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The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Suncor takes another step forward on Meadow Creek
  • Fort Hills Partners head to court
  • Thailand defers entry into the oil sands
  • Cenovus makes another big sale
  • Kinder Morgan laments permitting time for TMEP
  • Pengrowth gives away 1,600 wells
  • 200,000 reasons to be concerned for Canada's energy patch
  • Alberta Clipper finally gets Presidential Permit
  • Reversing pipeline flows from the Gulf Coast to Midwest
  • Two fires sparked by maintenance turnarounds
  • Chevron tries something new in an old field
  • Russia quietly backs Kurdistan in push for independence
  • Buyers demand refunds for poor quality Venezuelan crude
  • OPEC ponders "condensate" accounting practices

ALBERTA

Fatality reported at Millennium
A spokesperson for Suncor confirmed that a contract employee from Aecon was killed at the Millennium oil sands mine Friday morning. The company says the man was buried while digging a trench, but provided no further details. The RCMP and Alberta Occupational Health and Safety are investigating the incident. Aecon has suspended their activities at the site pending the investigation.

Suncor gets the ball rolling on Meadow Creek West
Suncor Energy submitted an application and Environmental Impact Assessment to the Alberta Energy Regulator (AER) for the development of its 40,000 bbl/day Meadow Creek West SAGD Project, located about 40 km south of Fort McMurray. Meadow Creek West will be a copy of Meadow Creek East, which was approved by the AER this past March. Suncor says it plans to construct the first phase in 2022 with first oil expected in 2025, two years after Meadow Creek East, subject to "market conditions" and assuming all regulatory approvals are received by the end of 2018. Once all phases are completed, the entire facility is expected to have a combined production capacity of 120,000 bbl/day. Meadow Creek is owned jointly between Suncor (75%) and Nexen Energy (25%).

Fort Hils Partners head to court
The Fort Hills partners, which include Suncor, Total and Teck Resources, have launched a lawsuit against Norwegian firm Jotun, seeking to recoup at least $182 million for allegedly applying sub-standard fire-proofing to some of the structural steel at the new Fort Hills processing plant. Suncor disclosed the issue last February when it announced cost escalation at the oil sands mine. The company says the problem stems from a "material quality issue associated with structural steel passive fire protection" leading to "a higher level of risk of property damage at the mine than originally envisioned and accepted." The lawsuit is in response to the added cost of removing and replacing the faulty coating, a process Suncor says will take at least five years.

Thornbury Phase 1 delayed again
Thailand's state-owned PTT Exploration and Production (PTTEP) has booked another US$550 million impairment charge on the deferral of its Mariana Thornbury Oil Sands Project, bringing the grand total to US$1.8 billion so far. The company purchased the asset from Statoil in 2010 for US$2.3 billion and took over the Thornbury, Hangingstone, and South Leismer leases in 2014. Plans to develop the field were initially shelved, then revived a few years later. PTTEP has completed a pre-FEED study and now says it is in the process of "reviewing the development plan" with a focus on "cost reduction and risk mitigation."

Cenovus makes another sale
Cenovus Energy announced the sale of its Palliser crude oil and natural gas assets in southeastern Alberta to Torxen Energy and Schlumberger for $1.3 billion. The Palliser block consists of oil and gas wells, surface facilities, a pipeline network, and 800,000 acres of oil and gas development rights producing about 54,000 boe/day. CEO Brian Ferguson says his company is on track to divest up to $5 billion in assets by the end of this year. A buyer for the Weyburn enhanced oil recovery operation in Saskatchewan is expected to be announced sometime in the next quarter. Torxen Resources is led by former Cenovus CEO John Brannan.

Pengrowth also makes another sale
Pengrowth has sold most of its remaining non-core assets in Alberta for "nominal cash consideration" and the assumption of abandonment and reclamation liabilities. The "legacy" assets encompass 36 properties and over 270 facilities with 1,600 wells, producing about 5,500 boe/day. The company says the sale will reduce operating expenses and allow it to focus on its two key assets, Lindbergh and Groundbirch.

Stormy weather cuts Alberta exports
Two crude oil pipelines were taken out of service earlier this week after windstorms caused power disruptions in parts of Alberta and Saskatchewan. The 590,000 bbl/day Keystone pipeline was disrupted for a few hours while Inter Pipeline's Mid Saskatchewan conventional crude line was taken out of service for about a day. Both companies are now reporting normal operation with no impact to deliveries.


CANADA

TMEP slightly behind schedule but hoping to catch-up
In this week's third quarter update, Kinder Morgan Canada (KML) says it commenced "limited construction activity" on the Trans Mountain Expansion Project (TMEP) last month and is moving forward with planning and construction for other areas. KML President Ian Anderson says his company has submitted all pre-construction filings with the National Energy Board and has already received hundreds of permits from the provinces of Alberta and BC, including those required for land clearing in BC's northern interior. Despite a court case pending in the province, Anderson says he sees no signs of political interference just yet. However, the company concedes construction is already slightly behind schedule due to the time required to obtain all the necessary regulatory approvals and construction permits. Mitigation plans are in place to catch-up on the schedule, but KML warns completion could be delated by up to nine months. TMEP presently has a scheduled in-service date of December 31, 2019.

Encana sticking to the master plan
Encana says it expects production to grow 30% this year, well ahead of its 20% target, due to strong performance from its shale assets in Canada and the US. Some of that increase will come from new output out of the Montney shale field that straddles the BC/Alberta border. The company has already completed two NGL processing plants so far this year and expects to put a third in service before the year-end. CEO Doug Suttles says his company continues to maintain a focus on cost-control and expects to generate $1.5 billion in free cash flow through 2022.

200,000 reasons to be concerned
The Montreal Economic Institute (MEI) says Canadians should all be very concerned for the country's energy sector. The think tank points out that Canada and the US have gone in opposite directions on taxation and regulations for the energy patch. While the Trump Administration has made life much easier for US oil and gas companies, Canada has added numerous roadblocks and set impossibly high hurdles for its energy sector. MEI says this can be corrected by reducing the tax burden, simplifying the regulatory review process, getting rid of the carbon tax and abolishing the fuzzy concept of a "social licence." Canada's energy sector adds $100 billion annually to the economy and employs an estimated 200,000 Canadians.


USA

Alberta Clipper finally gets Presidential Permit
After five years of regulatory delays, the US Administration has finally granted Enbridge a presidential permit for a 3-mile section of Line 67, better known as Alberta Clipper. The 1,790 km line was originally built to transport 450,000 bbl/day of crude from Edmonton, Alberta, to Superior, Wisconsin. Capacity was later increased to 800,000 bbl/day, however, the segment that crosses the Canada/US border fell victim to President Obama's crusade against Canada's energy sector, leaving crude flows constrained at the border crossing. Enbridge engineered a workaround in 2014, cross-connecting Line 67 to Line 3, part of its larger Mainline network. The new presidential permit will allow Line 67 to run at its nameplate capacity in its entirety, relieving some of the load on Line 3. Enbridge's Mainline has a total capacity of about 3 million bbl/day, carrying most of Canada's crude exports into the US.

Explosion sparks fire at Chevron's LA refinery
An explosion at Chevron's El Segundo Refinery sparked a fire earlier this week, sending plumes of black smoke into the air and forcing nearby residents to close their windows. The blaze was extinguished after about 30 minutes and no injuries were reported. Chevron says none of its main process units were damaged. The refinery was under a planned maintenance turnaround at the time of the incident and running at reduced rates. The 290,000 bbl/day El Segundo facility is California's largest refinery, located just south of LAX airport.

Louisiana oil platform torched during routine maintenance
Cleaning chemicals ignited a fire on the surface of an oil and gas platform in Lake Pontchartrain, Louisiana last weekend, near the city of New Orleans. The platform belonged to Clovelly Oil and was reported to have sustained significant structural damage. The facility was undergoing routine maintenance, where process pipes were being cleaned with steam. The company says lines from 2 wells were successfully cleaned but something went wrong on the third well. Eight people were onboard at the time. Six were reported seriously injured and one person presumed dead.

Turning an import pipeline into an export pipeline
Marathon Pipe Line is mulling the reversal of its 1.2 million bbl/day Capline pipeline, which presently runs from Louisiana to a terminal in Patoka, Illinois. The pipeline was traditionally used to bring crude from the Gulf of Mexico to refineries in the Midwest. However, the company says flows have decreased in recent years due to "various market factors." Midwest refineries have oodles of choice in crude supply, being well connected to East Coast import terminals, Canadian export pipelines and rail shipments from the Bakkens. In contrast, Gulf Coast refineries have are faced with declining imports from Venezuela and Mexico, leaving the refineries short on heavy crude. The non-binding open season runs to November 17. If there's sufficient demand, the company says the line could be in service by mid-2022. Capline is jointly-owned by Plains All American, Marathon Petroleum and a subsidiary of BP.

Alaska tries to woo foreign investors
In an effort to compete with US shale, representatives from Alaska are looking to China for investment in its aging oil fields as well as natural gas exports. Declining production out of the Northern Slope has left the Trans-Alaska Oil Pipeline running at less than a quarter of design capacity and put a dent in the state's revenues. However, any attempts by China to buy a significant stake in America's oil and gas resources are likely to be severely scrutinized by the Trump Administration.

Where to store all that oil
ExxonMobil announced the purchase of a crude oil terminal in Wink, Texas from Genesis Energy. The company says the terminal is "strategically positioned" to handle crude and condensate from the Permian Basin, providing transport access to Gulf Coast refineries and marine export terminals via truck, rail and pipeline. This is Exxon's first terminal in the Permian region.

Another PE train starts-up in Texas
Exxon also announced the start of production at the first of two polyethylene (PE) lines at its plastics plant in Mont Belvieu, Texas. Each train has the capacity to produce 650,000 tons/year of "high-performance" PE. Once fully operational, Mont Belvieu will have a total production capacity of 2.5 million tons/year, making it one of the largest PE plants in the world.


US PRODUCTION & INVENTORY DATA

Huge drawdowns in crude stockpiles were reported last week as Hurricane Nate took 1 million bbl/day of production offline in the Gulf of Mexico, sending Gulf Coast refineries to the storage tanks. Gasoline stockpiles continue to rise on higher production and lower demand.

Baker Hughes reported another drop in oil rig counts this week, falling by 7 to 736 in the US and declining by 5 in Canada to 112.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

OCT 18, 2017

HURRICANE NATE DRAINS STOCKPILES IN THE GULF COAST

 

AROUND THE WORLD

Russia backstops Kurdistan in struggle with Iraq
Fighting between the Iraqi military and the separatist Kurdistan regime disrupted exports from the region earlier this week. The Iraqi government has taken over control of 500,000 bbl/day Kirkuk oil field, temporarily disrupting production. Crude from Kurdistan is pipelined through Turkey to the Turkish port of Ceyhan for export. Exports were reduced to about 200,000 bbl/day this week, about one-third the normal rate. Russia's Rosneft has purchased a 60% interest in the export pipeline for US$1.8 billion, agreed to invest US$400 million in five exploration blocks and is providing billions in loans to the autonomous region, backstopped by crude sales. The military action was in response to Kurdistan's recent independence vote, which has been denounced by both the US and Turkey for fear of destabilizing the region.

Trying something new in an old field
Chevron will begin testing a new water-injection technology at its 20-year old Captain oilfield in the North Sea. Six horizontal wells will be drilled into the reservoir, where polymerised water will be injected. The move will hopefully increase output by about 5 to 7%. Chevron says this is an "important milestone," potentially leading to improved recovery rates from older fields and help extend the life of those assets. This will be the first large-scale application of this technology in the North Sea.

Quality control issues in Venezuela
Refineries in the US, India and China have logged numerous complaints with Venezuela's PDVSA over "poor quality" crude, cancelling orders and demanding discounts on future deliveries. The quality issues include high levels of water and elevated salt concentrations, which stem from a shortage of chemicals required to treat the heavy crude. Venezuela sends 40% of its crude to Russia and China in exchange for loan repayments, leaving US and Indian buyers as its primary sources of cash.

Does crude include condensate, or not?
The world's largest crude oil forecasting firms are grappling with the age-old question - does condensate actually count as crude oil? Nigeria's oil minister doesn't think so. The country has agreed to cap production at 1.8 million bbl/day but says that shouldn't include condensate. Nigeria produces about 250,000 bbl/day of condensate, but figures as high as 450,000 bbl/day have been reported by the government. Field condensate represents the very light end of the oil, typically exiting the reservoir as a gas and getting blended back into the crude after being condensed. While Alberta and the US differentiates condensate production versus light, medium and heavy crude, other international energy agencies have failed to reach consensus on the matter.

Who's afraid of US sanctions?
Officials for the Iranian government say President Trump will not derail the country from expanding oil and gas production or attracting foreign investment. At this week's Oil & Money Conference in London, Deputy Minister Amir Zamaninia says his country is currently negotiating with 28 foreign companies and hopes to sign 10 new deals by next spring. The OPEC member hopes to increase output by another 1 million bbl/day by 2021. Iran holds the world's largest gas reserves and fourth-largest oil reserves.

Who's afraid of US shale?
The head of Russia's Rosneft warns that rising output from US shale could destabilize oil markets in 2018. Speaking at a conference in Verona this week, Igor Sechin says that OPEC's coordinated production cuts have not led to a meaningful "stabilization" in global inventories. Sechin doesn't expect oil price to rise much further from here, calling the rebalancing of oil markets "fragile."

Speeding up pipeline construction in China
The Chinese government has ordered the country's energy companies to speed up construction of natural gas pipelines, in preparation for peak heating demand this winter. The country is in the process of switching homes in the northern regions from coal to natural gas heating. In the likely event of a gas shortage, residential homes will get priority over industrial users. China has about 8 billion cubic meters of gas storage capacity, representing only 4% of its demand.

Global access to power within reach
According to the International Energy Agency (IEA), the number of people without access to electricity declined from 1.6 billion in 2000 to 1.1 billion in 2016, and is expected to fall to 674 million by 2023, 90% located in sub-Saharan Africa. Although coal has been the main driver of power growth since 2000, the agency says renewables are "catching up quickly." The IEA estimates it would cost US$31 billion per year through 2030 to bring power to the entire planet, assuming most of that power would be coming from renewables.


NEXT WEEK'S EVENTS

Monday:

  • Canadian Wholesale Sales released by StatsCan @ 8:30am ET
  • Start of 2-day meeting of OPEC's board of governors in Vienna, Austria

Tuesday:

Wednesday:

  • Bank of Canada Interest Rate Decision @ 10:00am ET
  • EIA Weekly Petroleum Status Report released @ 10:30am ET
  • Q3/2017 earnings releases: Suncor Energy and Whiting Petroleum

Thursday:

  • August Weekly Earnings released by StatsCan @ 8:30am ET
  • EIA Weekly Natural Gas Storage Report released @ 10:30am ET
  • Q3/2017 earnings releases: Husky Energy, MEG Energy, Calfrac Well Services, Teck Resources, Crescent Point Energy, ConocoPhillips, Valero Energy, Marathon Petroleum and CIVEO

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
  • Q3/2017 earnings releases: Imperial Oil, Precision Drilling, ExxonMoil, Total, Chevron and Phillips 66
  • Last trading day for Henry Hub November contract
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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