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The Oil Sands Weekly

The Oil Sands Weekly

Brion Energy's MacKay River finally starts steaming . . . 

Brion Energy announced First Steam was achieved last week at their freshly commissioned MacKay River Commercial Project (MRCP). The company expects to achieve first oil in August 2017.

The first phase of MRCP is expected to produce 35,000 bbl/day, although Brion hopes to eventually expand capacity to 150,000 bbl/day through phased construction. The SAGD project is located about 30 km northwest of Fort McMurray.

The project received regulatory approval in December of 2011 and was expected to begin production in 2015. However, construction dragged on longer than expected to due low oil prices, harsh winter conditions and the spring wildfires.

Brion Energy was established in 2010 as a joint venture between Athabasca Oil Sands and PetroChina. Athabasca Oil Sands divested its remaining stake in MackRay River in 2012 as part of a loan repayment deal. PetroChina is 86% owned by the Chinese government through China National Petroleum Corporation (CNPC).

Cenovus shifts from penny-pinching to growth in 2017 . . . 

Cenovus Energy announced plans to boost capital spending by 24% next year, marking its first return to growth since oil prices fell off a cliff in 2014.

Next year's capital spending budget is expected to be about $1.3 billion, about 70% of which will be directed towards sustaining capital at its existing operations. The remaining 30% will be allocated to growth projects.

Cenovus says it plans to restart its phase G expansion at the Christina Lake SAGD facility, which was halted in 2014. The company says it has successfully rebid contracts on the project, reducing capital costs by $500 million. Phase G will add another 50,000 bbl/day of capacity by the middle of 2019.

Phase F at Christina Lake achieved first oil in November and will ramp up to its full capacity of 50,000 bbl/day over the next 12 months, bringing gross capacity to 210,000 bbl/day. Cenovus says Christina Lake will exit the year at about 190,000 bbl/day. Operating costs are expected to fall another 8% next year, to a range of $6.50 to $8.00 per barrel.

Foster Creek phase G also achieved first oil early in the third quarter, bringing production capacity to about 180,000 bbl/day. Foster Creek is expected to exit 2016 at about 165,000 bbl/day. Operating costs are projected to rise 7% next year, to a range of $10.50 to $12.50 per barrel. The rising cost of natural gas is being blamed for the increase.

Both Christina Lake and Foster Creek are a 50/50 joint-venture with ConocoPhillips.

Cenovus plans to boost 2017 oil output by 14% to about 230,000 bbl/day, roughly 75% coming from the oil sands. Conventional output is expected to decline another 4% next year.

Fort Chipewyan Métis: Teck should be a model for all companies . . . 

Teck Resources announced a partnership with Fort Chipewyan Métis Local 125 for business opportunities and environmental stewardship relating to Teck's Frontier oil sands project, which is located on the First Nation's territory.

Local 125 President Fred Fraser said "Teck has been listening to our concerns and has committed to continue to work with us as they progress through all stages of their development. Other companies could learn from Teck and how they have treated the section 35 rights-bearing Fort Chipewyan Métis."

The Frontier Project is a proposed oil sands mine located about 110 kilometres north of Fort McMurray (about halfway the distance to Fort Chipewyan). Teck submitted its application to federal and provincial regulators in 2011, with a decision pending next year. The first phase is expected to produce 170,000 bbl/day. Teck has not yet hinted if and when it will make a final investment decision on the mining facility but says the plant could be operational as early as 2026. Frontier is 100% owned and operated by Teck Resources.

Desperately seeking partner for Trans Mountain Expansion . . .

Houston-based Kinder Morgan announced it is seeking a partner to help fund its Trans Mountain Expansion. The company's CEO had previously hinted to investors it was looking to spin off and IPO its Canadian subsidiary, Kinder Morgan Canada.

Late last year, Kinder Morgan revised the project's price tag from $5.4 billion to $6.9 billion.

In this week's 2017 financial outlook, the company says it expects to generate US$4.46 billion next year, which should be enough to fund its expansions without needing to access debt markets (assuming it funds only 50% of the Trans Mountain expansion). Kinder Morgan stock (NYSE:KMI) has significantly lagged against its Canadian peers (namely TransCanada and Enbridge) due to its high debt load and far less generous dividend payout.

Premier Notley "not terribly concerned" . . . 

Alberta Premier Rachel Notley wrapped up a 2-day visit to Vancouver last week, the epicentre of opposition to the Trans Mountain expansion. Notley says although everyone has a right to protest, no one has veto power over the pipeline. The premier is “not terribly concerned" noting “I’ve seen big protests. It happens and then governments make decisions and we turn the page to the next thing.”

The mayors of Burnaby and Vancouver have made stopping Trans Mountain a big focus of their tenures in office. However, cities have little legal authority to challenge infrastructure projects since pipelines fall under federal jurisdictions. Anti-pipeline groups instead tend to funnel their legal efforts through aboriginal communities, where constitutional law is far more fuzzy and open to interpretation.

Premier Notley also finds herself in a very awkward position with respect to NDP leaders in BC and Ottawa, who adamantly oppose pipelines and Canadian energy development in general. 

Alberta announces winners of Petrochemical Diversification Program . . . 

The Government of Alberta has awarded $500 million in royalty credits to two petrochemical projects:

  1. A joint venture between Pembina Pipeline and Petrochemical Industries Company (PIC) has been approved to receive up to $300 million in royalty credits to build a $4 billion integrated propylene and polypropylene facility in Alberta’s Sturgeon County, adjacent to Pembina's Redwater fractionator. The facility would convert 22,000 bbl/day of propane into polypropylene. Construction is expected to start in 2019 and begin operating by 2021. PIC is a subsidiary of Kuwait Petroleum Corporation.
  2. Inter Pipeline was approved to receive up to $200 million in royalty credits to build a $1.85 billion facility in Alberta’s Strathcona County. The 22,000 bbl/day propane dehydrogenation plant will produce propylene, a feedstock for the production of polypropylene. Inter Pipeline purchased the project from Williams Companies' Canadian subsidiary earlier this year. The company says it is also assessing the commercial viability of constructing a $1.3 billion polypropylene plant, which would use the propylene feedstock. Construction is expected to start sometime next year with both plants expected to be operational by mid-2021.

The funds will come from the Alberta's Petrochemicals Diversification Program, which provides royalty credits of up to $500 million once the plant is operating. Although petrochemical plants do not pay royalties, the facilities could sell the credits to oil and gas producers.

The government says it received 16 applications for the funds from around the world but they have no plans to expand the program at this time.

Saskatchewan energy scores a big win - Part 1 . . . 

Arizona-based Quantum Energy has announced plans to build a new 40,000 bbl/day refinery near the town of Stoughton, SK, located 60 km north of Estevan. Quantum has incorporated a Canadian subsidiary, Dominion Energy Processing Group (DEPG), which will oversee the project.

The "environmentally compliant" Energy Processing Center will be adjacent to a Crescent Point Energy gas capturing plant in the Viewfield region. The refinery will process light, sweet crude produced from the Bakken and Three Forks’ formations, producing 21,540 bbl/day of gasoline and 13,600 bbl/day of jet fuel and/or ultra-low sulphur diesel. 

Quantum says local and provincial levels of government have been very supportive of the project. The company is also progressing on the construction of another 40,000 bbl/day refinery in Berthold, North Dakota.

Saskatchewan energy scores a big win - Part 2 . . . 

The Fraser Institute's latest Global Energy Survey has crowned Saskatchewan the best oil-producing jurisdiction in Canada and the fourth-best in the world (after Oklahoma, Texas and Kansas).

Among the world's 10 largest oil-producing jurisdictions, Alberta ranked fourth (after Texas, UAE and Qatar).

The report surveyed 381 firms working in the oil and gas sector, mostly in exploration and development. The survey asked a series of questions relating to 16 factors, such as fiscal policy, taxation, environment regulation, political stability, cost of regulatory compliance, infrastructure, labour relations and trade barriers.

Alberta went from #14 in 2014, to #26 last year to now rank #43 out of 96 countries with significant oil and gas reserves.

Things could be a lot worse, however. Quebec and New Brunswick ranked at the very bottom of the pack, only slightly more investor-friendly than Venezuela and war-torn Libya.

Other Canadian energy news . . . 

Suncor Energy has resolved a $1.3 billion tax dispute with the Canada Revenue Agency (CRA) relating to losses declared in 2007 on the settlement of derivative contracts. The CRA has dropped all charges including interest and penalties.

Alberta Energy reported that the government earned only $137 million this year in the sale of drilling rights on crown land, making 2016 the worst in 39 years. The average price paid per hectare was $146. In 2011, the government earned $3.5 billion is selling drilling rights, sold at an average price of $860 per hectare.

Bellatrix Exploration announced the sale of non-core assets in Harmattan area of Alberta to TransGlobe Energy for $80 million. The assets produced about 3,000 boe/day in the third quarter, weighted 58% liquids. Bellatrix says the sale will reduce its debt load to just $30 million by the end of the year. TransGlobe is a Calgary-based energy producer focused on oil and gas developments in Egypt. The company says the acquisition will help it diversify and expand operations into "lower political risk" countries with attractive netbacks.

Irving Oil has agreed to purchase four inland storage facilities in Nova Scotia from Valero Energy. The facilities have a combined capacity of nearly 21,000 barrels of gasoline, diesel and home heating oils. Terms of the deal were not disclosed.

TransCanada has decided to move forward on its NOVA Gas Transmission network. The Saddle West Expansion Project will include 29 km of 36-inch pipe, five new compressors and new metering facilities. The addition will expand the system's natural gas transportation capacity by about 355 million cubic feet per day. An application will be filed with the National Energy Board in the third quarter of 2017. Construction could begin in 2018 with the in-service date expected sometime in 2019 if all approvals are received on time. TransCanada says it already has firm contracts for the added volumes.

Total Energy Services has taken their takeover of Savanna Energy Services directly to Savanna shareholders. Total is offering 0.13 of its shares (TSX:TOT) per Savanna share (TSX:SVY). Total Energy says the all stock deal is a 20% premium to Savanna's pre-announcement share price. The offer is open until March 24, 2017 and requires two-thirds of Savanna shareholders to tender their shares.

This week's notable Canadian economic data . . . 

Canada's international merchandise trade deficit narrowed to $1.1 billion in October, as imports fell 6.3% to $44.7 billion while exports increased 0.5% to $43.6 billion. Imports of energy products fell 11.6% to $2.0 billion in October, the third consecutive monthly decrease. Imports of crude oil declined 34.8% which was attributed to scheduled maintenance at refineries in Eastern Canada. Exports of energy products increased 5.5% to $6.5 billion, the eighth consecutive monthly increase. Exports of crude oil and diluted bitumen rose 5.5% to $4.3 billion on higher prices.

Industrial capacity utilization jumped to 81.9% in the third quarter, up from 79.7% in Q2. Much of the increase was attributed to oil and gas extraction, where capacity utilization rate rose 8.0% to 82.3%. Q2 was a dismal quarter for the energy sector due to the Fort McMurray wildfires and scheduled maintenance outages.

Credit rating agency Equifax warned that national consumer debt has topped $22,000 per person, up 3.6% from the same time last year. Delinquency rates also moved higher by about 10%, driven by gains in Alberta, Saskatchewan and Newfoundland. The most indebted province remains Alberta (averaging almost $28,000 per person) while the most indebted city (by a very wide margin) is Fort McMurray, averaging $37,768 per person. Total consumer debt (excluding mortgages) is now $1.7 trillion.

The Bank of Canada has kept its overnight lending rate unchanged at 0.5%. Governor Stephen Poloz says non-energy exports continue to disappoint, but he's not yet concerned about rising mortgage and consumer debt, nor the threat of higher interest rates in the US. Despite little change in short term rates, long bond rates have risen sharply since the US election, sending mortgage rates higher in Canada.

For the first time in history, Mexico has displaced Canada as the second largest trading partner for the US. Americans purchased US$230 billion from Canada for the first 10 months of this year, versus US$245 billion from Mexico. Car shipments are being blamed for the shift, as Canada's auto sector shrinks and more assembly plants move to Mexico.

2017 capital spending programs begin to trickle in . . . 

Precision Drilling has cut its forecast for capital spending next year but says drilling demand in the energy patch is starting to improve. The company says it sees signs of strengthening demand for the upcoming winter drilling season in Canada and parts of the US. Capital spending next year was slashed in half to just $109 million, including $51 million allocated to upgrade existing rigs and $51 million for sustaining and infrastructure. 

In contrast, Crescent Point Energy boosted its capital spending program from $1.1 billion this year to $1.45 billion in 2017. About 90% of expenditures will be allocated to drilling and development activities. The company says it had a better-than-expected 2016, and expects to exit the year at 167,000 boe/day. Q1/2017 production should increase to 170,000 boe/day, a 12% increase from Q1/2016.

Gibson Energy has approved a 2017 capital expenditure budget of $150 million to $250 million. The company has put its propane business up for sale and expects all bids to be received by the end of the year.

Pembina Pipeline plans to spend $1.9 billion next year, primarily focused on completing capital projects already underway. The funds will be split approximately as follows:

  • Conventional pipelines: $1.14 billion, mostly spent on the Phase III expansion of the company's Peace and Northern Pipeline from Fox Creek to Namao, AB
  • Midstream: $540 million, which includes completion of a third fractionator, terminalling infrastructure for the North West Redwater Partnership and completion of the Canadian Diluent Hub
  • Gas services: $165 million, which will see the Duvernay I and the Field Hub put into service by the end of the year
  • Oil sands and heavy oil: $25 million allocated towards enhancing existing systems.

Pembina expects to complete about $4 billion worth of projects in 2017.

Veresen plans to spend $500 million next year to advance $1.3 billion worth of projects already under construction. Both the Tower and Sunrise natural gas processing plants are expected to be put into service next year, doubling the company's gas processing capacity to 600 million cubic feet per day. Veresen plans to divest of its power business and expects to announced a buyer sometime in the first quarter.

The company also announced that US federal regulators (FERC) have again denied a request for hearings on the Jordan Cove LNG Project and Pacific Connector Gas Pipeline in Oregon. FERC cites lack of market support in their decision.

Chevron has cut is capital and exploratory budget by another 15% next year, to US$19.8 billion. The company says 70% of its planned upstream investment program is expected to generate production within two years. This is the fourth consecutive year of spending cuts for the company. Chevron's capital spending budget is now 42% lower than 2015.

Phillips 66 has set a 2017 capital budget of US$2.7 billion, including US$1.3 billion for growth of its midstream business and less than US$1 billion for enhancing its refining facilities. Total expenditures in 2017 are expected to be 25% lower than the current year.

Obama grants pipeline haters a parting gift . . . 

The Obama Administration has directed the US Army Corps of Engineers to deny an easement required to cross the Dakota Access Pipeline under Lake Oahe in North Dakota, leaving the whole matter up to the next administration. The US Army is asking owners Energy Transfer Partners and Sunoco Logistics to consider an alternate route. 

The judgement is a big win for the Standing Rock Sioux Tribe, whose reservation lies less than a kilometre south of the river crossing. The tribe has repeatedly expressed concerns over the potential for a pipeline rupture and perceived violation of its treaty rights.

The Wall Street Journal notes it is extremely rare for Washington to intervene in a permitting process typically handled by "civil servants". The project is already 85% complete, making the decision to pull permits at such a late stage even more baffling. Pipeline experts are confident the decision could be easily overturned by the next administration.

However, it is unclear how quickly the Army's decision can be reversed. Energy Transfer is under contract to ship volumes starting in January, and shippers could be in a position to renegotiate or even terminate contracts if the line isn't ready in time. 

The Standing Rock Sioux have said they support a rerouting of the line, but other anti-pipeline groups won't be satisfied unless the project in cancelled in its entirely. The tribe has asked protestors to go home and refrain from further illegal actions against the project.

Energy Transfer estimates revenue losses at US$450 million so far, increasing by US$84 million per month of delays. The company didn't hold back in responding to the permit denial, calling the move the "latest in a series of overt and transparent political actions by an administration which has abandoned the rule of law in favor of currying favor with a narrow and extreme political constituency." The company has no intent of rerouting the line, which would require a new round of public consultations and likely a full environmental review, potentially delaying the project for another year.

Unlike Keystone XL, which President Obama called a conduit for "extraordinarily dirty" oil from a foreign country, Dakota Access will transport up to 570,000 bbl/day of light sweet crude from North Dakota to an oil terminal near Pakota, Illinois. North Dakota produces about 1 million bbl/day of crude, making it the second-largest oil producing state in the US, after Texas. Lack of pipeline infrastructure has forced much of its production onto railcars.

Spotted at Trump Tower this week . . .

President-elect Donald Trump met with Exxon Mobil CEO Rex Tillerson this week for reasons undisclosed. Bloomberg sources report that Tillerson is being considered for the position of secretary of state. Exxon was the only US company allowed to operate in Russia after sanctions were imposed in 2011. Bloomberg is speculating the Exxon CEO would be a good candidate to help "unthaw" US relations with Russia. Tillerson set to retire from his CEO position in March.

Trump also ruffled a lot of feathers this week by picking Oklahoma Attorney General Scott Pruitt to head the Environmental Protection Agency (EPA). Pruitt is a vocal opponent of Obama's Clean Power Act, calling it "an unlawful attempt to expand federal bureaucrats’ authority over states’ energy economies in order to shutter coal-fired power plants and eventually other sources of fossil-fuel generated electricity." Trump says the EPA has an "out-of-control anti-energy agenda that has destroyed millions of jobs." Many in the Republican Party have called for a complete "elimination" of the EPA, which is empowered to administer federal standards under the Clean Water and Clean Air Act. The agency was formed by Richard Nixon (also a Republican) in 1970. 

This week's OPEC chatter . . . 

Rising production out of Iraq, Iran, Libya, Nigeria, Angola and Indonesia boosted OPEC production to a record 34.2 million bbl/day in November, up from 33.8 million in October. That now places OPEC production 1.7 million bbl/day higher than the 32.5 million target agreed to in Vienna last week.

OPEC has asked 14 non-OPEC members (Russia, Mexico, Kazakhstan, Oman, Bahrain, Colombia, Congo, Egypt, Trinidad and Tobago, Turkmenistan, Azerbaijan, Uzbekistan, Bolivia and Brunei) to find another 600,000 bbl/day worth of cuts. The 14 countries produce about 18.5 million bbl/day, roughly 11.5 million coming from Russia alone. OPEC also says production cuts could also be in the form of natural declines.

So far, Russia has committed to 300,000 bbl/day of "gradual" cuts, from levels undefined. Oman has also agreed to curtail production. 

The government of Kazakhstan says its giant offshore Kashagan field is ramping up nicely and should produce an average of 192,000 bbl/day next year. The country is reluctant to commit to production cuts but says they support OPEC's efforts to limit supply increases. Kazakhstan's output has declined for the last three years but 2017 will see a reversal of that trend.

Elsewhere in the world . . . 

BP is taking advantage of the WTI discount to Brent and cheap tanker rates by shipping US oil to Asia. The company is using VLCC-rated tankers, which can carry 2 million barrels of oil but are too large to pass through the Panama canals. Reuters is reporting the crude is being loaded in Texas, traveling around South Africa and into Malaysia, where shipments are split for delivery across Asia Pacific. Middle Eastern countries have recently been wooing Asian customers away from Saudi Arabia, by offering attractive discounts. China's largest trading houses have also been taking advantage of cheaper North American crude by purchasing US oil for Chinese refineries. Saudi Arabia has recently offered another discount to its Asian customers for January sales of Arab Light crude.

Royal Dutch Shell and French energy giant Total have signed agreements to develop oil and gas fields in Iran. This marks the first deal between European companies and the Iranian government since sanctions were lifted earlier this year. Iran hopes to produce 4.28 million bbl/day of crude oil by 2020, up from the current output of 3.67 million bbl/day.

Mining-giant BHP Billiton was awarded exploration rights in the Trión block, located within the Perdido area of the Gulf of Mexico, on the Mexican side of US-Mexico maritime border. The project will be the first joint venture for state-owned Pemex, who retains 40% of the operation. If developed, the investment could be as much as US$11 billion with first oil expected by 2023. The Trión fields hold an estimated 485 million barrels of oil equivalent.

Still in Mexico, Total was awarded exploration licenses on three blocks in the same area. Total has a 50% stake in Block 2 (also in the Perdido basin), owned jointly with ExxonMobil (50%). Blocks 1 and 3 in the neighbouring Salina basin was awarded to Total, Statoil and BP.

BP has purchased a 3.06% stake in Indonesia's Tangguh Project from Repsol for US$313 million. With this acquisition, BP's stake in Tangguh increases to just over 40%. The plant processes about 7.6 million tonnes of LNG per year.

BP's CEO Bob Dudley also announced plans to double production out of the North Sea by 2020. In an interview with Energy Voice magazine, Dudley confirmed BP plans to drill 50 exploration wells over the next three years, bringing production to 200,000 bbl/day. The CEO says his company is planning to balance the books at US$55 oil next year.

India's Prime Minister Modi made a plea to foreign investors to help the country boost its domestic oil production. India has surpassed China to become the world's fastest growing economy, accounting for 25% of the increase in oil demand over the next 25 years. By 2040, the country will consume more oil than all of Europe. Modi said his country urgently needs to reduce reliance on foreign oil imports, which currently meets about 80% of India's demand. The country consumes about 4.3 million bbl/day (about double that of Canada), which is quite minuscule given its population of 1.27 billion.

Mining-giant Glencore and the Qatar Investment Authority have teamed up to buy a 19.5% stake in Russia's state-owned Rosneft for US$11.3 billion. Glencore will finance the deal through €300 million of its own shares. The remainder will be financed by banks and the Qatar Investment Authority, a sovereign wealth fund that also happens to be one of Glencore's biggest investors. Rosneft is still under sanctions but its ability to attract European money suggests relations with the West may begin to ease, particularly in light of the incoming US administration. This is the largest M&A deal announced in the energy patch so far this year.




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

3,604k
+321k ▲ 9.8%
BBL/D CDN EXPORTS TO US
8,697k
-2k ▼ 0.0%
BBL/D US PROD'N
485.76M
-2.39M ▼ 0.5%
BBL US INVENTORIES
498
+21 ▲ 4.4%
US RIG COUNT
CHANGE WK/WK  

US oil rig counts jumped by 21 this week, reaching levels not seen since January. Canada gained 17 oil rigs (to a total of 117) and 14 gas rigs (to 112). Oil rig counts are now up over 50% from the lows of May.

In their December Short Term Energy Outlook, the US Energy Information Administration (EIA) is forecasting US oil production will average 8.9 million bbl/day next year, falling to 8.8 million bbl/day in 2018. However, the agency stands ready to increase those estimates if oil prices stay above $50/bbl.

Non-OPEC production is expected to grow by 400,000 bbl/day next year, driven in part by a 300,000 bbl/day gain expected in Canada, offsetting declines expected in Mexico, China and the North Sea. In addition to Canada, non-OPEC growth is expected to come from Russia, Kazakhstan and Brazil.

The EIA expects OPEC production to average 33.2 million bbl/day next year, much higher than OPEC's output target of 32.5 million bbl/day for the first half of the year.

The EIA also reported a huge surge in oil imports from Canada last week, reaching a record high of 3.6 million bbl/day. However, weekly import figures are preliminary and can be quite volatile. Last week's import levels are unlikely to be sustained and would instead suggest a shift in inventory volumes. The US imported about 3.3 million bbl/day from Canada in September, the latest available "final" monthly figures. Canada now accounts for over 40% of total crude oil imports into the US.




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

101.50
+0.64 ▲ 0.6%
USD INDEX
75.87
+0.59 ▲ 0.8%
CDN DOLLAR
2.47%
+0.07 ▲ 2.9%
US 10Y Bond
1.73%
+0.10 ▲ 6.1%
CDN 10Y Bond
CHANGE WK/WK  

All eyes will be on the US Federal Reserve's interest rate decision next Wednesday. Chances of a 0.25% increase are 100% while some traders are speculating the FOMC could tighten even further as the incoming US administration is expected to unleash the "mother-of-all" infrastructure stimulus programs and sweeping tax reforms next year. 

Despite gains in the US dollar, the Canadian dollar has also been on a tear thanks to higher oil prices and a strong recovery in oil exports. However, currency analysts at Bank of America/Merrill see a lower loonie ahead thanks to rising US interest rates and the potential for lower interest rates in Canada.

ECB Chair Mario Draghi announced plans to buy a wider variety of bonds, sending the Euro 1% lower for the week. Economic data out of France and Germany was worse than expected this week but the ECB remains hopeful a lower Euro will stimulate exports and inflation, eventually.

The Japanese yen was the worst performing currency again this week, falling another 1.6% as money moves into riskier assets.




OIL PRICES • WEEKLY CLOSE
Friday close, USD/bbl • data by CME Group
54.33
-0.13 ▼ 0.2%
BRENT USD/BBL
51.50
-0.18 ▼ 0.3%
WTI USD/BBL
47.29
+0.06 ▲ 0.1%
CDN LT USD/BBL
36.15
-0.08 ▼ 0.2%
WCS USD/BBL
CHANGE WK/WK  

The spread between Brent and WTI has begun widening again as US production perks up and hope springs eternal for production cuts out of OPEC producers.

The EIA is forecasting an average WTI price of US$51/bbl in 2017, US$1 lower than Brent but US$1 higher than its previous forecast. The average gasoline price across the US fell to US$2.18 per gallon in November (US$0.576 per litre), down 3% from October. The EIA expects prices at the pump will continue to fall through January.

Henry Hub natural gas price are expected to average US$2.49/MMBtu this year, rising to US$3.27 in 2017. The expected increase in prices is attributed to growing domestic consumption, higher exports to Mexico via pipeline and the ramp up of LNG exports.

The return of the "Polar Vortex" also helped boost natural gas prices on both sides of the border this week.




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

TransCanada (TSX:TRP) has filed for issuance of up to $2 billion in new shares over the next 25 months. Proceeds from the sale will be used to pay down debt.

Devon Energy (NYSE:DVN) has offered its bondholders the chance to tender up to US$1 billion in outstanding bonds. Debt holders will receive an early tender payment of US$30 per US$1,000, on top of accrued and unpaid interest. The company says it will use the funds reduce outstanding debt.

This week's 52 week highs on the TSX include Birchcliff Energy (BIR), Bonavista Energy (BNP), Calfrac Well Services (CFW), Canadian Energy Services (CEU), Encana (ECA), Enerflex (EFX), Ensign Energy Services (ESI), Paramount Resources (POU), Secure Energy Services (SES) and Vermilion Energy (VET).

MEG Energy was once again the best performing energy stock on the TSX, gaining 11% for the week. MEG stock is now up 50% from the lows of early November.

In the US energy sector, Baker Hughes (BHI), ConocoPhillips (COP), Chevron (CVX), Halliburton (HAL) and Statoil (STO) also reached new 52 week highs. Transocean (RIG) was the best performing energy stock this week, gaining 15%. RIG is also up 50% from the lows of early November.

US markets continued their post-election euphoria this week, with most markets reaching fresh record highs. The best performing sector on the S&P 500 is the drillers, up about 40% since election day. The TSX also hit a 19 month high this week.

UPGRADES & DOWNGRADES

  • Calfrac Well Services (TSX:CFW): Upgraded from Underperform to Sector Perform at Scotiabank.
  • Devon Energy (NYSE:DVN): Upgraded from Neutral to Buy at Seaport Global Securities.
  • Marathon Petroleum (NYSE:MPC): Upgraded from Neutral to Overweight at JPMorgan Chase.
  • Mullen Group (TSX:MTL): Upgraded from Hold to Buy at Canaccord Genuity.
  • PrairieSky Royalty (TSX:PSK): Downgraded from Buy to Hold at GMP Securities.
  • Precision Drilling (TSX:PD): Upgraded from Market Perform to Outperform at Wolf Research.
  • Trican Well Service (TSX:TCW): Upgraded from Speculative Buy to Buy at Canaccord Genuity and from Hold to Buy at GMP Securities.

NEXT WEEK'S EVENTS

Tuesday:

  • IEA Oil Market Report - December Edition
  • API Weekly Statistics Bulletin released @ 4:30pm ET

Wednesday:

  • Husky Energy 2017 Capital Plan and Production Outlook
  • Q3/2016 National Balance Sheet released by StatsCan @ 8:30am
  • OPEC Monthly Oil Market Report - December
  • EIA Petroleum Status Report released @ 10:30am ET
  • FOMC Interest Rate announcement @ 2:00pm ET
  • Western Canadian Select - January contract expiry
  • Canadian Light - January contract expiry

Thursday:

  • October Manufacturing Data released by StatsCan @ 8:30am
  • EIA Natural Gas Report released @ 10:30am ET
  • Bank of England interest rate decision

Friday:

  • Baker-Hughes Rig Count released @ 1:00pm ET.

Next edition of the Oil Sands Weekly: Friday December 16, 2016 @ 8pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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