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The Oil Sands Weekly

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Syncrude recovery delayed . . . 

Suncor Energy warned this week that Syncrude's Mildred Lake facility will likely not return to normal until the end of June, almost a month later than initial estimates.

Suncor says damage from a fire that occurred on March 14 was largely isolated to a piperack adjacent to the hydrotreater. The company expects pipeline shipment to resume at about 50% capacity sometime in early May. Syncrude is currently running at reduced rates. Mildred Lake normally produces 350,000 bbl/day of upgraded bitumen, or light synthetic crude.

Suncor did not revise its 2017 guidance since lost production from Syncrude will be offset by better than expected performance from its own oil sands operations and offshore production facilities. 

Suncor Energy owns 53.74% of the Syncrude project.

Chevron finds a buyer for BC refinery and gas stations . . . 

Red Deer-based Parkland Fuel announced the acquisition of Chevron Canada's downstream assets, including the 52,000 bbl/day Burnaby Refinery, 129 Chevron-branded gas stations, 37 commercial cardlock centres, three marine fuelling locations, three fuel terminals and Chevron's aviation-fuel supply to the Vancouver airport. 

Parkland agreed to pay $1.46 billion for the assets plus $186 million in working capital. The company also announced the issuance of 24 million new shares and $500 million in new senior notes to help finance the acquisition. 

Chevron put the assets up for sale last June. The company was suspiciously quiet on the sale and chose not to issue a press release.

Parkland is already one of Canada's largest retail gas station operators, with more than 1,800 stations. The deal is expected to close sometime in the second quarter.

BP's oil sands assets go up for sale . . . 

After revealing Chevron's plans to exit the oil sands last week, Reuters announced this week that BP is also considering selling its stake in three Canadian oil sands projects, calling the assets "non-core."

BP owns a 50% stake in the Sunrise SAGD facility, operated by partner Husky Energy. Husky would be a logical buyer for the assets, estimated to be worth US$810 million. Sunrise is currently in the process of ramping up to its nameplate production capacity of 60,000 bbl/day. Husky says all options are on the table for the right price, but did not confirm or deny plans to buy out its partner.

BP also has a 50/50 stake in the undeveloped Pike lease, adjacent to Devon Energy's operating Jackfish complex. BP also owns 75% of the Terre de Grace property, jointly owned with privately-owned Value Creation.

BP declined to comment on the rumours.

Alberta government encourages local hires . . . 

The Alberta government will temporarily stop processing temporary foreign worker applications for 29 high-skilled job categories, asking companies instead to hire qualified local workers. 

The categories include civil and mechanical engineers, plumbers, electricians, carpenters, millwrights and heavy equipment mechanics.

The move comes just as several multi-billion dollar projects wind down later this year, including the Sturgeon Refinery and the Fort Hills Mine, potentially adding to the already large pool of unemployed skilled labour in the province.

The moratorium will be in place for the next 24 months and will be evaluated quarterly.

Provincial NDPs seek foreign investment in Alberta's energy sector . . .

Alberta Premier Rachel Notley signed a Memorandum of Understanding with China’s National Development Reform Commission and its Energy Research Institute to collaborate on energy and environmental research for energy development, promotion of renewable energy, climate change research and technology sharing. The Premier heads to Guangzhou, China and Tokyo, Japan next week.

Alberta's Energy Minister Margaret McCuaig-Boyd heads to the Future of Energy Summit next week in New York to promote the province's ambitious plans to move away from coal-fired power and transition to renewable energy.

Federal Liberals push back methane regulations . . . 

The CBC is reporting that the federal government is planning to push back implementation of new methane regulations by at least three years,

Prime Minister Justin Trudeau and President Obama made a joint declaration to combat methane release from the oil and gas sector. The duo committed to reducing emissions by 45% by 2025.

Environment Minister Catherine McKenna says the Liberals remain committed to meeting the 2025 methane targets, but operators need more time to retrofit existing facilities. A new timeline is expected to be released by the end of April.

The new US Environmental Protection Agency has already hit the pause button on Obama's methane legislation, which was estimated to cost US oil and gas operators as much as US$500 million a year.

Methane is a powerful greenhouse gas with a global warming potential 25 times that of carbon dioxide.

This week's other Canadian energy news . . . 

Canadian grocery giant Loblaw has sold its 213 retail gas stations to Brookfield Business Partners for $540 million. Brookfield has entered into a new partnership with Imperial Oil to rebrand the gas stations under the Mobil fuel brand, a first for Canadian consumers.

Encana says it remains committed to its 5-year plan of maximizing value from its high-margin condensate-rich Montney assets. CEO Doug Suttles called the assets "world-class" noting that there is "opportunity for significant upside." Suttles says Encana has already secured access to infrastructure to accommodate the additional supply growth. The company expects to produce 70,000 bbl/day of liquids, mostly condensate, by 2019 and significantly reduce its exposure to discounted AECO natural gas prices.

Western Energy Services has formally demanded its $20 million break-up fee from Savanna Energy Services (now owned by Total Energy Services). Western says it is owed the break-up fee under the terms of its agreement for "considerable" financial expenses and time spent negotiating the failed merger. Savanna maintains the company did not meet the terms and conditions spelled out under the Termination Agreement and has so far refused to pay the fee. Western says it will commence legal action if payment is not received promptly.

This week's notable US energy news . . .

Williams Partners has agreed to sell its 88.46% interest in Williams Olefins to Calgary-based NOVA Chemicals for US$2.1 billion in cash. The assets include an olefins plant in Geismar, Louisiana, approximately 525 acres of undeveloped land adjacent to the plant, and Williams’ interest in the Ethylene Trading Hub in Mt. Belvieu, Texas. Williams has also agrees to transport and supply ethane feedstock to support the petrochemical facility. NOVA Chemicals is a wholly owned subsidiary of the UAE's International Petroleum Investment Company.

Plains All American Pipeline has commenced an open season for crude shipments from the Permian Basin to Plains' terminal in Cushing, OK. Depending on demand, the company could ship up to 350,000 bbl/day on existing and new pipelines. Subject to sufficient contracts and regulatory approvals, the system could be operational as early as mid-2019.

The Dakota Access Pipeline will begin crude delivery on May 14, bringing 450,000 bbl/day of crude oil from western North Dakota to a transfer terminal in Patoka, Illinois, connecting into refining hubs in the Texas Gulf Coast. Start-up of the pipeline has narrowed the differential between Bakken crude and WTI, putting a big dent in crude-by-rail deliveries to the East Coast.

BP successfully capped a leaking oil well on Alaska's North Slope earlier this week. The EPA said a crack in the wellhead sent a mist of crude oil into the air, spreading out over 1.5 acres of land. No injuries were reported. The well was originally drilled in 1976 and had been producing about 500 bbl/day.

ConocoPhillips says it has received bids on its idled Nikiski LNG plant, located on the Kenai Peninsula south of Anchorage, Alaska. The 1.5 million tonnes/year facility was built in 1968, with deliveries destined mostly for Japan. Demand fizzled after 2012 when all contracts expired. The plant was eventually idled in 2015 and put up for sale last November. ConcoPhillips already sold the North Cook Inlet gas field, which supplies gas to the LNG plant, to privately-owned Hilcorp.

Private-equity firm Blackstone has agreed to buy EagleClaw Midstream for US$2 billion in cash. EagleClaw is the largest privately held operator of natural gas pipelines and processing facilities in the West Texas Delaware Basin, contained within the Permian Basin. More than US$28 billion was spent acquiring land in the Permian last year.

President Trump's top advisors met in Washington this week to discuss path forward on the Paris Climate Accord, signed by former President Obama. Several advisors, including EPA head Scott Pruitt, are lobbying to pull out of the agreement. Other voices, including Secretary of State Rex Tillerson, would like to see the US remain part of the deal. A decision is due before the G7 reconvene in Italy at the end of May.

Around the world this week . . . 

US officials have denied Exxon Mobil's request to be exempted from Russian sanctions. The oil major was seeking to begin drilling operations in Russia. Exxon received exemptions in 2015 and 2016, allowing it to operate its a joint-venture with state-owned Rosneft. Although sanctions were imposed on Russia in 2014 for its invasion of Crimea, they do not apply to EU energy companies, who are still allowed to do business in Russia.

Key non-OPEC members, led by Russia have agreed to meet on May 25 in Vienna, the same day OPEC members are scheduled to meet to discuss whether or not production quotas will be extended through the second half of the year. The current OPEC/non-OPEC pact, which agreed to take 1.8 million bbl/day of crude off global markets, expires at the end of June.

OPEC Secretary-General Mohammad Barkindo said this week that all OPEC and non-OPEC members that participated in last November's production cuts remain committed to bringing global inventories down to the 5-year average and restoring stability to the market. Russia's Energy Minister Alexander Novak said Russia has yet to make a decision but would soon begin consultations with oil producers.



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

3,029k
-160k ▼ 5.0%
BBL/D CDN EXPORTS TO US
9,252k
+17k ▲ 0.2%
BBL/D US PROD'N
532.34M
-1.03M ▼ 0.2%
BBL US INVENTORIES
688
+5 ▲ 0.7%
US RIG COUNT
CHANGE WK/WK  

The number of oil rigs in operation in Canada declined by 7 to 33 while the number of gas rigs fell by 12 to 66. In contrast, US saw their 14th consecutive weekly increase in oil rig counts.


WEEKLY MARKET SUMMARY

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

99.88
-0.58 ▼ 0.6%
USD INDEX
74.05
-0.98 ▼ 1.3%
CDN DOLLAR
2.24%
-0.00 ▼ 0.0%
US 10Y Bond
1.46%
-0.03 ▼ 2.0%
CDN 10Y Bond
CHANGE WK/WK  

The Consumer Price Index rose 1.6% y/y in March, following a 2.0% increase in February. Transportation costs rose 4.6% for the year, led higher by a 15% increase in gasoline prices.

The number of Employment Insurance (EI) recipients in Canada fell by 11,700 (-2.1% m/m) in February, led by declines in Saskatchewan (-4.1%), Alberta (-3.6%), Quebec (-3.4%) and BC (-2.1%). 

The number of EI beneficiaries in Alberta is still 31.8% higher than the same time last year. The number of new EI claims made in February was essentially unchanged in the province.

The International Monetary Fund (IMF) sees GDP growth in Canada at 1.9% this year, increasing to 2.0% in 2018. In contrast, the US is expected to grow 2.3% and 2.5% in 2017 and 2018, respectively. The IMF says Canada’s economy should benefit from a stronger US economy and appreciation of the US dollar.

World growth is expected to rise from 3.1% in 2016 to 3.5% in 2017 and 3.6% in 2018, revised slightly higher on expectations of more robust global demand, reduced deflationary pressures, and optimistic financial markets. 


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

51.96
-3.93 ▼ 7.0%
BRENT USD/BBL
49.62
-3.56 ▼ 6.7%
WTI USD/BBL
47.62
-4.60 ▼ 8.8%
CDN LT USD/BBL
39.27
-4.95 ▼ 11.2%
WCS USD/BBL
CHANGE WK/WK  

Citigroup released a rather optimistic oil price forecast this week, predicting WTI will rally to the mid-US$60s by the end of the year. The bank says OPEC's production cuts should more than offset rising output from US shale producers. Citi expects OPEC and non-OPEC producers will extend their agreement through the second half of the year, however, the bank warns failure to extend the agreement will send oil prices "precipitously lower." 

Citigroup is forecasting an average WTI oil price of US$62 a barrel in Q4, trading at a US$3 discount to Brent.

Oil prices suffered one of their worst weeks since last March, with WTI closing below US$50 on Friday.


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

In-situ operator Connacher Oil & Gas released its delayed fourth quarter and full-year 2016 results this week. First quarter production average 12,000 bbl/day, up from a Q4/16 average of 10,086 bbl/day. Net losses totalled $46.3 million last year. The company remains under creditor protection but expects to complete a maintenance turnaround at Algar by the end of July. Connacher stock (CLL) was delisted from the TSX last year.

Titanium Corporation (TSXV:TIC) reported a net loss of $0.9 million for the second quarter of 2017 (three months ending February 28, 2017). The company says it is making good progress on the commercialization of its CVW™ technology, designed to recover valuable minerals, bitumen and solvent from oil sands tailings, before being deposited into the tailings pond.

CP Rail (CPR) reported first quarter revenues of $1.6 billion, up 1% from the previous year quarter. Revenues from the company's energy, plastics and chemicals business declined 11% from the same time last year.

This week's 52-week highs on the TSX include Kelt Exploration (KEL), Paramount Resources (POU), Pembina Pipeline (PPL) and Veresen (VSN).

This week's 52-week lows include Baytex Energy (BTE), Bonterra Energy (BNE), Cenovus Energy (CVE), Crescent Point Energy (CPG), Peyto Exploration (PEY) and Raging River Exploration (RRX).

NYSE ENERGY STOCKS • WEEKLY CHANGE

Oil field services giant Schlumberger (SLB) reported a first quarter net income of US$279 million, up from a loss of US$204 million in the previous quarter. Revenues rose almost 6% from the previous year to US$6.9 billion. Chairman and CEO Paal Kibsgaard says activity in North America continues to strengthen, bringing idled equipment back into service. Internationally, revenues declined 7% on lower demand from China, Russia and the North Sea. The CEO says his company is beginning to recover from "one of the deepest downturns on record."

Kinder Morgan reported first quarter revenues of US$3.42 billion, up 7% from Q4/2016. Net income for Q1 rose 42% to US$401 million. The company says it will either bring in a joint-venture partner to help fund the Trans Mountain Expansion Project (TMEP), or spin-off its Canadian subsidiary, Kinder Morgan Canada. The company has a project backlog of US$11.7 billion, including 100% of TMEP.

Phillips 66 Partners (PSXP) increased its quarterly dividend by 5% to US$0.558 per share. Valero Energy Partners (VLP) also increased its quarterly dividend by 5.2% to US$0.4275 per share.

This week's notable 52-week low on the NYSE includes Exxon Mobil (XOM).


UPGRADES & DOWNGRADES
  • BP (NYSE:BP): Downgraded from Buy to Neutral at Citigroup.
  • Ensign Energy Services (TSX:ESI): Upgraded from Market Perform to Outperform at Raymond James Financial.
  • Royal Dutch Shell (NYSE:RDS.A): Downgraded from Neutral to Sell at Citigroup.
  • Total Energy Services (TSX:TOT): Upgraded from Neutral to Outperform at CIBC.
  • Trican Well Services (TSX:TCW). Upgraded from Neutral to Outperform at CIBC.

NEXT WEEK'S EVENTS

Monday:

  • Feb Wholesale Sales released by StatsCan @ 8:30am ET
  • Q1/17 earnings releases: PrairieSky Royalty, Precision Drilling, CN Rail

Tuesday:

  • Alberta Premier Rachel Notley arrives in Tokyo, Japan
  • API Weekly Statistics Bulletin released @ 4:30pm ET
  • Q1/17 earnings releases: Valero Energy, Teck Resources

Wednesday:

  • Feb Retail Sales released by StatsCan @ 8:30am ET
  • EIA Weekly Petroleum Status Report released @ 8:30am ET
  • Cenovus Energy 2017 AGM in Calgary, AB
  • Q1/17 earnings releases: AltaGas, Calfrac Well services, Cenovus Energy, Suncor Energy, Western Energy Services, Whiting Petroleum

Thursday:

  • EIA Weekly Natural Gas Storage Report
  • Suncor Energy 2017 AGM in Calgary, AB
  • Ontario government releases provincial budget @ 4:00pm ET
  • Q1/17 earnings releases: Crescent Point Energy, Marathon Petroleum, Total

Friday:

  • Feb GDP and Mar PPI released by StatsCan @ 8:30am ET
  • Industrial Product & Raw Materials Price Indexes released by StatsCan @ 8:30am ET
  • Imperial Oil 2017 AGM in Calgary, ABAPEGA 2017 AGM in Calgary, AB
  • Baker-Hughes Rig Count released @ 1:00pm ET
  • Q1/17 earnings releases: Imperial Oil, Chevron, Phillips 66, Vermillion Energy

Next edition of the Oil Sands Weekly: Friday April 28, 2017 @ 10pm MT.

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The Oil Sands Weekly

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