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The Oil Sands Weekly

The Oil Sands Weekly

Big oil continues to exit the oil sands . . . 

Canadian Natural Resources (CNRL) announced the acquisition of Shell's entire stake in the Athabasca Oil Sands Project (AOSP) and the remainder of Shell's Canadian upstream liquids assets for US$8.5 billion. The assets include:

  • Shell's 60% stake in AOSP, which includes the Muskeg River Mine, the Jackpine Mine, the Scotford Upgrader and the Quest Carbon Capture project
  • 100% of its Peace River and Carmon Creek thermal in-situ facilities
  • 100% of its Cliffdale heavy oil field
  • numerous leases in Northern Alberta including Saleski, Namur, Birchwood, Ells River and Grosmont
  • various intellectual property agreements valued at $285 million, and a long-term supply deal for the Scotford refinery.

Marathon Oil has also agreed to sell their 20% stake in AOSP to both Shell and CNRL for US$2.5 billion. Once both transactions are completed, AOSP's ownership structure changes from 60/20/20 Shell/Chevron/Marathon to 70/20/10 CNRL/Chevron/Shell. 

CNRL will assume operation of the Muskeg River Mine north of Fort McMurray. Timelines for the transition were not disclosed.

Except for a 10% stake in AOSP, Shell has effectively withdrawn from the oil sands. However, the company will remain as operator of the Scotford upgrader and adjacent Quest carbon capture facility. Shell's natural gas assets and downstream facilities, including a chemical plant and two Canadian refineries are not included in the sale.

Shell says the divestiture was due to cost and its desire to pay down debt. Shell Canada CEO Michael Crothers says Alberta's oil sands are no longer a strategic fit for the company. 

Marathon says its oil sands operations account for one-third of its operating costs and only 12% of production. The company will be using proceeds of the sale to pay down debt and purchase 70,000 acres of land in the Permian and Northern Delaware basins. 

CNRL CEO Steve Laut says the company's two mines (Horizon and Muskeg River) will likely be able to achieve costs synergies and there may be opportunities to expand both Jackpine and the Scotford upgrader. The acquisition also includes several oil sands leases adjacent to Horizon, potentially adding decades to Horizon's mine life.

Overall, the deal adds 195,000 bbl/day of net production to CNRL's bottom line. The company also says its welcomes some 3,100 employees from Shell and Marathon into the CNRL family.

Costs creep higher for TransMountain Expansion (in Canadian dollars) . . . 

Houston-based Kinder Morgan says it has made "significant positive progress" in its planning of the TransMountain Expansion Project (TMEP).

In 2012, 13 shippers made 15/20 year commitments of 708,000 bbl/day, representing about 80% of the pipeline's expanded capacity. Today, 95% of those volumes have been confirmed, putting 22,000 bbl/day of pipeline capacity back on the open market. Coincidentally, Athabasca Oil Corp announced this week it recently booked 20,000 bbl/day on TMEP. As per requirements by the National Energy Board (NEB), 20% of the line's capacity is to be reserved for spot volumes.

The company has now revised TMEP’s cost estimate to $7.4 billion up from $5.4 billion in 2015. Thanks to a sizeable depreciation in the Canadian dollar since the original estimate, capital costs are relatively unchanged if measured in US dollars.

The company says feedback from the public have resulted in scope changes which have added costs but made the project safer. The changes include thicker wall piping and additional drilled crossings in environmentally sensitive areas, including the Burnaby Mountain tunnel.

Kinder Morgan says the next step is to arrange financing and make a final investment decision. The company's 2017 capital spending program assumes it will find a 50/50 partner for the project. If all goes according to plan, construction is set to begin in the fall, bringing the in-service date to late 2019.

Alberta has a plan to tackle orphan wells . . . 

Alberta Premier Rachel Notley has a plan to tackle the problem of Alberta's orphan wells. Speaking at CERAWeek in Houston, the premier says she hopes to have an announcement by the end of the month.

An orphan well is any site that has been abandoned by its owner, typically due to bankruptcy. 

Orphaned wells are the responsibility of the Orphan Well Association (OWA), a non-profit agency funded through the Orphan Fund Levy, which is managed by the Alberta Energy Regulator (AER). The province's oil and gas operators pay into the fund, proportional to their estimated costs of abandonment and reclamation. 

The number of orphan wells has more than doubled since oil prices began falling in 2014. The province had just 26 orphan wells in 2012 but has now taken ownership of over 1,500 abandoned well sites. 

The Alberta government acknowledges the program is significantly underfunded. However, the government insisted in the past that abandoned wells are responsibility of the energy sector in general, and not taxpayers. 

In contrast, Saskatchewan Premier Brad Wall and the Petroleum Services Association of Canada (PSAC) have asked for federal funding assistance to help clean-up the wells, which would help create jobs in the hard-hit oilfield services sector. It would appear the federal Liberals might be ready to provide that assistance.

Battle for Savanna Energy Services gets interesting . . . 

Savanna Energy Services has agreed to be purchased by Western Energy Services, spurning a previous takeover offer from Total Energy Services. Western is offering 0.85 of its shares per Savanna share, valuing Savanna at about $2.30 a share, a 14% premium to the previous day's close. 

If approved, the newly formed company will have the second largest contract drilling and second largest well servicing fleet in Canada. 

Meanwhile over at Total Energy, the company says its has already purchased 150,000 Savanna shares at an average price of $1.98 a share. The company says the Western Energy deal is "far less compelling" for Savanna shareholders and it will continue purchasing Savanna shares on the TSX until its owns 100% of the company.

Other notable Canadian news . . . 

Alberta taxpayers will pay fuel retailers in Lloydminster located on the Alberta side of the border fuel subsidies to offset the province's new carbon tax and prevent drivers from gassing up on the Saskatchewan side of the border. Fuel taxes in the province of Alberta have doubled in recent years, bringing Alberta's gas prices more in line with other Canadian provinces. The Alberta government reminds its residents that Alberta has no provincial sales tax and lower corporate and personal taxes than its neighbour to the east.

Enbridge's Line 2A condensate pipeline has returned to normal operations this week. The line was out of service for a few weeks after a construction crew accidentally struck the line in mid-February.

Enerplus has agreed to sell various assets located in Alberta and southwest Saskatchewan for $67.3 million to an undisclosed buyer. The divestments include 3,200 wells which produce 7,300 boe/day, weighted two-thirds natural gas. Production guidance for 2017 has been reduced from an upper limit of 90,000 boe/day to 85,000 boe/day. The company says the divestment will help it focus on its larger-scale, higher-margin assets.

Canada's Environment Minister Catherine McKenna says her "No. 1 focus" is - US trade? Speaking at the Calgary Chamber of Commerce this week, the minister says action from federal and provincial levels of governments has improved the image of the Alberta oil sands, noting that Canada's "reputation has been rehabilitated." McKenna claims Ottawa's recent trade deal with Europe (CETA) was only made possible because of Canada's commitment to tackling climate change. McKenna takes her message to Washington next week.

Prime Minister Justin Trudeau addressed 1,200 energy executives in Houston this week, talking pipelines, carbon pricing and the dreaded border adjustment tax. The PM pointed out that Texas exports $20 billion annually to Canada, representing 460,000 "good Texan jobs."

Creating the good kind of jobs - in the Gulf Coast . . . 

Speaking at this week's CERAWeek conference in Houston, ExxonMobil CEO Darren Woods announced plans to invest US$20 billion through 2022 on expansion of various petrochemical facilities along the US Gulf Coast. The expansions, which began in 2013, are centred around the cities of Beaumont and Baytown, Texas, as well as Baton Rouge, Louisiana.

Woods says "Exxon Mobil is building a manufacturing powerhouse along the U.S. Gulf Coast ... These businesses are leveraging the shale revolution to manufacture cleaner fuels and more energy-efficient plastics."

The projects are expected to create 35,000 temporary construction jobs and 12,000 permanent jobs.

President Trump promptly took to twitter to thank Exxon for their commitment to domestic job creation. White House staff later issued an official press release, noting that jobs in the chemicals and refining sector pay an average of about US$100,000 annually.

Rumours of BP takeover heat up . . . 

Sticking with the ExxonMobil theme, London's daily newspaper EveningStandard is floating rumours that the company has approached BP's largest shareholders to discuss the possibility of a takeover. BP and Exxon have several large shareholders in common, including investment firms BlackRock and Vanguard. The deal would be worth an estimated US$150 billion.

Coincidentally, Exxon filed for an undisclosed amount of new debt issuance with the SEC this week.

It is unclear whether the UK government would allow such a takeover. Other interested parties include Chevron and Royal Dutch Shell.

Dakota Access ready for first-oil next week . . . 

A district court judge has ruled against North Dakota's Standing Rock Sioux and the Cheyenne River Sioux Native American tribes in their bid to stop completion and start-up of the Dakota Access Pipeline. The tribe was seeking an injunction to withdraw permits issued by the Army Corps of Engineers on religious grounds. 

The tribe alleges the crossing under Lake Oahe renders their water "spiritually impure" as per warnings of an ancient prophecy. However, the judge questioned why religious objections were never raised in the past two years of litigation.

Operator Energy Transfer Partners plans to start pumping oil through the line by March 13. The 1,172 mile (1,890 km) pipeline runs from the Bakken and Three Forks shale formations in North Dakota through South Dakota and Iowa, ending at a terminal near Patoka, Illinois. The Patoka terminal connects to refineries in the Gulf Coast.

The line will significantly reduce transport costs and price differentials for North Dakota's tight oil.

Excluding Dakota Access, there are currently 8 other pipelines that run under Lake Oahe.

Is carbon dioxide a pollutant?

EPA head Scott Pruitt was back in the headlines this week, confirming his status as a "climate change denier." 

In an interview with CNBC, Pruitt said "I think that measuring with precision human activity on the climate is something very challenging to do and there’s tremendous disagreement about the degree of impact. So no, I would not agree that it’s a primary contributor to the global warming that we see. But we don’t know that yet, we need to continue to debate, continue the review and analysis."

The EPA is now reconsidering whether CO₂ should be taken off its list of pollutants. 

Although CO is a known pollutant (defined as substances that adversely impact human health), CO₂ it not hazardous and was added to the list in 2009 under the direction of President Obama so it could be regulated. 

CO₂ is a necessary component of human life, produced by the respiration of all organic material (including humans) and absorbed by soil and plants. However, the "old" EPA argued that CO₂ was contributing to climate change, thereby indirectly negatively impacting human health.

Other US energy news . . .

Former ExxonMobil CEO and current Secretary of State Rex Tillerson has recursed himself from any dealings related to the permit application for TransCanada's Keystone XL pipeline. The State Department's deputy legal adviser Katherine McManus issued a letter noting that Tillerson "has not worked on that matter at the Department of State, and will play no role in the deliberations or ultimate resolution of TransCanada's application." 

Quebec's Caisse de Dépôt et Placement (CDPQ) has teamed up with Paris-based SUEZ to purchase GE Water for US$3.4 billion in cash. Both GE Water and SUEZ are active players in the global water treatment business, particularly in the energy sector. The new 30/70 joint-venture (CDPQ/SUEZ) will be a stand-alone industrial water treatment company. GE Water generated US$2.1 billion in sales last year and has 7,500 employees.

BP, Marathon Oil, Shell, Phillips 66, PetroChina and Valero have purchased 10 million barrels of sour crude from the US Energy Department's Strategic Petroleum Reserves (DOE). The DOE has been selling SPR volumes since the beginning of this year to pay for storage upgrades and various government spending programs. About US$517 million in revenues will be generated from this most recent sale, to be deposited into the US Treasury general fund.

The Pawnee Nation has filed a lawsuit in its own tribal court against several Oklahoma oil and gas companies over property damages caused by a 5.8 magnitude earthquake last September, believed to be caused by hydraulic fracturing. A spokesperson for the Oklahoma Oil and Gas Association says his industry has been the target of numerous lawsuits over the years, and is not surprised by the new court case. Lawyers for the tribe argue that although they understand the importance of fracking to the state of Oklahoma, the oil and gas industry should be held accountable for property damages.

IEA warns another oil price spike may be on the horizon . . . 

Paris-based International Energy Agency (IEA) warns that oil markets will be undersupplied in less than three years unless major investments are made.

The IEA says global oil markets appear "comfortable" for the next three years, but supply will outstrip demand by 2022 as spare production capacity falls to a 14 year low. 

Production is expected to grow in Canada, the US, Brazil, Iraq, Iran and the UAE. In contrast, supply out of Nigeria, Algeria and Venezuela will likely contract. 

The agency estimates Canada will add another 800,000 bbl/day by 2023, bring total production to about 5.3 million bbl/day. Almost all of that growth will come from Alberta's oil sands. Unless significant pipeline capacity is added over the next few years, much of that added production will be forced onto rail cars, widening the heavy oil discount.

The IEA expects US light oil to rebound the fastest, adding an estimated 1.4 million bbl/day by 2022 at US$60 WTI or as much as 3 million bbl/day if oil prices reach US$80/bbl. However, if prices stay near the current US$50/bbl, supply is actually projected to decline after 2020. 

Executive Director Fatih Birol says the world is "witnessing the start of a second wave of US supply growth, and its size will depend on where prices go." Birol warns peak oil demand is no where in sight and oil prices risk becoming very volatile if new projects aren't sanctioned in the next few years.

OPEC slightly concerned by rising output from US shale . . . 

OPEC officials and representatives from various US shale firms met privately in Houston this week to discuss world oil markets. Shale producers confirmed plans to ramp up production. OPEC wants to see higher oil prices, at almost any cost.

Iraq's oil minister thinks OPEC will likely have no choice but to extend production cuts into the second half of this year.

Statoil CEO Eldar Saetre thinks oil markets are "very close" to being balanced, but expects storage volumes will not begin to decline until the second half of the year. Saudi energy minister Khalid Al-Falih admits OPEC's production cuts aren't yet making a dent in global oil inventories.

Around the world this week . . . 

Spanish-firm Repsol and partner Armstrong Energy announced a sizeable oil discovery in Alaska's "mature" North Slope basin, estimated to hold 1.2 billion barrels of recoverably light oil. Plans are underway for a 120,000 bbl/day production facility that could commence operation in 2021. The field is the largest US onshore discovery in 30 years. Repsol holds a 25% working interest in the discovery. Armstrong owns the remaining 75% and is currently the operator. Armstrong Energy is a privately-held E&P firm headquartered in New Mexico.

UK-based Amec Foster Wheeler announced a 5-year deal to provide EPCM services to Shell Global Solutions, the technology and licensing arm of Royal Dutch Shell. Amec has agreed to provide concept, front end engineering, detailed design, procurement, and construction management services for Shell's refinery, chemical and upgrades projects.

AMEC also announced a major contract with a Kuwaiti petrochemical plant and Shell's petroleum facility in Brunei.

Shell signed a binding agreement with Saudi Aramco to divorce its Motiva refining and marketing assets for US$2.2 billion. Saudi Aramco will take ownership of the Motiva brand, a 600,000 bbl/day refinery in Port Arthur, Texas (the largest refinery in the US), and 24 distribution terminals. Shell will take ownership of the Norco and Convent refineries in Louisiana and 11 distribution terminals. Motiva was a 50/50 joint venture between Shell and Saudi Aramco formed in 1998. Chevron was also a partner in the JV, but exited in 2002. 

BP opened its first retail gas station in Mexico this week. The company has plans to open 1,500 retail sites throughout Mexico over the next 5 years.

Chevron announced the start-up of its Mafumeira Sul project located 24 km offshore Angola. Mafumeira Sul has a design capacity of 150,000 bbl/day of liquids and 350 MMcf/day of natural gas. Ramp-up to full production is expected to continue through 2018. Total, Eni and state-owned Sonangol are partners in the project.

ExxonMobil announced plans to buy a 25% stake in an offshore Mozambique natural gas field from Eni for US$2.8 billion. Once finalized, Eni and Exxon will each own a 35.7% of the Area 4 concession block, estimated to hold 85 trillion cubic feet of natural gas.

A World Bank tribunal has overturned a previous ruling that ordered Venezuela to pay ExxonMobil US$1.4 billion over the nationalization of its Venezuelan operations under former President Hugo Chavez between 1999 and 2013. Exxon says it will "continue to evaluate its legal rights" before determining the next steps.

The Benghazi Defence Brigades militia seized the Es Sider and Ras Lanuf ports in Libya, forcing the closure of two of the country's largest oil export terminals. The ports were previously under control of the Libyan National Army, allowing the country to resume oil exports last September. According to the National Oil Corporation, Libya's output has now declined 80,000 bbl/day to 620,000 bbl/day.

China claims to have put into service the world's largest and most advanced deepwater exploration platform. Bluewhale 1 was manufactured by Yantai CIMC Raffles at a cost of about US$1 billion and will be drilling for oil in the South China Seas on behalf of China National Petroleum Company (CNPC). The platform weighs 42,000 tonnes, making it much smaller than the world's largest production rig, Russia's Sakhalin-1, which weighs 200,000 tonnes.



WEEKLY ENERGY STATISTICS

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

3,427k
+33k ▲ 1.0%
BBL/D CDN EXPORTS TO US
9,088k
+56k ▲ 0.6%
BBL/D US PROD'N
528.39M
+8.21M ▲ 1.6%
BBL US INVENTORIES
617
+8 ▲ 1.3%
US RIG COUNT
CHANGE WK/WK  

In this month's Short Term Energy Outlook, the Energy Information Administration (EIA) boosted its 2017 US crude oil production forecast to 9.2 million bbl/day, rising to 9.7 million bbl/day next year.

The EIA expects refineries to complete all their maintenance turnarounds this spring, which should start to reduce domestic inventory levels. Globally, stockpiles were reduced by about 30 million barrels in Februrary, the third consecutive monthly decline.

US rig counts are now back to levels not seen since September 2015.

Platts now pegs OPEC compliance at 98.5% at the end of February, as the cartel has reduced output by 1.24 million bbl/day since last October:

  • Output from Iraq remains 91,000 bbl/day higher than its agreed quota, Venezuela is 43,000 bbl/day higher, and the UAE is 42,000 bbl/day above its production ceiling.
  • Libya is producing 140,000 bbl/day more than October levels, but output has been hampered in recent weeks due civil unrest. 
  • Output from Nigeria is also 44,000 bbl/day higher than October. Both Nigeria and Libya were exempted from production cuts.
  • Venezuela has held output steady at 2 million bbl/day, although that number is expected to decline through the rest of 2017. 

Non-OPEC member Russia has cut production by 150,000 bbl/day, about half of its agreed 300,000 bbl/day reduction. Energy minister Alexander Novak expects to be down 200,000 bbl/day by the end of March, and 300,000 bbl/day by the end of April.


WEEKLY MARKET SUMMARY

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

101.11
-0.44 ▼ 0.4%
USD INDEX
74.28
-0.47 ▼ 0.6%
CDN DOLLAR
2.58%
+0.09 ▲ 3.6%
US 10Y Bond
1.81%
+0.11 ▲ 6.5%
CDN 10Y Bond
CHANGE WK/WK  

The OECD raised their 2017 global economic growth forecast to 3.6%, up from a previous estimate of 3.3%. However, the agency warns of rising protectionism, diverging interest rates and "disconnects" between the economy and global stock markets.

  • Canada's GDP growth was revised higher to 2.4% in 2017 on higher exports, higher government spending and a "bottoming out" of spending from the energy sector. GDP growth is expected to slow to 2.2% in 2018.
  • The OECD also warns that ridiculous home prices can sometimes be a precursor to an economic downturn as households are forced to quickly deleverage. Canada has the highest purchase-to-rent ratio of all OECD countries, followed by Sweden, Australia and the UK.
  • US GDP growth was revised to 2.4% in 2017, increasing to 2.8% next year on strong domestic demand, strong government spending and recovery of the country's energy sector. 

Stateside, higher imports of energy products (crude oil, natural gas and refined products) widened the US trade deficit to a 5-year high of US$48.5 billion. Strong jobs, housing and wage growth figures released this week virtually guarantees an interest rate hike next week, sending US bond yields higher. The US jobless rate declined to 4.7%, while wage growth was revised to 2.8% y/y.

This week's notable Canadian economic data . . . 

Statistics Canada reported 105,000 full time jobs were created in February, the most since 2006. Almost 90,000 part-times jobs were lost, bringing the number of net new jobs to 15,300 and dropping the unemployment rate from 6.8% to 6.6%. Most of those jobs were in BC, Saskatchewan and Manitoba.

Alberta's jobless rate fell from 8.8% in January to 8.3% last month. Calgary's jobless rate remains stubbornly high at 9.3%.

Despite the transition from part-time to full time jobs last month, the number of hours worked declined February and wage growth remains non-existent. The StatsCan website crashed upon the news release.

The country's international trade balance recorded a surplus of $807 million on higher energy exports, up from a surplus of $447 million in January. This is the third consecutive monthly surplus. Among the key highlights:

  • Total exports are 25% higher than the same time last year but still 25% lower than the peak in 2014.
  • Canada's trade surplus with the US widened from $3.8 billion in December to $4.5 billion in January.
  • Imports of energy products (including crude oil, natural gas and refined products) declined from $2.43 billion in December to $1.92 billion in January. Energy exports also declined to $6.98 billion in January, down from $7.36 billion the previous month.
  • Energy exports from Alberta grew to $5.9 billion in January, up 7% from December.
  • Non-energy exports remain relatively unchanged at about $2.3 billion.

Canadian industries operated at 82.2% of their production capacity in Q4, up from 81.6% in the previous quarter. This is the second consecutive quarterly gain. Gains were made in the mining and oil and gas extraction sectors, as well as construction.

TransUnion is reporting a 3.2% increase in credit card delinquency rates across Canada in Q4/2016, led higher by increases in the "energy" provinces of Alberta and Saskatchewan, both up about 23% y/y. Albertans have an average credit card debt of $4,948 per person up 3.2% y/y, versus a national average of $4,094.

Alberta's total non-mortgage debt (which includes auto loans and lines of credit) is holding steady at $27,773 per person. Overall delinquency on non-mortgage debt rose 7.5% y/y.


OIL PRICES • WEEKLY CLOSE
Friday close, USD/bbl • data by CME Group

51.37
-4.53 ▼ 8.1%
BRENT USD/BBL
48.49
-4.84 ▼ 9.1%
WTI USD/BBL
45.27
-4.80 ▼ 9.6%
CDN LT USD/BBL
33.98
-5.06 ▼ 12.9%
WCS USD/BBL
CHANGE WK/WK  

Oil prices dipped below US$50 a barrel for the first time this year on high inventory volumes and rapidly rising production out of the US.

The calculation for Brent crude will change next year, reflecting shifting grades in the North Sea. Declining production out of the four North Sea grades currently used to calculate Brent (Ninian, Forties, Oseberg, Ekofisk) has required Norway's Troll crude to now be added into the calculation. Under the current production profile, Brent will be fully depleted in about 40 years.

Saudi Aramco is offering Asian refiners a discount on its benchmark Arab Light crude in order to win back market share. Arab Light is actually a medium crude, considerably heavier than Brent. OPEC's production cuts have largely been weighted towards heavier grades of crude, resulting in an oversupply of light crude, narrowing international heavy oil discounts.


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

Athabasca Oil Sands (ATH) reported a 2016 net loss of $926.7 million, in part due its recent acquisition of Statoil's oil sands assets. The Leismer SAGD facility produced an average of 22,600 bbl/day last month while the newly acquired Hangingstone facility is producing about 8,800 bbl/day, ramping up to 12,000 sometime next year. Athabasca also secured 20,000 bbl/day of capacity on the TransMountain line, providing access to the Port of Vancouver. For 2017, the company expects to produce just under 40,000 boe/day, about 30,000 bbl/day coming from the oil sands. Capital spending is expected to come in at $240 million this year.

Baytex Energy (BTE) produced an average of 69,509 boe/day in 2016, in line with guidance. For the full year, Baytex reported a loss of $485 million, down from a loss of $1.14 billion the previous year. The company spent $224.8 million in capital last year and expects to spend as much as $350 million this year.

Acquisition of adjacent lands helped Seven Generations Energy (VII) almost double its production last year to 117,800 boe/day. For the full year 2016, net losses widened to $187 million, up from $86 million the previous year. The company has commenced preliminary engineering and construction work on its new natural gas processing plant at its Kakwa field, located 50 km south of Grande Prairie. The facility will have an initial processing rate of 250 MMcf/day with expansion capacity to 500 MMcf/day. 7Gen expects to produce 180,000 to 190,000 boe/day this year, weighted about 55% liquids.

Gibson Energy (GEI) reported a net loss of $178 million for 2016, down from a loss of $295 million the previous year. CEO Stewart Hanlon says fourth quarter results "reflect a positive conclusion to a difficult year" for the company. After selling its propane division last month, Hanlon says Gibson is more focused on its core midstream and infrastructure businesses. The company also announced the issuance of $350 million in new notes priced at 5.25% due in 2024.

Ensign Energy Services (ESI) also reported a full year loss of $150 million, 50% larger than a $104 million loss recorded in 2015. The company says its earnings reflect a "slow recovery" in oil and gas prices, depressing demand for oilfield services across North America. Ensign expects business to pick up this year thanks to the new US Administration and near term stability in oil prices.

Whitecap Resources (WCP) produced an average of 45,841 boe/day in 2016, up 12% from the previous year. Net income rose to $171 million last year, significantly improved from a loss of $501 million in 2015. The company says they "continue to be constructive on a crude oil price recovery" and plan to allocate any free funds to further pay down debt.

Trilogy Energy (TET) declared a full year loss of $124 million in 2016, 30% less than the previous year. Production decreased from 27,775 boe/day in 2015 to 21,822 boe/day last year due to divestment of non-core assets. Trilogy's board has approved a 2017 capital budget of $130 million, up from almost $73 million spent last year.

Savanna Energy Services (SVY) reported a net loss of $19 million in the fourth quarter on revenues of $104 million. Full year losses totalled $56 million. The company says it saw an improvement in activity in the Canadian energy patch towards the end of last year. Margins are expected to improve in the US but remain competitive north of the border.

Canadian Energy Services (CES) declared a full year net loss of $64.6 million, narrower than a $92.3 million loss reported in 2015. CES says they are "modestly optimistic" for 2017, assuming oil prices don't decline back to 2016 levels. The company also announced plans to issue $300 million in unsecured senior notes due in 2025, the proceeds of which will be used to buy back shorter duration notes.

Husky Energy (HSE) announced plans to issue $750 million in new bonds maturing in 2027. Net proceeds will also be used to repay shorter term notes and outstanding account receivables.

Vermillion Energy (VET) has priced its previously announced US$300 million worth of 8 year unsecured notes at 5.625%, to be paid semi-annually.

Pembina Pipeline (PPL) announced the suspension of its Dividend Reinvestment Program, effective April 25, 2017. Savings from the cancellation of the program will be directed towards the company's capital spending program.

Despite the news, Pembina stock reached a new 52 week high on the TSX this week, as did Gibson Energy. In contrast, Cenovus (CVE), Sparten Energy (SPE) and Raging River Exploration (RXX) all hit 52-week lows.

NYSE ENERGY STOCKS • WEEKLY CHANGE

At their annual security analyst meeting in New York this week, Chevron says it plans to focus on short-cycle, high return investments over the next few years, including the Texas Permian basin. CEO John Watson says his company will be "cash balanced" this year and generate free cash flow in the years thereafter.

Anadarko Petroleum (APC) announced a 2017 capital spending program of US$4.5 to US$4.7 billion. About 80% of those funds will be allocated towards US onshore upstream and midstream activities, as wells as deepwater production in the Gulf of Mexico.

Former Halliburton CFO Mark McCollum was appointed the new CEO of Geneva-based oilfield services company Weatherford. McCollum replaces interim CEO Krishna Shivram effective immediately.

ExxonMobil (XOM) and Occidental Petroleum (OXY) stocks both hit a 52-week lows on the NYSE this week.


UPGRADES & DOWNGRADES
  • Bellatrix Exploration (TSX:BXE): Upgraded from Hold to Speculate Buy at Canaccord Genuity.
  • Bonavista Energy (TSX:BNP): Upgraded from Hold to Buy at GMP Securities.
  • Marathon Oil (NYSE:MRO): Upgraded from Neutral to Positive at Susquehanna.
  • Valero Energy Partners (NYSE:VLP): Downgraded from Buy to Hold at Jefferies.

NEXT WEEK'S EVENTS

Monday:

  • Q4/2016 earnings releases: Black Diamond Group, Cardinal Energy

Tuesday:

  • OPEC Monthly Oil Market Report (December edition)
  • API Weekly Statistics Bulletin released @ 4:30pm ET
  • Q4/2016 earnings: Bonterra Energy and Pine Cliff Energy

Wednesday:

  • EIA Weekly Petroleum Status Report released at 8:30am ET
  • FOMC interest rates decision released at 2:00pm ET
  • IEA Monthly Oil Statistics (December data)
  • Q4/2016 earnings: Bellatrix Exploration, Birchcliff Energy, Penn West Petroleum, Perpetual Energy and Surge Energy

Thursday:

  • Alberta releases 2017 Budget
  • EIA Weekly Natural Gas Storage Report
  • Q4/2016 earnings: Spartan Energy
  • April contract expiry for Canadian Light

Friday:

  • January Manufacturing Sales released by StatsCan @ 8:30am ET
  • Baker-Hughes Rig Count released @ 1:00pm ET
  • Quadruple Witching Friday

Next edition of the Oil Sands Weekly: Friday March 17, 2017 @ 8pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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