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The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • CNRL joins the million barrel club
  • Imperial takes corrective action at Kearl ...
  • ... and hints at more in-situ expansion
  • Alberta NDP step in to support Kinder Morgan on TMEP
  • BC NDP step in to support Burnaby against TMEP
  • Taxpayers asked to commit barrels on Keystone XL
  • CAPP pleads for sanity in methane regulations
  • Drilling activity on the rise, but nowhere near hay days of 2014
  • Cenovus gets new CEO
  • Gibson Energy announces layoffs
  • Feds tax modules built in Asia
  • NWT steaming over plans to ban arctic drilling
  • Kenney takes on Notley in 2019
  • Trump takes aim at EV subsidies
  • US crude exports hit another record high
  • BP partners up with PetroBras on ... pretty much everything.

ALBERTA

CNRL joins the million barrel club
Canadian Natural Resources (CNRL) hit an important milestone in the third quarter, topping 1 million boe/day for the first time in its history, thanks to strong production out of Horizon, good performance at its in-situ facilities and added volumes from Albian Sands. Horizon averaged 156,465 bbl/day of synthetic crude oil (SCO) in the third quarter, down 18% from Q2 due to a 52-day maintenance turnaround that began in mid-September. Work to tie-in Phase 3 expansion components has now been completed, which is expected to increase the upgrader's capacity from about 170,000 to 240,000 bbl/day. Excluding the shutdown, operating cost averaged $20.24/bbl of upgraded synthetic crude, a record low for the facility. Albian Sands also had a spectacular quarter, producing 282,700 bbl/day of synthetic crude at a cost of $24.60/bbl. CNRL took over operation of Albian's Muskeg River and Jackpine mines from Shell last June. The third quarter reflects the first full quarter under CNRL management.

Imperial takes corrective action at Kearl ...
Imperial Oil says it has a plan to boost production at the Kearl oil sands mine. The 220,000 bbl/day facility has been averaging about 182,000 bbl/day due to challenges on the ore preparation side, where the mined oil sands is mixed with hot water and slurried into a pumpable mixture. The company has a series of improvement projects planned at a cost $550 million, expected to be phased in over the next two years. CEO Rich Kruger says management is working towards lowering operating costs to US$20 per barrel, down from the current US$24. Kearl produces partially de-asphalted bitumen sold directly to refineries without being upgraded.

... and inches closer to more in-situ expansion
Aside from Kearl, Imperial is also working on expanding its in-situ production. The company submitted an application to the Alberta Energy Regulator for approval of its 150,000 bbl/day Aspen Project back in 2013 and hopes to get the green light sometime in the next few months. Kruger says management is working towards a final investment decision in the first half of 2018. The project would be built in two phases, likely 75,000 bbl/day for each phase, at an estimated price tag of $2 billion. Aside from Aspen, Imperial is also looking at a 55,000 bbl/day expansion of its Cold Lake facility. The company says operating costs at the in-situ facility are less than US$12 a barrel, weighted about one-third energy costs.

Production dips at Jackfish
Devon Energy says production at its Jackfish SAGD facility dipped to 124,000 bbl/day in the third quarter, down 11% y/y due to a three-week planned maintenance turnaround at Jackfish 2. The company says the outage took 15,000 bbl/day offline in Q3, but production is expected to return to normal in the fourth quarter. Jackfish has a nameplate capacity of 105,000 bbl/day across all three phases.

Cenovus gets new CEOCenovus Energy announced the appointment of Alex Pourbaix as its new President & CEO effective November 6, 2017. Pourbaix is TransCanada Pipeline's former Chief Operating Officer and presently serves on the board of Trican Well Service. Pourbaix replaces outgoing CEO Brian Ferguson who has been with the company (and its former predecessors) for 33 years.

Alberta intervenes in Kinder Morgan's spat with the city of Burnaby
The Alberta government has filed a notice to the National Energy Board (NEB) in support of Kinder Morgan over its dispute with the Vancouver suburb of Burnaby, BC. Last week, Kinder Morgan took their grievances to the NEB, accusing the city of Burnaby of deliberately stalling on the issuance of permits required to complete the Trans Mountain Expansion (TMEP). Alberta Premier Rachel Notley says "one jurisdiction does not have the right to obstruct a project of national importance ... we will never back down fighting for Alberta jobs and Alberta's energy sector." The BC government also announced plans to intervene on behalf of Burnaby on constitutional grounds. The municipalities of Burnaby, Vancouver, several First Nations communities and various other special interest groups are still embroiled in a legal battle to have TMEP's approval overturned. Kinder Morgan has already warned that the service date for TMEP will likely slip about 9 months into the end of 2020.

TransCanada asks province to commit bitumen volumes
TransCanada is asking the Alberta government to book volumes on its Keystone XL pipeline that runs from Alberta to Nebraska, connecting to lucrative markets in the US Gulf Coast. The province had committed 100,000 bbl/day of crude on the Energy East pipeline, which has since been cancelled. The Alberta government collects barrels of bitumen in lieu of royalty payments under its "royalty-in-kind" program. Those volumes amounted to about 70,000 bbl/day in 2014. Keystone XL has a capacity of 830,000 bbl/day and is still waiting for state-level approvals from Nebraska. TransCanada had extended open season to the end of October and has yet to confirm whether volumes are fully subscribed. In a separate news release, Canadian Natural Resources confirmed it has increased shipping commitments on the line XL from 120,000 to 175,000 bbl/day.

United Conservatives crown new leader
Jason Kenney has been crowned leader of Alberta's newly formed United Conservative (UC) Party, a hybrid between the old Progressive Conservative and the Wildrose Party. Kenney is a right-leaning former federal Conservative MP, serving under Stephen Harper. The new leader says he wants to make sure the "deceptive, divisive, debt-quadrupling, tax-hiking, job-killing, accidental socialist" NDP government is done after one term. The UC Party is running on a platform of balancing the provincial budget, eliminating the carbon tax, slowing the phase out of coal power and renegotiate provincial equalization payments with the federal government. The NDP currently hold a majority of 54 of 87 seats in the Alberta legislature. The next provincial election is in 2019.


CANADA

$700 million and 7,000 jobs
The Canadian Association of Petroleum Producers (CAPP) is asking governments in Alberta and Ottawa to use some common sense in setting new targets for reducing methane emissions from oil and gas producers. Both levels of government have committed to lowering methane emissions by 45% by 2025 from 2014 levels. Various government and industry reports peg the costs of full implementation at about $3 to $4 billion. CAPP is recommending a more "flexible" approach, which includes using industry averages, and not specifically targeting individual sites. This would allow some producers to have higher emissions, provided they are offset by lower-emitting facilities. The "made-in-Alberta" solution would meet 70% of the targets at a cost of $700 million over the next 8 years, saving 7,000 jobs in the process. CAPP points out that Canads began tackling the methane problem back in 1998 and is well ahead of US regulations, which have been further rolled-back under President Trump. A draft report is expected from Ottawa next spring. Methane has a global-warming potential 30 times that of carbon dioxide.

Drilling activity on the rise, but be sure to temper your enthusiasm
The Petroleum Services Association of Canada (PSAC) says it expects 7,900 wells to be drilled next year, slightly higher than this year's estimate of 7,550 wells. Split across the provinces, Alberta will likely see more than half of those wells, estimated at 4,000, while Saskatchewan is expected to drill almost 3,000 wells. The remaining drilling activity is split between BC (730) and Manitoba (230). Despite the increase, PSAC says drilling activity is still 30% lower than 2014 numbers.

Gibson announces layoffs
Midstream player Gibson Energy announced an unspecified number of layoffs across its Canadian operations this week. The company has been under pressure from its largest shareholder to reduce overhead costs and recently appointed a new CEO in June. A spokesperson for the company says the layoffs are part of a "transition to a new organizational structure that will lay the foundation for long-term success." Gibson's operations are primarily focused in Western Canada, mostly BC, Alberta and Saskatchewan.

Suncor invests in northern Quebec
Suncor Energy has purchased a 41% stake in PetroNor, a petroleum products distributor across the James Bay and Abitibi-Témiscamingue regions of northern Quebec. Under terms of the agreement, Suncor will supply fuel and distillate products to PetroNor from its Montreal-East refinery. In addition, the two companies have committed to work together to find ways to better serve customers in northwestern Quebec. Founded in 2002 and based in Val-D'Or, PetroNor is owned and operated by the James Bay Cree. Terms of the deal were not disclosed.

Taxing modules built in Asia
A consortium representing BC's LNG industry says it will fight Ottawa's plans to impose a 45.8% tariff on fabricated industrial steel components imported into Canada from China and South Korea. Mega-projects can realize billions in cost savings by fabricating complex modules in Asia where labour costs are significantly lower. The massive modules are then shipped to Canada and assembled on site. All cost estimates for BC's proposed LNG projects are assuming Asian-built modules. LNG Canada, led by Royal Dutch Shell, has already filed an application with federal courts to be exempted from the duties. 

Red alert in NWT
NWT Premier Bob McLeod is calling for a national debate on the future of oil and gas development in his province. The plea is in response to PM Trudeau's recent ban on arctic drilling due to the "cataclysmic" consequences of a potential oil spill. McLeod says his province needs the jobs and revenues that come from the energy sector, and has little desire to turn his territory into a welfare state. The premier claims $2.6 billion in offshore exploration plans have vanished since the federal government's moratorium. Development of natural resources, including oil and gas, accounts for 40% of the territory's economy.


USA

Explosion reported at Texas City refinery
Marathon Petroleum reported an explosion at its Texas City refinery earlier this week. According to Reuters, the explosion occurred during the heating of an ammonia cylinder required as part of the restart of the refinery's alkylation unit. The 10,000 bbl/day unit has since been shutdown to repair pinhole leaks in the piping. Marathon is currently in the process of integrating the 86,000 bbl/day Texas City refinery with the adjacent 459,000 bbl/day Galveston Bay complex. No injuries were reported in the incident.

Exxon settles with DOJ on air pollution charges in Gulf Coast
ExxonMobil and the US Department of Justice (DOJ) have agreed to settle their case on various air pollution violations in the states of Texas and Louisiana. The DOJ claims the company released tons of environmental toxins from 26 flares across eight chemical plants in the Gulf Coast, stretching as far back as 2005. Exxon has agreed to spend US$300 million on the installation of new anti-pollution devices and monitoring equipment and another US$1 million planting trees in the Baytown area. The company has also agreed to pay a US$2.5 million fine to settle the case.

EV subsidies on the chopping block
All eyes were on the US House this week as Republicans put forward plans to reform the country's tax code. Buried in the lengthy list of tax reform proposals is the elimination of a US$7,500 subsidy for electric vehicles. The credit is limited at the first 200,000 electric vehicles sold by each manufacturer, but no one has yet to reach that cap. Electric vehicle sales are highly correlated to government subsidies. State-level subsidies would be not be impacted. The new tax plan would also eliminate inflation indexing for renewable energy, including wind, solar, biomass, geothermal and hydropower, saving the government US$12.3 billion over the next decade. The tax bill still requires approval by the Senate before being passed into law.


US PRODUCTION & INVENTORY DATA

US crude oil exports hit another record high last week, topping 2.1 million bbl/day. The more than US$6 discount between the international Brent benchmark and WTI is driving more foreign buyers to source US oil supplies.

US oil rig counts declined by 8 this week to 729. In Canada, 4 additional oil rigs were put into service, bring the total to 100.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

NOV 1, 2017

US CRUDE EXPORTS SURGE TO RECORD HIGHS AS WTI DISCOUNT TO BRENT REMAINS STUBBORNLY WIDE

 

AROUND THE WORLD

Chevron decides to stay in Bangladesh
Chevron has abandoned plans to sell its three gas production subsidiaries in Bangladesh. Back in April, the company struck a deal with China’s Himalaya Energy to sell its three gas fields, which account for almost 60% of the region's gas production. The company did not give a reason for the change of heart but previous reports cited difficulties in getting government approvals and lengthy negotiations with state-owned Petrobangla, who has first right of refusal over asset sales. Chevron says it will continue to work with Petrobangla and the government of Bangladesh to provide "reliable and affordable energy to the nation."

BP partners up with PetroBras on just about everything
Brazil's Petrobras has signed a Letter Of Intent with BP to "jointly identify and evaluate business opportunities" in Brazil and abroad, including cooperation on oil and gas extraction, gas distribution and marketing, LNG, oil trading, lubricants, power generation, renewables and various low carbon initiatives. PetroBras signed a similar deal with China's CNPC in July 2017.


NEXT WEEK'S EVENTS

Monday:

Tuesday:

  • Bank of Canada Governor Stephen Poloz delivers speech in Montreal, QC
  • OPEC World Oil Outlook Report
  • Q3/2017 earnings: Keyera, BlackPearl Resources, Black Diamond Group, Cardinal Energy

Wednesday:

Thursday:

  • EIA Weekly Natural Gas Storage Report released @ 10:30am ET
  • Q3/2017 earnings: Inter Pipeline, TransCanada, Enerplus, EnerflexPengrowth, ARC Resources, Bellatrix Exploration, Kelt Exploration, Paramount Energy, Secure Energy Services, Raging River, Spartan Energy, CES Energy Solutions

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
  • Q3/2017 earnings releases: Obsidian Energy
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