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The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Improving reliability at Kearl
  • Total in denial over Fort Hill price tag
  • Syncrude's return to normal delayed to August
  • MEG reports record low SORs at Christina Lake
  • Supreme Court rules for and against the NEB
  • Petronas hands BC NDPs a favour
  • TransCanada expands natgas supply to Ontario
  • US new condensate supplier to UAE after Qatar gets blacklisted
  • PM Trudeau crowned the "free world's best hope"
  • OPEC tries to rebalance oil markets - take 3

ALBERTA

Improving reliability at Kearl
Imperial Oil says it has a plan to improve reliability at the Kearl Oil Sands Mine, which continues to perform below expectations. For the first six months of this year, Kearl produced 177,000 bbl/day, significantly below its nameplate capacity of 220,000 bbl/day. Imperial says the problem lies primarily in the mining and ore preparation areas, which will be the focus of reliability upgrades through the end of 2018. Imperial unexpectedly reported a $77 million loss for the second quarter of this year.

Unpaid bills at Fort Hills
Both Suncor and Teck disclosed a "disagreement" this week among the Fort Hills Partners regarding project funding obligations. French energy giant Total is reportedly unhappy with cost increases and refuses to open their wallets any further. Suncor CEO Steve Williams told analysts that Total won't accept "substantial cost increases" and Suncor is now in the "early stages of a commercial dispute." Total’s CFO Patrick de la Chevardiere told analysts his company is in discussions with Suncor to reduce costs. Williams called the recent developments at Fort Hills "a little disappointing" but assured investors the spat won't affect the project's schedule or start-up plans. Last February, capital costs for the giant oil sands mine were revised from $15 billion to as much as $17 billion due in part to a scope change in the Secondary Extraction facility. Construction was reported 92% complete by the end of the Q2. Suncor says it remains on track to produce first oil by the end of the year.

Suncor lowers expectations for 2017
As part of their second quarter earnings release this week, Suncor also warned that costs are going up while oil prices are coming down. Full year 2017 capital expenditures were revised to the $5.4 to $5.6 billion range, $400 million higher than the previous guidance due to the Syncrude fire last March, maintenance turnarounds and cost escalation at Fort Hills. Production guidance at Syncrude was lowered to 240,000 to 270,000 bbl/day (gross), a decline of 9,300 bbl/day from Q1 estimates. Suncor also lowered their Brent, WTI and WCS price forecasts to US$49, US$47 and US$35 a barrel respectively for the full year 2017. Including sustaining capital costs and dividend payouts, the company says it can breakeven at about US$37 WTI.

MEG drives SORs to record lows
MEG Energy's proprietary reservoir enhancement technology is being credited with lowering Christina Lake's steam-to-oil ratios to record lows. The eMSAGP program (enhanced Modified Steam And Gas Push) involves co-injecting trace volumes of a non-condensable gas along with the steam to keep a consistent pressure in the reservoir. Infill wells (or collector wells) are also drilled between producing SAGD well pairs, allowing for higher bitumen production rates without additional steam. Steam-to-oil ratios (SOR) average 1.0 to 1.25 in the eMSAGP wells, lowering the overall SOR at Christina Lake to 2.3 for the first 6 months of this year. Excluding energy costs, operating costs declined to $4.23 a barrel in the second quarter. The technology is currently being used at MEG's Phase 1 and 2 wells, representing about 25% of the company’s production. eMSAGP is now being applied to Phase 2B wells, covering the remaining 75% of output.

Alberta still spending like its $100 oil
The Conference Board of Canada (CBoC) is warning that Alberta is still far too reliant on oil prices to balance its books. Nearly two thirds of government revenues are still sourced from royalties and corporate taxes. Unless oil prices dramatically improve from here, net debt is expected to rise from the current $9.5 billion to $44 billion by 2019/20. Last year, the Alberta government allocated 48% of its revenues towards health care, the highest per person spending in Canada despite being one of the youngest provinces in the country.

Two parties officially become one
The Wildrose and Progressive Conservative party members overwhelmingly approved merging the two parties, creating the new United Conservative Party. Both parties have campaigned on a promise to repeal the carbon tax and reign in the deficit. The new party will choose its leader at the end of October. The next provincial election is in 2019.


CANADA

Supreme Court sides with the NEB - Case 1
The Supreme Court of Canada has ruled that the National Energy Board (NEB) has the duty to act on behalf of the federal government. The Chippewas of the Thames First Nation launched a legal challenge against Enbridge Line 9 expansion and reversal, which was approved by the NEB in 2012. The courts reiterated that the government's duty to consult does not equate to "veto power" over development projects and Aboriginal rights must be balanced against "competing social interest." The judges agreed that the NEB had adequately accommodated the Chippewas and placed legally binding conditions that satisfied the group's concerns.

Supreme Court rules against the NEB - Case 2
In another case, the Supreme Court unanimously ruled that the NEB's consultation process fell short during its review of seismic testing in the Nunavut, failing to take into account treaty rights and impacts on marine mammals. The Inuit Hamlet of Clyde River in Nunavut filed a lawsuit after the NEB granted a 5-year permit for seismic testing in Baffin Bay and Davis Strait back in 2014. The testing would have involved the use of airguns to produce pulses of sound waves under the water, scaring away marine life. The judges ruled the NEB's consultation process was "significantly flawed" and gave little consideration to treaty rights and reliance on marine mammals for food.

Kinder Morgan gets construction permit
BC's Agricultural Land Commission has granted Kinder Morgan Canada permission to temporarily disturb several kilometres of farmland along the Trans Mountain pipeline expansion route. The land will be used for storage and construction laydown and restored once construction is complete. The permit was issued five days before the new BC government was sworn in. However, BC's new attorney general admits the NDP government is looking at ways to halt the project but says it does not have the legal authority to deliberately pull permits without costly lawsuits.

Premier Horgan hands out job descriptions for his new MPs
BC Premier John Horgan published his ministers' mandate letters this week, outlining objectives for the newly appointed NDP government. Horgan says the government will focus on making life more affordable while delivering a "strong, sustainable, innovative economy." Part of that plan includes: raising the carbon tax by $5/tonne in 2018, employing "every tool available to defend BC's interests in the face of the expansion of the Kinder Morgan pipeline, and the threat of a seven-fold increase in tanker traffic" on BC's West Cost, re-evaluating the "economic viability and consequences" of the $8.8 billion Site C dam, which is already 25% complete and ensuring LNG projects provide sufficient jobs and economic benefits while respecting First Nations partnerships and protecting the environment.

Petronas does the NDP a favour
Malaysia's state-owned Petronas officially put the $36 billion Pacific Northwest LNG project (PNW LNG) out of its misery this week, citing "changes in market conditions." The company says it will continue to develop its Montney natural gas assets in Western Canada and will "explore all options as part of its long-term investment strategy." Horgan's NDP party were initially opposed to PNW LNG but were later forced to backtrack during the 2017 election campaign. Green Party alliance members, who have vowed to support the NDP, remain staunchly opposed to "chasing the fossil fuel economy."

TransCanada unscathed by cancellation of PNW LNG ...
TransCanada says it expects to be fully reimbursed for costs and carrying charges incurred to advance the Prince Rupert Gas Transmission project, which was intended to supply gas to the PNW LNG facility. The company says it has plenty of other natural gas projects on the books that have much brighter prospects.

... and doubles-down on natural gas pipelines
TransCanada also announced plans to expand its Canada Mainline System through its Maple Compressor Station near Vaughan, Ontario. The company says the $160 million expansion project is underpinned by 15-year contracts and will increase capacity to southern Ontario and Atlantic Canada. TransCanada expects to file an application for regulatory approval early next year. This latest expansion phase is part of a $500 million overall expansion of the Mainline System.

Open Season launched for remaining space on Keystone XL
TransCanada has launched a binding Open Season for additional space on the Keystone XL Pipeline, that runs from Hardisty, Alberta to Cushing Oklahoma and the US Gulf Coast. Interested parties have until September 28 to submit their bids. Keystone XL is still waiting state-level permits south of the border.

You have to read it to believe it
Rolling Stone Magazine has called Prime Minister Justin Trudeau the "free world's best hope," contrasting the Canadian PM to US President Donald Trump. Trudeau says it will "take a few decades" to get off fossil fuels, and we might as well build pipelines in the meantime. According to Rolling Stone, the PM's most admirable features are his hair, his photogenic family, "evangelical support" of the Paris Climate Accord and smoking pot post-election.


USA

Rover halted again
The State of West Virginia has stopped construction on certain sections of the Rover Pipeline, after it concluded that operator Energy Transfer Partners (ETP) left sediment deposits in creeks and streams, violating its construction permits. The state has ordered ETP to provide a storm water and erosion controls plan within the next 20 days. ETP says it will continue to advance construction in other sections of the line while it works to resolve compliance issues on the affected segments.

Decomissioning FCCUs
Reuters is reporting that Royal Dutch Shell may decommission its 92,000 bbl/day fluidic catalytic cracking (FCC) unit at its Convent, Louisiana refinery early next year. The decommissioning is part of Shell's plans to link the Convent Refinery with its 225,800 bbl/day refinery in Norco, Louisiana. The FCC unit produces gasoline. Marathon and Valero Energy have recently decommissioned their FCC units in the past few years.

Kick 'em when they're down
The Trump Administration is considering financial sanctions against Venezuela, aimed at putting more pressure on President Maduro's government. The sanctions would prevent the government from processing transactions in US dollars, making it difficult for traders to buy Venezuelan oil. Sanctions would also prevent US companies from doing business in the South American country. The US imported about 780,000 bbl/day of crude, mostly heavy, from Venezuela last year, down from a high of about 1 million bbl/day a few year back.

UAE finds another condensate supplier
The US has sold its first cargo of condensate to the UAE this week, after the OPEC member blacklisted Qatari condensate in a dispute over terrorist funding. The Abu Dhabi National Oil Company normally purchases 1.0 to 1.5 million barrels per month of condensate from Qatar. The US condensate was sourced from the Eagle Ford basin.

Border adjustment tax dies another death
Republicans have abandoned plans to subject imports to a border adjustment tax (BAT) as part of their overall tax reform plans. BAT would have generated as much as US$1 trillion over the next decade and was also intended to incentivize consumers to buy American. The nation's largest importers warned the BAT would raise prices for just about everything. Canadian officials are relieved the tax is dead, at least for now.


US PRODUCTION & INVENTORY DATA

The total number of oil and gas rigs in service throughout North America rose to 1,178 this week, now double the same time last year. The US added another 6 oil rigs this week while Canada added 11.

 
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WEEKLY US INVENTORY REPORT

JULY 26, 2017

CRUDE STOCKPILES CONTINUE TO FALL, NOW DOWN OVER 50 MILLION BARRELS FROM MARCH HIGHS

 

AROUND THE WORLD

Exxon makes another oil discovery
ExxonMobil announced the discovery of more oil in the Payara-2 reservoir offshore Guyana. Gross recoverable volumes on the Stabroek Block is now estimated to be between 2.25 and 2.75 billion barrels of oil equivalent. Hess, CNOOC and the government of Guyana are partners in the development.

UK moves to ban gasoline and diesel engines
Following in the footsteps of France, the UK government says it plans to ban the sale of diesel and gasoline powered cars and vans as of 2040. The government hopes to encourage its citizens to make the switch to electric or public transit by installing more charging stations and making life generally miserable for drivers of petroleum-powered vehicles.

OPEC tries to rebalance oil markets - Take 3
At this last weekend's OPEC meeting in Russia, the cartel says it has spoken with non-complaint members and acknowledged that "the market has turned bearish." Saudi Arabia agreed to limit exports (not production) to 6.6 million bbl/day in August. The country currently produces about 10 million bbl/day. Russia's energy minister hinted the country could take another 200,000 bbl/day off oil markets if compliance improves among OPEC member states. Iraq is arguably the most non-compliant member producing 4.5 million bbl/day, above its ceiling of 4.35 million, and has made no secret of its plans to increase output to 5 million bbl/day.

Please take me back
Indonesia says it's open to rejoining OPEC, provided they won't be asked to curtail production. The country produces about 800,000 bbl/day and has been in-and-out of the OPEC cartel several times in the past decade due to its unwillingness to abide by OPEC's production quotas.

Nigerian output continues to struggle
Shell's Nigerian subsidiary has shut-in its 180,000 bbl/day Trans Niger pipeline due to a leak, forcing it to extend force majeure on its Bonny Light exports. The country also reached an agreement with OPEC to cap production at about 1.8 million bbl/day sometime in the future, up slightly from it's current output of 1.7 million.


NEXT WEEK'S EVENTS

Monday:

  • June Industrial Product & Raw Materials Price Index released by Statistics Canada @ 8:30am ET
  • Q2/2017 earnings: Precision Drilling

Tuesday:

  • EIA Petroleum Marketing Monthly
  • API Weekly Statistical Bulletin released @ 4:30pm ET
  • Q2/2017 earnings: Baytex Energy, Devon Energy, Gibson Energy, Secure Energy Services, Phillips 66, BP

Wednesday:

Thursday:

  • EIA Weekly Natural Gas Storage Report released @ 10:30am ET
  • Q2/2017 earnings: Canadian Natural Resources, Veresen, Seven Generations, Apache Corp, Raging River Exploration, ARC Resources.

Friday:

  • July Labour Force Survey released by Statistics Canada @ 8:30am
  • June Balance of Trade released by Statistics Canada @ 8:30am ET
  • Baker Hughes Rig Count released @ 1:00pm ET
  • Q2/2017 earnings releases: Gran Tierra
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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