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The Oil Sands Weekly

The Oil Sands Weekly

Suncor returns to profitability in Q3 . . . 

Suncor Energy posted much better than expected third quarter results this week on higher production, lower operating costs, strong output from Syncrude and record refinery throughput. Among the key highlights:

  • Cash flow from operations was $2.03 billion, up from $1.88 billion in Q3/2015.
  • Operating earnings fell to $346 million, down from $410 million in the previous year.
  • Net earnings rose to $392 million.
  • Total upstream production rose to 728,100 boe/day, up from 566,100 boe/day in Q3/2015. The gains were mostly attributed to increased ownership of the Syncrude operation.
  • Capital expenditures for the full year was revised lower to a range of $5.8 to $6.0 billion, down from its previous estimate of $6.0 to $6.5 billion. Most of the cuts will come from the sustaining capital budget.
  • Refinery throughout improved to a record 465,600 bbl/day, up from 444,800 bbl/day in the prior year. Operating expenses declined to $4.55/bbl despite lower crack spreads.

Excluding Syncrude, oil sands production rose to 433,700 bbl/day, up slightly from 430,300 bbl/day in Q3/2015. Operating costs fell to $22.15/bbl, down 18% from the previous year/quarter. The decline was attributed to lower natural gas prices and higher production rates. 

All facilities returned to normal operation in Q3 after major disruptions in the second quarter due to the Alberta wildfires. The only exception noted was the MacKay River SAGD facility, held back due to problems on its export pipeline.

CEO Steve Williams says his company "continues to find ways to reduce costs" and will continue to divest of non-core assets. Suncor is also progressing on the sale of its Petro-Canada lubricants business and will be looking to sell part of its wind energy assets. Williams also notes the window for making acquisitions is closing fast as oil prices improve.

Fort Hills budget challenged by lower loonie . . . 

Both Suncor and Teck reported that the Fort Hills Project is now just over 70% complete by the end of the third quarter. Key activities in Q3 included completion of the utilities modules, significant progress on the secondary extraction area and procurement of key mining and extraction equipment. The company has also begun clearing overburden at its mining operation. Suncor hinted at cost pressures due to a lower Canadian dollar but thinks it can stick to its original budget of $84,000 per flowing barrel of bitumen.

Syncrude reports its best quarter in 40 years . . . 

Both Suncor and Imperial Oil reported a stellar quarter at Syncrude, beating all expectations.

  • Syncrude's production improved considerably to 342,000 bbl/day. Upgrader reliability rose to 98%, versus 67% for the prior year/quarter, which was negatively impacted by an upgrader fire. 
  • The full year production forecast for Syncrude was bumped up by over 10%, now expected to be in the range of 223,000 to 242,000 bbl/day. 
  • Operating costs declined to $27.65/bbl, the lowest in at least a decade. 
  • Full year operating costs for the facility are expected to be in a range of $37 to $39/bbl.

Losses shrink at MEG Energy as operating costs continue to fall . . .

MEG Energy reported a smaller than expected loss in the third quarter, thanks to strong performance at Christina Lake and lower operating costs. Among the key highlights:

  • Revenues rose 8% to $497 million
  • Q3 operating losses came in at $88 million, unchanged from the previous year
  • Net losses shrank to $109 million, down from a $146 million loss in Q2 and a $428 million loss in Q3/2015
  • Q3 production averaged 83,404 bbl/day, up 1% from last year
  • Non-energy operating costs fell to a record low of $5.32/bbl, down 11% from Q3/2015
  • Net operating costs fell to $7.76/bbl, down 15%
  • Steam-to-oil ratios at Christina Lake averaged 2.2 in Q3, down from 2.5 in Q3/2015.

Transportation costs rose to $6.60 per barrel for the first 9 months of the year, up substantially from $4.64 a barrel for the same time last year. The company says it has booked additional capacity on the Flanagan South and Seaway pipelines, providing better access to Gulf Coast markets and improving the sale price for its bitumen blend. As a result, netbacks improved slightly to $16.74/bbl, up from $16.09 in the previous quarter.

Full year production guidance remains unchanged at 80,000 to 83,000 bbl/day. Operating costs (ex-energy) are expected to come in at $5.75 to $6.50/bbl. The company's 2016 capital program was revised lower to $140 million, down significantly from its original budget of $328 million.

Cenovus considers reviving Christina Lake Phase G, for the right price . . . 

Cenvous Energy reported a third quarter net loss of $251 million, including impairment charges related to the revaluation of two properties. Among the key highlights:

  • Total production from the oil sands averaged 153,591 bbl/day.
  • Foster Creek averaged 148,000 bbl/day in Q3 (74,000 net to Cenovus), 3% higher than last year. First oil was achieved at phase G, which will add another 30,000 bbl/day of capacity
  • Production from Christina Lake has risen to 160,000 bbl/day (80,000 net to Cenovus), a 5% increase from the previous year. Phase F is currently in the commissioning and start-up phase, and will add 50,000 bbl/day of gross capacity.
  • A new 100 megawatt cogeneration plant is currently being commissioned at Christina Lake.
  • Oil sands operating costs have declined 9% from the same time last year, now averaging $6.37/bbl.
  • Total oil production came in at 208,072 bbl/day, down 1% from the previous year. 
  • Natural gas production also declined almost 9% to 392 billion cubic feet per day. 
  • Non-fuel operating costs are down to $8.02/bbl in Q3, 14% lower than the same time last year. 
  • Full year production guidance was adjusted to a range of 266,000 to 272,000 boe/day.

Combined gross output from Foster Creek and Christina Lake is on track for 390,000 bbl/day. CEO Brian Ferguson says "Christina Lake phase G will be the first project in the oil sands to resume construction," promising to provide more details in December. Ferguson remains committed to making his company cost competitive with US tight oil production, which has a considerably lower cost structure. Both Foster Creek and Christina Lake are a 50/50 joint venture with ConocoPhillips.

The company also says it is considering buying a refinery in the Gulf Coast in order to improve margins for its Canadian oil production. Cenovus already has a 50% interest in two US refineries, jointly owned with Phillips 66, with a gross refining capacity of 460,000 bbl/day.

Husky Energy doubles-down on thermal . . .

Lower production and depressed oil prices dragged Husky Energy deeper into the red in the third quarter, bringing 2016 total losses to $649 million. However, the company says it plans to return to profitability by focusing more on cost cutting and doubling-down on its low-cost, low-capital thermal production.

Thermal now produces 115,000 bbl/day, up 500% from only 5 years ago. The company is progressing construction of its 10,000 bbls/day Rush Lake 2 Lloyd Thermal Project with first oil expected in 2019. Husky also says it has another 17 Lloyd thermal projects on the books with the potential to produce an additional 150,000 bbl/day. The ccomany hinted it plans to sanction 30,000 bbl/day of new production very soon.

Among the third quarter highlights:

  • Total production at Husky fell 10% to 301,000 boe/day. The decline was blamed on lower output from its Liwan Gas Project off the coast of Hong Kong and recent divestitures in Western Canada.
  • Cash flow from operations fell to $484 million in Q3, down from $674 million for the previous year/quarter.
  • Operating netbacks declined to $15.70/bbl in Q3, bring the year-to-date average to $14.09/bbl.
  • Throughput at its refineries and the Lloydminster Upgrader improved to 320,000 bbls/day versus 293,000 bbls/day in Q3/2015.

CEO Asim Ghosh announced he will retire in December after 5 years on the job. Ghosh will be replaced by the current COO Rob Peabody but will remain on Husky's Board of Directors.

NEB expects oil sands output to rise 72% by 2040 despite lower-for-longer oil prices . . .

The National Energy Board (NEB) released its updated 2016 outlook on the country's energy landscape over the next 25 years. The agency remains bullish on Canadian oil production but lowered its outlook on oil prices and energy consumption. Among the key highlights:

  • Brent crude is expected to average US$45 a barrel this year, rising to US$68 by 2020 and US$90 by 2040 (2015 dollars). The long term oil price forecast was revised lower by US$17 from January's estimates.
  • The heavy oil differential is expected to widen by an extra US$6/bbl between 2018 and 2020 as new oil production comes online without additional pipeline capacity. The NEB thinks this extra production will be transported by rail, which is generally more expensive, widening the differential for Western Canadian Select. However, the forecast assumes pipeline constraints will be resolved by 2020.
  • Total Canadian oil production is expected to rise from the current 4 million bbl/day to 5 million bbl/day in 2025 and 5.7 million bbl/day by 2040. The long term forecast was revised lower by about 400,000 bbl/day from the January estimates.
  • Much of that production growth will come from Alberta's oil sands, primarily from projects already under construction. Output from the oil sands is expected to rise to 4.3 million bbl/day by 2040, up 72% from the current level of about 2.5 million bbl/day. 
  • Higher oil prices will encourage more in-situ production but the NEB remains subdued on the prospects of new mining projects being sanctioned anytime soon.
  • GHG emissions are expected to decline by 7% by 2040 as coal-fired power plants get replaced with natural gas and hydroelectric power.

The report excludes fall-out from Alberta's 100 Mt/year carbon cap and the recent carbon pricing policy unveiled by the federal government. The NEB says both the federal and provincial programs lack enough detail to be incorporated in its most recent assessment, but expects to update its 2017 outlook as governments release more information on their initiatives.

Outages at Kearl take a bite out of Imperial's earnings . . . 

Imperial Oil reported a third quarter profit of $1 billion, mostly attributed to $716 million in proceeds from its recent sale of its Esso gas stations. Among the key highlights:

  • Quarterly production improved to 393,000 boe/day, up 2% from the same time last year. 
  • Refinery throughput rose 4% to 407,000 bbl/day. Refinery utilization hit a record high of 97%.
  • Revenues rose 7% to $7.4 billion.
  • Upstream unit costs declined to below $20/bbl.

Gross production at Kearl was just 159,000 bbl/day, far short of its 200,000 bbl/day production capacity. After reaching nameplate capacity in the spring, production was negatively impacted in Q2 due to the Fort McMurray wildfires and curtailed in Q3 on planned and unplanned maintenance outages. Kearl has averaged 169,000 bbl/day for the first 9 months of the year.

Gross production at Cold Lake averaged 157,000 bbl/day in Q3, down 5% from the same time last year. The decline was blamed on the timing of steam cycles.

Capital expenditures have come down considerably from last year as the company wraps up expansion at Kearl. Imperial has spent $948 million in the first 9 months of the year, down from $3 billion for the same time last year.

Only 40% of its 498 Esso gas stations have been sold so far with the remainder expected to close by year end. Imperial also auctioned off an estimated $6 million worth of company-owned Canadian art to museums and galleries around the country. Proceeds from the auction were donated to United Way. Imperial Oil is Canada's #2 integrated oil producer.

Exxon hints at downgrade of Kearl's oil reserves . . . 

Buried in the back of its third quarter earnings report, Exxon Mobil warned it may not be able to include some of its reserves under current SEC (Securities and Exchange Commission) definitions for proved reserves.

The company released a statement noting "If the average prices seen during the first nine months of 2016 persist for the remainder of the year, under the SEC definition of proved reserves, certain quantities of oil, such as those associated with the Kearl oil sands operations in Canada, will not qualify as proved reserves at year-end 2016." 

Exxon says 3.6 billion barrels of proved bitumen reserves in its Kearl asset are currently being evaluated. The company says those barrels could be rebooked if oil prices recovery or operating costs decline. Another 1 billion barrels of oil equivalent across North America are also affected. In total, as much as 20% of the company's total proved reserves are affected.

Exxon says it "will perform an assessment of its major long-lived assets, similar to the exercise undertaken in late 2015, including North America natural gas assets and certain other assets across the remainder of its operations." However, the company notes its booked reserves will not affect its operations or future production plans.

Imperial Oil issued a similar warning in its third quarter results, noting it could be required to "de-book" approximately 2.6 billion barrels of bitumen at Kearl and 0.4 billion barrels at Cold Lake due to SEC definitions.

The New York Supreme Court recently ruled that Exxon Mobil and its accountants must turn over documents related to its climate change research and business practices related to asset valuation. Exxon has repeatedly stated it uses very low price assumptions when booking reserves, and therefore does not need to "unbook" reserves when oil prices are low. The company says it disagrees with the New York court ruling and will be appealing the judgement.

Let the lawsuits begin . . .

A group of LNG opponents and aboriginal groups in BC has filed a lawsuit against the Canadian government seeking to overturn the recent approval of the $27 billion Pacific NorthWest LNG project, led by Malaysia's Petronas. As usual, the group claims the government's environmental assessment of the project was flawed and aboriginal groups were not adequately consulted. Lawyers for the plaintiffs plan to use the recent ruling overturning Northern Gateway's approval as a precedent. Petronas has not yet decided if and when it will go ahead with the LNG project.

This week's Canadian economic news . . . 

Weekly average earnings rose 0.8% in August (versus July) with gains seen in manufacturing, retail trade, public administration, and professional, scientific and technical services. Wages were relatively unchanged in Alberta, where salaries are still down about 0.5% y/y. The average weekly salary in Alberta is now $1,123 (gross before deductions), still the highest among the 10 Canadian provinces. Oil & gas workers in the province average over $2,300/week.

Statistics Canada also reported that 392,000 jobs remain unfilled across Canada, resulting in a job vacancy rate of 2.5%. Vacancies are down by 45,000 from the same time last year, with Alberta leading the decline.

The Conference Board of Canada (CBoC) warns that pay raises will be "cautious" next year, averaging 2.2% for non-unionized employees across the country. The CBoC says Canadian energy patch employees should expect to receive the lowest salary hike, averaging 1.1% next year. Alberta's oil and gas workers should get a 1.4% pay raise. Almost half of all energy companies say they plan to freeze salaries next year. High-tech workers will see the biggest increases, estimated at 2.8%. The board estimates only 107,000 new jobs will created nationally this year, the worst performance since the 2008/09 recession.

The CBoC also downgraded Canada's GDP to just 1.3% this year, rising to 2% in 2017, contingent on spending increases in the energy patch. However, the board is not expecting a big increase in spending over the next few years. The CBoC is projecting a WTI price of US$70 in 2018.

The federal deficit widened to $2.69 billion in August on higher government spending. Revenues grew by 3.2% on higher tax revenues but spending increased 6.1% to $23.4 billion.

Pipeline protests, American style . . .

Violence and chaos erupted at a North Dakota protest camp after hundreds of police officers and the National Guard were sent in to evict protestors set up on private land owned by Energy Transfer Partners, an affiliate of Enbridge. The Dakota Access Pipeline protest camp was originally set up on federal lands, but had since spread to private land where construction is progressing. Officials dressed in riot gear were forced to use pepper spray after the protestors set up roadblocks, set fires and even fired gunshots at the officers.

After the camp was dismantled, protestors moved to block highways with burned-out SUVs and construction equipment. A spokesperson for the Standing Rock Sioux condemned actions by police, calling the operation "acts of violence against innocent, prayerful people." A spokesman for the protesters promised to set up a new camp somewhere along the pipeline's path, but this time on federal land.

The US$3.7 billion Dakota Access Pipeline runs 1,900 km from western North Dakota to refineries in the Gulf Coast. Construction is expected to be completed by the end of the year. However, a federal permit is still pending for a section underneath the Missouri River near Native American land.

This week's other US energy news . . . 

A spill occurred along a section of the Seaway Pipeline at the Cushing storage hub in Oklahoma last weekend (October 23), causing a temporary shutdown of the system. The size and cause of the spill has yet to be determined but the company says most of the oil was contained to an on-site retention pond. Seaway is a joint venture between Enterprise Product Partners and Enbridge, transporting an estimated 850,000 bbl/day of oil from Cushing to the Gulf Coast. The affected section of line is expected to return to normal by November 3.

US federal prosecutors are getting ready to press charges and seize US assets belonging to senior executives at Venezuela's state-owned PDVSA, including about 20 residential properties. The execs in charge of handing out contracts at the oil company are accused of siphoning US$11 billion in bribes and money laundering schemes. The Venezuelan government is also trying to recover US$11 billion in "missing" PDVSA funds.

The Financial Times is reporting that Exxon is looking at setting up a full-scale trading division, allowing the company to buy and sell crude and refined products from its competitors. Exxon has yet to confirm or deny the rumours.

General Electric (GE) confirmed it is in discussion with Baker Hughes on a potential partnerships. GE believes the oil market has bottomed, but demand for its infrastructure equipment is not expected to pick up until next year. Plans for a merger with Halliburton was abandoned earlier this year after several countries voiced their opposition to the deal. The Wall Street Journal is speculating GE will integrate its energy services business unit with Baker Hughes, then spin off the entire division as a separate company. Baker Hughes is the world's third largest oilfield services provider. GE is ranked #11.

The OPEC saga continues . . .

Iran, Iraq, Nigeria, Libya, Venezuela and Russia have asked for exemptions from OPEC's proposed production cut, leaving only Saudi Arabia and its Gulf allies in the driver's seat. Some countries have criticized OPEC for under-reporting production numbers, calling the starting point too low. 

OPEC reports production numbers from both government and "secondary sources" since it has been burned in the past by governments exaggerating oil production to make sure their quotas weren't too low.

Saudi Arabia hinted it may be willing to cut production by 4% from its peak output earlier this fall. OPEC's meeting concluded this week without any agreement on a production quota by country. However, the cartel says discussions are ongoing and it is making progress.

Elsewhere in the world . . .

Total, Glencore and Gunvor are bidding for a 75% stake in Chevron's South African downstream assets. The assets have an estimated value of US$1 billion.

Iraq is asking international firms to submit bids to help it develop 12 small and medium-sized oil fields. Iraqi Prime Minister Haider al-Abadi says his country cannot reduce output because it needs oil money to combat the Islamic State. However, the PM says he is "prepared to cooperate on the correct basis," noting that he also wants oil prices to increase. Companies bidding must specify how quickly they can bring production online and now requires gas to be sold instead of flared. Iraq is hoping to boost production from the current 4.7 million to 6 million bbl/day by 2020. Iraq holds almost 10% of the world's oil reserves.

Exxon Mobil announced the discovery of a huge oilfield off the coast of Nigeria. The discovery in the Owowo field is estimated to hold as much as 1 billion barrels of recoverable oil. The property is a joint venture between Exxon, Total, Nexen, Chevron and the Nigerian government.

Nigeria's National Union of Petroleum and Natural Gas employees has issued a 21-day ultimatum to the government if it doesn't stop foreign oil companies from de-staffing its members. The union says many oil majors, including Exxon, Chevron and Saipem have laid-off 3,000 workers and shutdown operations due to low oil prices and outages caused by militant attacks. Nigeria's oil production has rebounded to 1.9 million bbl/day, slightly lower than the 2.2 million bbl/day produced earlier in the year. Aside from attacks from the Delta Avengers, international oil companies are also facing protests from the general Nigerian population over perceived unfair sharing of wealth and benefits across the local communities.




US IMPORTS OF CANADIAN CRUDE
million bbl/day • preliminary data by EIA
US OIL INVENTORIES
million bbls • data by EIA

US OIL PROD'N & RIG COUNT
million bbl/day • data by EIA & Baker Hughes

2,885k
-60 ▼ 2.0%
BBL/D CDN EXPORTS TO US
8,504k
+40 ▲ 0.5%
BBL/D US PROD'N
468.16M
-0.55 ▼ 0.1%
BBL US INVENTORY
441
-2 ▼ 0.5%
US RIG COUNT
CHANGE WK/WK  

Imports into the US have been falling steady since August, helping to bring down US inventories.

Imports of Canadian crude declined to 2.9 million bbl/day last week, down from a high of about 3.5 million reaching in mid-August. Falling imports have ease the pressure in US crude oil inventories, which have also been declining steadily since the highs of late April.

US oil rig counts fell by two this week, the first decline in 18 weeks.




CURRENCIES • WEEKLY CLOSE
Friday close • data by Bank of Canada & ICE

98.34
-0.35 ▼ 0.4%
USD INDEX
74.72
-0.32 ▼ 0.4%
CDN DOLLAR
1.86%
+0.12 ▲ 6.9%
US 10Y Bond
1.23%
+0.10 ▲ 8.8%
CDN 10Y Bond
CHANGE WK/WK  

Third quarter US GDP came in at 2.9%, much hotter than the 2.5% that was expected and the strongest since Q3 2013. The FOMC meets to discuss interest rates next week, although no rate hike is expected.




OIL PRICES • WEEKLY CLOSE
Friday close, USD/bbl • data by CME Group
49.71
-2.07 ▼ 4.0%
BRENT USD/BBL
48.70
-2.15 ▼ 4.2%
WTI USD/BBL
45.45
-1.85 ▼ 3.9%
CDN LT USD/BBL
33.90
-2.45 ▼ 6.7%
WCS USD/BBL
CHANGE WK/WK  



ENERGY SECTOR PERFORMANCE
Friday close • data by TSX & NYSE

CANADIAN & US EQUITIES
Friday close • data by TSX & NYSE

SECTOR SUMMARY
Friday close • data by TSX & NYSE
TSX ENERGY STOCKS • WEEKLY CHANGE
NYSE ENERGY STOCKS • WEEKLY CHANGE

PrairieSky Royalty (TSX:PSK) beat third quarter earnings estimates this week on better than expected production. Q3 production averaged 23,050 boe/day, 46% of which was liquids. Administrative expenses decline 28% y/y to $2.45 per barrel.

Calfrac Well Services (TSX:CFW) reported a $40.9 million loss in the third quarter on revenues of $175 million. Pricing decreased on average 30% in Canada and 15% in the US over the past 12 months. Fracking activity is down 36% y/y. Total revenues have declined 39% from Q3/2015. The company sees improvements going into the fourth quarter, as drilling activity picks up and pricing improves.

Drilling services contractor Western Energy Services (TSX:WRG) reported Q3 operating revenues of $30.7 million, down 31% from the previous year. The decline was blamed on continued weakness in oil ands gas prices, lower utilization rates, an unseasonably wet summer and lower hourly servicing rates. Net loss for the quarter widened to $17 million, including an impairment charge of $71.3 million. The company remains in "cash preservation" mode which includes reducing its head count and implementing a 10% rollback in wages. The company sees improved demand for drilling services going forward but continued pricing pressure. Western is also the fourth largest well servicing company in Canada. 

Canadian National Railway (TSX:CN) reported a 6.5% decline in Q3 revenues, blamed on lower volumes of crude oil, coal and fracking sand. The company's net income fell to $972 million in the third quarter, down from $1.0 billion in Q3/2015. Revenues also declined 6.5%  to $3.0 billion. Operating expenses fell 7%, bringing the operating ratio to a record 53.3%. CEO Luc Jobin called the North American economy "sluggish". The company also announced a buy-back of 33 million shares.

Exxon Mobil (NYSE:XOM) reported US$58.7 billion in revenues in the third quarter, down from US$67.3 billion a year earlier, slightly lower than analysts were expecting. Net income fell to US$2.65 billion, down from US$4.24 billion for the same time last year. Total production fell 3% to 3.8 million boe/day. Refinery throughput fell 2% to an average of 4.37 million bbl/day.

Chevron (NYSE:CVX) reported third quarter earnings of US$1.28 billion, versus US$2.0 billion in Q3/2015. Q3 revenues came in at $29 billion, down 12% from last year. Total production averaged 2.51 million boe/day, virtually unchanged from last year. The company says it is focused on improving margins and not so obsessed on growing production. Chevron is investing $1 billion to renovate its Richmond, California refinery and has put two smaller refineries (one in Vancouver and the other in South Africa) up for sale. Chevron's board also approved a US$0.01 increase in the quarterly dividend, now totalling US$1.08 per share. The company has raised its dividend payout for 29 years in a row.

ConocoPhillips (NYSE:COP) reported third quarter production of 1.56 million boe/day, up 3,000 boe/day from the same time last year. Cash flow from operations was US$1.3 billion resulting in a net loss of US$1.0 billion, less than analysts were expecting. Operating costs declined 17%. For the first 9 months of the year, ConocoPhillips has lost US$3.6 billion. Capital expenditures for the full year are expected to come in at US$5.2 billion, revised lower from its previous estimate of US$5.5 billion. As it completes major projects around the world, the company plans to shift capital to US shale production.

Despite aggressive cost-cutting, oilfield services provider Baker Hughes (NYSE:BHI) reported a net loss of $429 million in the third quarter on revenues of US$2.35 billion. Q3 revenues are down 38% versus the same time last year. The company saw steep declines in drilling activities in the Gulf of Mexico, West Africa and Norway. However, business improved in US onshore, Saudi Arabia, Canada, and Kuwait. Looking forward to Q4, Baker-Hughes sees a slight improvement in North America but continued weakness internationally. The company now hopes to achieve US$650 million in savings by the end of this year. Baker Hughes stock (BHI) was the bigger winner in the NYSE, gaining almost 13% this week on news of a potential partnership with GE. 

Third quarter losses widened at Norway's Statoil (NYSE:STO), blamed on low oil prices, weak refining margins and extensive maintenance turnarounds in the past quarter. Net income declined to US$737 million, down from US$883 million in Q3/2015. Adjusted net losses widened to US$261 million. The company is once again cutting capital expenditures, now expected to be around US$11 billion for full year 2016, US$1 billion lower than the previous guidance.

Marathon Petroleum (NYSE:MPC) reported weaker than expected third quarter results, hurt by lower refining margins. Revenues declined to US$16.5 billion, down from US$18.7 billion in Q3/2015. Earnings declined to US$145 million, down from $948 million in Q3/2015, including a US$267 million write-down on the deferral of the Sandpiper Pipeline project. Marathon Petroleum is the third-largest refiner in the US with an estimated refining capacity of 1.8 million bbl/day.

Phillips 66 (NYSE:PSX) also reported a sharp decline in Q3 profits on lower refining margins. The company cut its full year capital expenditure forecast to US$3 billion. Earnings fell to US$511 million, down from US$1.6 billion for the prior year quarter. Full year capital expenditures are expected to be US$3 billion, down from its previous estimate of US$3.9 billion. Results were better than analysts were expecting due to aggressive cost-cutting.

Valero Energy (NYSE:VLO) posted better than expected Q3 results. Revenues fell to US$19.7 billion, down from US$22.6 billion for the same time last year. Net income came in at US$613 million. Biofuel blending costs (a major sore point for independent refiners) were US$198 million in Q3, bringing total 2016 charges to an estimated US$750 to $850 million. The company processed 2.9 million bbl/day through its refineries, representing a utilization rate of 95%. Forecast for 2016 capital expenditures was reduced by another US$200 million to US$2.4 billion.

Subsidiary Valero Energy Partners (NYSE:VLP) increased its quarterly dividend by 5.5% to US$0.385 per share. Valero Energy Partners is an MLP which operates pipelines and storage terminals through the US. 

Total (NYSE:TOT) reported a 25% decline in third quarter adjusted net income, falling to US$2.1 billion. Revenues fell 8% to $37.4 billion. Results were better than expected thanks to the deep cost cutting and the sale of the company's solar farms.

This week's 52 week highs on the TSX include: Altagas (ALA), Bonavista Energy (BNP), Canadian Natural Resources (CNQ), Inter Pipeline (IPL), Suncor Energy (SU), Teck Resources (TCK/B) and Vermillion Energy (VET).

UPGRADES & DOWNGRADES

  • ConocoPhillips (NYSE:COP): Upgraded from Market Perform to Outperform at Wolfe Research and from Neutral to Overweight at Piper Jaffray. 
  • Imperial Oil (TSX:IMO): Upgraded from Neutral to Outperform at Credit Suisse.
  • Kinder Morgan (NYSE:KMI): Upgraded from Outperform to Strong Buy at Raymond James and from Market Perform to Outperform at BMO.
  • PraireSky Royalty (TSX:PSK): Downgraded from Buy to Hold at TD Securities.
  • Precision Drilling (TSX:PD): Upgraded from Underperform to Sector Perform at Scotiabank.
  • Suncor Energy (TSX:SU): Upgraded from Neutral to Outperform at Macquarie.
  • Trican Well Service (TSX:TCW): Upgraded from Sector Perform to Outperform at Scotiabank.

NEXT WEEK'S EVENTS

Monday:

  • September Industrial Product & Raw Materials Price Index released by StatsCan @ 8:30am ET
  • EIA Natural Gas Monthly Report (August Data)
  • Brent December contract expiry
  • Q3 earnings: Vermillion Energy, Enbridge Energy Partners and Williams Co.

Tuesday:

  • August GDP released by StatsCan @ 8:30am ET
  • API Weekly Statistics Bulletin released @ 4:30pm ET
  • Federal Finance Minister Bill Morneau delivers fall fiscal update @ 3:20pm ET
  • Two-day FOMC meeting begins
  • Q3 earnings: Gibson Energy, Horizon North Logistics, Royal Dutch Shell, BP, Devon Energy, Anadarko and Tesoro.

Wednesday:

  • EIA Petroleum Status Report released @ 10:30am ET
  • FOMC releases interest rate decision @ 2:00pm ET
  • Q3 earnings: TransCanada, Spectra Energy, Baytex Energy, Pengrowth, Penn West, Seven Generations and Plains All American Pipeline.

Thursday:

  • EIA Natural Gas Report released @ 10:30am ET
  • Bank of England interest rate decision
  • Q3 earnings: Canadian Natural Resources, Enbridge, Pembina Pipeline, Inter Pipeline, Secure Energy Services, Encana, Blackpearl Resources, Advantage Oil & Gas, Bonavista Energy and Marathon Oil.

Friday:

  • October Labour Force Survey released by StatsCan @ 8:30am ET
  • Canadian Trade Balance released by StatsCan @ 8:30am ET
  • Baker-Hughes Rig Count released @ 1:00pm ET.

Next edition of the Oil Sands Weekly: Friday November 4, 2016 @ 8pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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