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The Oil Sands Weekly

The Oil Sands Weekly

Alberta's 100 megatonnes oil sands annual emissions cap becomes law . . . 

Alberta's NDP government officially signed the previously announced 100 Mt/year oil sands emissions cap into law this week. Environment Minister Shannon Phillips says “With this bill Alberta makes clear to the world that energy-producing jurisdictions can establish limits and work and thrive in a carbon constrained future.” 

The province says it expects to hit that limit by 2030. The government has set up an Oil Sands Advisory Group to figure out what comes next. Critics point out that no other oil producing jurisdiction has such a cap, which can't be good for future investments in the energy patch.

Alberta's NDP government also reluctantly admitted this week the province's new carbon tax will further contract the economy by an estimated 0.05% per year until 2022. The government says those numbers are preliminary and could be greatly improved if the economy diversifies away from energy exports or if a pipeline to tidewater is built. Opposition groups argue the impacts are far more negative and the government has yet to calculate the impact of shutting down coal-fired power plants. However, Phillips points out that the cost of doing nothing about climate change would be much greater.

Current emissions from the oil sands are estimated to be just under 65 Mt/year. The cap only applies to the oil sands and no other sector of the economy.

Alberta's "modernized" royalty regime good for the province's energy sector, but . . . 

The University of Calgary School of Public Policy concluded that Alberta's "modernized" royalty regime will be a net positive for the province's energy sector, particularly conventional oil producers. The report concludes the new regime makes conventional oil just as competitive as oil sands producers.

Alberta's new royalty regime, which takes effect 2017, will be more cost competitive than neighbouring BC and Saskatchewan but higher than Australia, the UK, Pennsylvania, Nova Scotia and Newfoundland and Labrador. However, the report excludes the effects of pending new federal and provincial carbon pricing and emission limits. 

NRCan releases findings from Ministerial Panel on TransMountain consultations . . . 

The federal government released findings from the Ministerial Panel on whether or not all stakeholders were adequately consulted during the National Energy Board's (NEB) review of the Trans Mountain Expansion.

The final report summarized results of 20,000 emails, 35,000 responses to an online questionnaire and feedback from 44 public meets in Alberta and BC. The report concludes that pipelines are a "controversial" topic and people on both sides of the debate feel very passionately about their positions. It was not the mandate of the panel to provide a recommendation on the project or even an assessment of the NEB's performance.

The federal government says this fulfills its promise made under its five interim principles for "fixing" the NEB while longer-term regulatory reforms are underway.

Kinder Morgan Canada CEO makes a big faux pas . . . 

Kinder Morgan Canada president Ian Anderson set off a chain of hate-mail and angry tweets when he openly suggested he isn't smart enough to understand all the science behind climate change. 

In a speech entitled "Pipeline Success: Getting to Yes Takes a Willingness to Listen and Learn" given at the Vancouver Board of Trade, Anderson said "I've read the science on both sides and I don't pretend to be smart enough to know which is right," adding "What I do know is the broad public, political view, societal view, is that over time, we as a race should reduce our reliance on fossil fuels. I think that's a given." 

Anderson was forced to later clarify his comments (presumably after chatting with the PR department), releasing a statement that read "There should be no misunderstanding in what I think or believe. Climate change is real. Fossil fuels lead to higher CO2, which in turn contributes to climate change."

Suncor finds a buyer for Petro-Canada lubricant's division . . .

Suncor Energy announced the sale of its Petro-Canada lubricants division for $1.125 billion to Dallas-based Hollyfrontier. The deal will be funded with cash and new debt.

Products from the Mississauga manufacturing facility will continue to be marketed under the Petro-Canada brand. Hollyfrontier also gets perpetual exclusive license to use the Petro-Canada trademark. The facility is the world's largest manufacturer of white mineral oil used in health and beauty products, pharmaceuticals, adhesives, plastics and elastomers. The plant manufactures 15,600 bbl/day of lubricants. 

HollyFrontier now becomes the fourth-largest lubricants producer in North America, controlling about about 10% of North American production. The company expects the acquisition will generate US$100-200 million annually.

Liberals approve expansion of TransCanada's NOVA Gas pipelines

The federal government has approved TransCanada's $1.3 billion NOVA Gas Transmission (NGTL) expansion, subject to 36 conditions including emergency response plans, the restoration of wetlands and caribou habitat and engaging with indigenous communities.

The expansion includes 230 km of new pipe and two new compression facilities. About 91% of the new sections will run parallel to existing pipelines and roads. Construction is expected to be completed by Q2/2018 but some sections will be operational as early as Q2/2017.

The 23,500 km NGTL network currently gathers 66% of the natural gas produced in Alberta and BC. Natural Resources Canada says the project will create 3,000 new jobs.

TSB releases safety Watchlist and promises action . . . 

The Transportation Safety Board of Canada (TSB) released its safety Watchlist this week, calling the move a "proactive approach to engage government and industry leaders in dialogue and action that leads to safety improvements across Canada’s transportation network."

The TSB notes there are currently 52 recommendations that have been outstanding for at least ten years, with almost 40 action items outstanding for more than twenty years. The most significant deficiencies include:

  • fatigue for train crews
  • transportation of flammable liquids
  • railway signal indications
  • voice and video recorders.

Chair Kathy Fox says the TSB will "meet with key stakeholders to push for concrete action" and release results to the general public.

Woodfibre LNG gets the green light . . .

Pacific Oil & Gas Limited has approved construction of the $1.6 billion Woodfibre LNG Project. The plant will be built on the former Woodfibre Pulp Mill site near Squamish, BC. Woodfibre will produce 2.1 million tonnes of LNG a year and is expected to create 650 new construction and 100 operational jobs over the next 25 years.

Squamish First Nation chief Ian Campbell says “It’s too early to celebrate” noting that 25 conditions put forth by the First Nations community have yet to be signed off. Squamish Mayor Patricia Heintzman opposes the project, calling it inconsistent with Squamish's evolution towards an economy more geared towards tourism and real-estate.

Woodfibre has already received federal government approval earlier this year and could be begin exports as early as 2020. Pacific Oil & Gas Limited is owned by Singapore-based RGE Group.

This week's other Canadian energy news . . . 

Marathon Oil reported record production at Albian Sands, averaging 290,000 bbl/day, up from 285,000 bbl/day in Q3/2015. Operating expenses have declined 20% y/y to a record low of US$20.69 per barrel of upgraded bitumen (or synthetic crude). Marathon Oil has a 20% stake in Albian Sands, which include the Muskeg River Mine and Jackpine Expansion. Albian is operated by majority owner Shell Canada.

As part of its third quarter earnings release, Canadian Natural Resources (CNRL) announced its Kirby North in-situ facility will restart engineering and procurement next year. The company says it has already seen $100 million in cost savings for the SAGD facility and will continue to work towards construction cost efficiencies.

CNRL has also completed and started-up Phase 2B of its Horizon Mine and expects production to quickly ramp up to over 180,000 bbl/day of synthetic crude oil (SCO). Horizon's final phase of expansion (Phase 3) will be completed by the end of next year, bringing total production to over 250,000 bbl/day.

Reuters is reporting that TransCanada is close to reaching an agreement on its toll structure for natural gas transmission from BC/Alberta to Ontario. CNRL president Steve Laut said the company is "getting closer to something that works for everybody, that is in the best interests of TransCanada and the natural gas industry here in Alberta, British Columbia and Saskatchewan." The new tolls would be more than half the current tolls but TransCanada was asking for a 10 year commitment, which shippers think is way too long.

Gibson Energy announced it completed 500,000 barrels of new storage at Hardisty, bringing the company's total capacity to 8.9 million barrels, 1.5 million of which was added this year alone. Gibson has also secured contracts for 2 new 400,000 barrel tanks at its Edmonton terminal.

Imperial Oil reported a small fire and hydrogen sulphide release at its Sarnia operation. The blaze was extinguished within an hour. No injuries were reported and no impacts were detected on air quality. The cause of the fire is still being investigated. The Sarnia refinery has a processing capacity of 121,000 bbl/day.

Not a great jobs report for oil-producing provinces . . . 

Statistics Canada reported that 44,000 jobs were created in October. 67,100 part-time jobs were created while 23,100 full time jobs were lost. The national unemployment rate was unchanged at 7.0%. Among the key highlights:

  • Alberta gained 9,000 jobs in October, almost all part-time. The province's unemployment rate held steady at 8.5%.
  • Saskatchewan shed 2,400 jobs in October, almost all full-time. The province's unemployment rate rose slightly from 6.8% to 6.9%.
  • Unemployment in Newfoundland and Labrador shot up to 14.9% (from 13.6% in September). The province lost 5,600 jobs last month, mostly full time.
  • Ontario created 25,400 jobs in October, all part-time, dropping the provincial unemployment rate from 6.6% to 6.4%.
  • BC's unemployment rate rose to 6.2% (from 5.7% in September) due to a rising labour force. The province created 14,900 jobs in October.

Calgary's unemployment rate jumped from 9.5% in September to 10.2% in October. Edmonton, in contrast, saw its unemployment rate fall from 7.7 to 6.9%.

Employment in natural resources increased by 10,000 in October, the first notable increase since March 2015. Most of those jobs were focused in Alberta. Natural resources jobs are still down 20,000 (-5.6%) from the same time last year. 

This week's Canadian economic news . . . 

Shipments of billion-dollar South Korean modules destined for the Hebron offshore project boosted the country's imports to a record $47.6 billion in September. Exports of energy products increased 1.8% to $6.3 billion in September, the seventh consecutive increase. Exports of crude oil and bitumen rose 2.5% to $4.1 billion on higher volumes. Total exports edged up to $43.5 billion bringing the country's merchandise trade deficit to a record $4.1 billion.

After a 0.4% increase in July, real GDP rose by 0.2% in August (m/m). Main contributors to the upside were utilities (+2.4%), mining (+2%), oil and gas extraction (+0.9%). After falling for six months in a row, support activities rose 3.5% in August, led by higher activity in oil & gas drilling services.

The Industrial Product Price Index (IPPI) rose 0.4% in September (m/m), led higher by energy and petroleum products. Price gains were seen for light fuel oils (+2.6%), motor gasoline (+0.7%), heavy fuel oils (+3.3%), jet fuel (+3.5%), and diesel (+0.9%).

The Raw Materials Price Index (RMPI) edged down 0.1%  in September (m/m) despite higher prices for crude energy products (+2.4%). Conventional crude oil was the biggest gainer for the month (+2.4%). The RMPI excluding energy products decreased 1.6%.

The Conference Board of Canada (CBoC) reported a sharp decline in consumer confidence, the biggest drop since oil prices bottomed in January. Its Consumer Confidence Index fell 5% in October to 96.7, with declines seen across the country. Alberta's index was hit especially hard, falling 29% to just 38.5, pretty close to its all time low.

Finance Minister Bill Morneau released his Fall Economic Statement this week, entitled "Growing the Middle Class". Canada's deficit is projected to be $25.1 billion for the 2016/17 fiscal year, bringing the cumulative 5 year total to an estimated $115 billion. The government announced an additional $81.2 billion in infrastructure spending over the next 10 years, bringing the total close to $180 billion by 2028. The Liberals have set up a new $35 billion infrastructure bank to attract private capital.

The government has also set up an "Invest in Canada Hub", staffed with "a dedicated high-impact sales force to promote Canada, and to work with global companies to increase investment that will benefit Canadians." The group will be given a budget of $218 million over 5 years and expects to be up and running by the end of 2017.

Fatal explosion cuts gasoline supply to US eastern seaboard . . .

A fatal explosion in Shelby County, Alabama has shutdown a section of Colonial Pipeline's Line 1, causing a major gasoline supply disruption to the US Southeast. The explosion occurred when a maintenance worker struck the line with an excavator, causing one fatality and 5 injuries. The crew was repairing a section of Line 1 which suffered a leak in early September.

The company says service should be fully restored by late Sunday evening. Line 2, which carries diesel and jet fuel, is unaffected.

The Colonial pipeline transports gasoline and distillates almost 9,000 km from refineries in Houston up to the NY Harbour. There are no refineries between Alabama and Pennsylvania. Line 1 carries about 1.4 million barrels per day of gasoline, providing about one-third of gasoline supplies for the region.

Introducing the "new" Baker Hughes . . .

General Electric (GE) confirmed the merger of its oil and gas business with oilfield services provider Baker Hughes. The "new" Baker Hughes, defined as a "fullstream digital industrial services company" will be owned 62.5% by GE and 37.5% by Baker Hughes. Baker Hughes shareholders will receive a special one-time cash dividend of $17.50 per share. 

The new company will now be the second-largest oil field services provider in the world with combined revenues of $32 billion. The deal is expected to close in mid-2017.

IEA doesn't see peak oil demand just yet . . . 

The head of the International Energy Agency (IEA) is openly questioning claims by various groups that the planet will soon reach "peak oil demand" due to surging sales of electric cars. IEA Executive Director Fatih Birol points out that “oil demand growth is not coming from cars, it’s from trucks, aviation and the petrochemical industry and we don’t have major alternatives to oil products there.” 

The number of electric vehicles on the roads has risen 600% since 2014 but still makes up less than 1% of all new cars sales.

It could be the end of the world as we know it . . . 

The Paris Accord formally took effect this week as representatives of "civil society groups" were invited to the signing ceremony at UN headquarters in New York.

However, the UN says the world is still on track for a 2.9 to 3.4°C temperature increase this century, even if the Paris targets are met. Erik Solheim, head of UN Environment said in a statement "If we don't start taking additional action now, beginning with the upcoming climate meeting in Marrakesh, we will grieve over the avoidable human tragedy. The growing numbers of climate refugees hit by hunger, poverty, illness and conflict will be a constant reminder of our failure to deliver. The science shows that we need to move much faster." 

The 22nd session of the UN's Conference of the Parties (COP22) will kick-off in Morocco on November 7, 2016.




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

3,282k
+397 ▲ 13.8%
BBL/D CDN EXPORTS TO US
8,522k
+18 ▲ 0.2%
BBL/D US PROD'N
482.58M
+14.42 ▲ 3.1%
BBL US INVENTORY
450
+9 ▲ 2.0%
US RIG COUNT
CHANGE WK/WK  

US oil inventories surged by over 14 million barrels last week. Most of those inventory gains occurred in the Gulf Coast, which saw an increase of 8.1 million barrels over the previous week. imports of foreign oil also saw big increases, rising by 2 million bbl/day.

US oil production ticked higher for the third week in a row, split evenly between the lower 48 states and Alaska. Production is now up 700,000 bbl/day from the lows of early October.




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

97.09
-1.25 ▼ 1.3%
USD INDEX
74.61
-0.11 ▼ 0.1%
CDN DOLLAR
1.79%
-0.07 ▼ 3.8%
US 10Y Bond
1.16%
-0.07 ▼ 5.7%
CDN 10Y Bond
CHANGE WK/WK  

The US Federal Reserve held interest rates unchanged this week but signalled they remain on track for a rate hike in December. The US created 161,000 jobs in October, a little softer than expected, but September data was revised upwards significantly. Wage growth was 2.9%, the highest since the last recession. The US jobless rate declined to 4.9%.

As of Friday's closed, the US dollar has declined for the second week in a row blamed on uncertainty over the US election.

The Bank of England held rates unchanged but signalled a rate hike is actually on the table if the pound keeps falling and inflation gets out of control. The pound sterling was the best performing currency this week, gaining 2.7%.

The Bank of Japan also held its overnight lending rate unchanged at -0.1%.




OIL PRICES • WEEKLY CLOSE
Friday close, USD/bbl • data by CME Group
45.58
-4.13 ▼ 8.3%
BRENT USD/BBL
44.07
-4.63 ▼ 9.5%
WTI USD/BBL
40.32
-5.13 ▼ 11.3%
CDN LT USD/BBL
29.22
-4.68 ▼ 13.8%
WCS USD/BBL
CHANGE WK/WK  

Oil prices declined almost 10% this week on high inventories and lack of positive news from OPEC members. As of Friday's close, West Texas declined 6 days in a row, down 15% from the highs of mid-October.

Reuters is reporting that Saudi Arabia has actually threatened to increase output if Iran doesn't agree to a production cut. Goldman Sachs warned that oil prices may head back to US$40 if OPEC fails to reach consensus on production cuts at its month-end meeting. 

In contrast, Bank of America's head of global commodities is confident a deal will be made, predicting that Saudi Arabia and Russia will concede to most of the production cuts.

Monthly average oil prices for October were as follows:

  • Brent = US$51.39
  • WTI = US$49.94
  • Canadian Light = US$46.70
  • WCS = US$35.79

The heavy oil differential held steady at US$14.15/bbl, representing a discount of 28%. October closes out the third consecutive month of gains in average prices. 




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

A slew of third quarter earnings were reported this week, with a only handful of names still left to report next week. Among the key highlights . . .

Canadian producers:

  • Third quarter losses at Canadian Natural Resources (TSX:CNQ) widened on a 33% plunge in cash flow from operations, blamed on lower oil prices and maintenance outages across its oil sands facilities. Net losses widened to $326 million versus $111 million for the prior year. Oil and natural gas production also declined 13.4% to 735,212 boe/day in Q3. Despite the earnings miss, the company boosted its quarterly dividend by $0.02 to $0.25 per share.
  • Encana (TSX:ECA) posted a surprise third quarter profit thanks to lower operating costs. Liquids production declined 17% to an average of 117,000 bbl/day while natural gas output fell 14% to 1.33 billion cubic feet per day. Operating expenses declined to $4.19/boe, down from $4.66 for the previous year quarter. The company posted a net profit of $317 million in Q3 versus a loss of $1.24 billion last year. Morgan Stanley also disclosed it recently took a passive 5% stake in the company.
  • Third quarter production at Baytex Energy (TSX:BTE) averaged 67,167 boe/day, down slightly from 70,031 boe/d reported in Q2. Full year 2016 guidance was revised 2% higher to a range of 69,000 to 70,000 boe/day. The company says it has sufficient cash flow to fund its capital expenditures, expected to be in the range of $200 to $225 million. So far this year, operating costs are down 12%.
  • Penn West Petroleum (TSX:PWT) reported a 54% decline in third quarter revenues, down to $136 million. Production was halved to 41,233 boe/day due to divestiture of non-core assets. Full year production guidance was revised lower to a range of 52,000 to 55,000 boe/day as the company expects to sell more assets in the fourth quarter. Net losses narrowed to $232 million, down from $764 million for the same time last year.
  • Acquisitions helped Seven Generations (TSX:VII) double its production to 132,625 boe/day in the third quarter, boosting funds from operations to $212 million. Net losses narrowed to $2.19 million while netbacks were improved 10% to $29.64/boe. The company expects production to be in the range of 180,000 to 190,000 boe/day next year. 2017 capital guidance is was revised to a range of $1.6 to $1.7 billion.
  • Pengrowth Energy (TSX:PGF) produced 55,137 boe/day in the third quarter, down 3% from the previous quarter due to maintenance at both its Carson Creek and Lindbergh operations. Net losses narrowed to $52.9 million, down from $329.6 million in Q3/2015. The company continues to evaluate asset sales and remains focused in cost reductions.
  • Whitecap Resources (TSX:WCP) boosted production to 49,251 boe/day in the third quarter, up 22% from Q3/2015. Full year guidance was boosted to 45,700 boe/day. Funds from operations rose to $106.6 million, thanks to its recent acquisition of assets in Saskatchewan. Operating and transport costs declined to $9.88/boe in Q3, increasing netbacks to $23.52/boe. The company expects a "very active" fourth quarter, with drilling activity expected to pick up considerably. Whitecap has hedged 37% of their crude oil at $62/bbl next year and 16% at $60/bbl in 2018.
  • Third quarter production at Bonavista Energy (TSX:BNP) averaged 64,160 boe/day, down from 78,599 boe/day for the same time last year. The decline was due to the sale of non-core assets. Full year production is expected to average 68,500 boe/day. Operating costs declined $5.31/boe, down 19% y/y. Production revenues declined 27% to $108 million. Net losses narrowed to $29.4 million, down from a loss of $216 million for the same time last year. The company has plans to divest another 2,900 boe/day for total proceeds of about $118 million.
  • Vermillion Energy (TSX:VET) reported a Q3 loss of $14.5 million, down from $83.3 million for the prior year quarter. Production was relatively unchanged at 63,596 boe/day, despite a 43% cut in capital expenditures. The company expects to produce 62,500 to 63,500 boe/day for the full year. Vermillion operates oil and gas assets throughout North America, Australia and Europe.

Midstream, infrastructure and energy services:

  • TransCanada (TSX:TRP) reported an unexpected quarterly loss of $135 million due to a one-time impairment change related to its US Northeast Power Business. The company announced the sale of its power business for US$3.7 billion in order to help pay for its US$13 billion acquisition of Columbia Pipeline Group earlier this year. Canada's second largest pipeline player currently has $25 billion worth of near term projects it expects to complete by 2020. TransCanada also announced it will be issuing $3.2 billion in new stock and is working towards boosting its dividend 8-10% a year for the next 3 years. The company also announced it will no longer be seeking to sell parts of its natural gas network in Mexico.
  • Enbridge (TSX:ENB) reported a smaller-than-expected quarterly profit blamed weak demand for natural gas heating due to warm weather. Higher volumes helped shrink losses to $103 million in the third quarter versus a $609 million loss a year earlier. Cash flow from operations rose to $852 million, up from $668 million for Q3/2015. The company says it has identified $5 to $6 billion worth of assets it may sell to pay for its acquisition Spectra Energy.
  • Enbridge Energy Partners (NYSE:EEP) reported a third quarter loss of US$406 million, blamed on a US$757 million write-down of its deferred Sandpiper project. Operating revenues declined to US$1.1 billion, down from US$1.3 billion for the same quarter last year.
  • Third quarter revenues at Houston-based Spectra Energy (NYSE:SE) edged down to $1.08 billion, unchanged from the previous year but less than analysts were expected. The company says it has US$8 billion worth of expansion projects currently in execution and US$1.2 billion in projects that will be put into service by the end of the year. Spectra raised its quarterly dividend by US$0.0125 or about 2%, making it the 36th consecutive quarterly dividend increase. The company says it is still working towards its merger with Enbridge announced in September.
  • Veresen (TSX:VSN) reported a third quarter net income of $19 million, more than double the same time last year. The company has $1.3 billion worth of growth projects under construction which it says are fully funded. Veresen is in the process of selling its power generation business, and it hopes to announce a buyer in the new year.
  • Inter Pipeline (TSX:IPL) reported third quarter revenues of $434 million, up 2.6% from the same time last year, while net income dipped 5% to $121 million. Oil sands and conventional pipeline volumes averaged 1.286 million bbl/day, down 3% from last year on lower volumes from Cold Lake. Inter Pipeline's oil sands pipelines (Cold Lake, Corridor and Polaris) account for more than half of the company's cash flow. The company also raised their annual dividend by $0.06, or 3.8%.
  • Pembina Pipeline (TSX:PPL) reported third quarter revenues of $970 million, down from $1.03 billion for the same quarter last year. Earnings improved 7% to $120 million on better operating margins. Q3 volumes rose to 1.903 billion boe/day, up 12% y/y. The company is making good progress on its expansion projects including the Phase III Pipeline Expansions, terminalling infrastructure at the NWR Sturgeon Refinery and the Canadian Diluent Hub.
  • Gibson Energy (TSX:GEI) reported an adjusted third quarter EBITDA of $62.6 million, down from $95.1 million in the Q3/2015 but a 41% improvement from the previous quarter thanks to strong results from its energy infrastructure business and a tax recovery charge. Revenues declined 10% to $1.21 billion while net losses contracted to $32.9 million. 
  • Third quarter revenues at Secure Energy Services (TSX:SES) were reported at $401.8 million, much better than analysts were expecting and up 20% from the same time last year. Adjusted EBITDA declined 22% to 27.4 million while net losses narrowed to $8.12 million. Rig counts declined over 30% due to unseasonable wet weather. The outlook is much brighter for Q4 and the company expects to increase its capital spend next year as the market improves.
  • Williams Companies (NYSE:WMB) reported better than expected third quarter results this week. Cash flow from operations grew to US$618 million, up from US$603 million last year. The company revised its 2017 capital expenditures lower from the current US$3.1 billion to a range of US$2.1 to 2.8 billion. 

US producers:

  • Marathon Oil (NYSE:MRO) posted a third quarter loss of US$192 million despite strong production results and falling operating costs. Net production rose 5% to 402,000 boe/day. Quarterly revenues declined to US$1.23 versus US$1.32 billion for the same time last year. Production costs declined 37% y/y across its North American operations. The company plans to boost its rig count by 50% in Q4.
  • Devon Energy (NYSE:DVN) posted its first quarterly profit in 2 years thanks to aggressive cost cutting and strong operational performance. Third quarter revenues at Devon rose 17.6% to $4.23 billion, including a US$1.35 billion gain from asset sales. The Jackfish SAGD operation produced 137,000 bbl/day of bitumen in the third quarter, up 13% from the same time last year. Total production at Devon averaged 577,000 boe/day. The company expects to increase rig activity through the fourth quarter, increasing its capital spend from US$400 to US$425 million by year end.
  • Natural gas producer Chesapeake Energy (CHK) posted a 33% decline in third quarter revenues on lower commodity prices, lower production and lower sales volumes. Average daily production was 638,100 boe/day, down 4% from the same time last year. Operating expenses declined to US$2.80/boe. Net losses contracted to US$1.20 billion while total revenues declined 33% to US$2.28 billion. The company has hedged 60% of its natural gas and 50% of its oil production next year. Chesapeake is currently under investigation by the SEC for "misstatements" in its public filings.
  • Anadarko Petroleum (NYSE:APC) reported that net losses narrowed to US$830 million in the third quarter, down from US$2.24 billion in Q3/2015. Revenues rose 12.1% to US$1.9 billion, although the number was lower than expected. The company expects to complete US$4 billion worth of divestitures by the end of the year and has already de-staffed about 1,000 employees. This is Anadarko's fifth consecutive quarterly loss.
  • Tesoro reported a decline in Q3 revenues, down to US$6.5 billion versus US$7.7 billion for the prior year quarter. Net earnings plunged 78% on much lower refining margins. Throughput in the fourth quarter is expected to average 805,000 to 855,000 bbl/day. Tesoro operates 7 refineries in the Western US with a total refining capacity of 895,000 bbl/day.

Global stocks:

  • Weak refining margins pulled profits lower at BP (NYSE:BP), falling to US$933 million on an adjusted basis versus US$1.8 billion last year. Total revenues declined to US$48.0 billion from US$57.3 billion in Q3/2105. Capital expenditures for full year 2016 were revised lower from US$17 to US$16 billion. Expenditures in 2017 are expected to fall between US$15 to $17 billion. The company expects a higher level of maintenance turnarounds in the fourth quarter. BP is working towards a breakeven cost of US$50 to US$55/bbl.
  • Third quarter revenues at Royal Dutch Shell (NYSE:RDS) rose to US$61.9 billion, beating analyst expectations. The company says it has already begun to see synergies and savings from its recent acquisition of BG Group. Annual operating costs declined to US$40 billion, US$9 billion lower than Shell and BG Group combined, while capital investments declined US$18 billion to US$29 billion. Shell has a number of projects starting up this year which will add 250,000 boe/day. The company is still working through 16 different asset sales. Shell CEO Ben van Beurden noted "lower oil prices continue to be a significant challenge across the business, and the outlook remains uncertain." The company continues to work towards a breakeven price of US$50/bbl.

Australia's Woodside Petroleum (ASX:WPL) has completed the purchase of ConocoPhillips' (NYSE:COP) assets in Senegal for US$440 million. The deal includes a 35% interest in three offshore exploration blocks.

This week's 52 week highs on the TSX include Parkland Fuel (PKI) and Teck Resources (TCK/b).

US markets suffered their worst week since early September blamed on next week's US election. The S&P 500 declined for 9 days in a row, its longest losing streak since 1980.

UPGRADES & DOWNGRADES

  • Chevron (NYSE:CVX): Upgraded from Neutral to Buy at Goldman Sachs and from Equal Weight to Overweight at Morgan Stanley. 
  • Encana (TSX:ECA): Upgraded from Sector Perform to Outperform at RBC.
  • Imperial Oil (TSX:IMO): Upgraded from Underperform to Neutral at Macquarie.
  • Marathon Petroleum (NYSE:MPC): Upgraded from Outperform to Strong Buy at Raymond James and from Sell to Neutral at UBS. 
  • Suncor Energy (TSX:SU): Upgraded from Equal Weight to Overweight at Morgan Stanley.
  • Veresen (TSX:VSN): Upgraded from Sector Perform to Outperform at National Bank and Scotiabank.
  • BP (NYSE:BP): Downgraded from Buy to Hold at Societe Generale.
  • ExxonMobil (NYSE:XOM): Downgraded from Buy to Neutral at Goldman Sachs.

NEXT WEEK'S EVENTS

Monday:

  • COP22 kicks-off in Marrakech, Morocco.

Tuesday:

Wednesday:

  • EIA Petroleum Status Report released @ 10:30am ET

Thursday:

Friday:

  • OPEC Oil Market Report (November)
  • ConocoPhillips Investor Day @ New York, NY
  • Baker-Hughes Rig Count released @ 1:00pm ET.

Next edition of the Oil Sands Weekly: Friday November 11, 2016 @ 8pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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