling (TSX:PDS): Upgraded from Underperform to Hold at Jefferies.
- StatoilHydro (NYSE:STO): Upgraded from Hold to Buy at HSBC.
- Crescent Point Energy (TSX:CPG): Downgraded from Buy to Neutral at Dundee Capital.
- Devon Energy (NYSE:DVN): Downgraded from Outperform to Market Perform at Raymond James.
- Marathon Oil (NYSE:MRO): Downgraded from Buy to Hold at Societe Generale.
- Spectra Energy Partners (TSX:SEP): Downgraded from Overweight to Neutral at Simmons.
- StatoilHydro (NYSE:STO): Downgraded from Equal-Weight to Underweight at Morgan Stanley.
- Total (NYSE:TOT): Downgraded from Outperform to Market Perform at Bernstein.
NEXT WEEK'S EVENTS
- OPEC Monthly Oil Report
- Toronto Global Forum kicks off in Toronto, ON
- International Energy Agency Oil Market Report
- API Weekly Statistics Bulletin released @ 4:30pm ET
- IMF Managing Director Christine Lagarde speaks at a CD Howe institute event in Toronto
- EIA Petroleum Status Report released @ 8:30am ET
- Bank of Canada Senior Deputy Governor Carolyn Wilkins delivers lecture in London, UK
- Statistics Canada releases Q2 national balance sheet
- EIA Natural Gas Report released @ 10:30am ET
- US CPI data released @ 10:00am ET
- Baker-Hughes Rig Count released @ 1:00pm ET
- Quadruple witching options expiry