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The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • MEG's drive to be leaner and greener
  • Another US oil major heads for the exit
  • Alberta crude production dips again in April
  • AER lays charges against Nexen
  • Canadian rig counts unexpectedly dip
  • PM Trudeau gets lost somewhere over the Rockies
  • US expedites oil & gas development on federal lands
  • "Fake news" driving oil prices lower
  • The new Baker Hughes moves into #2 position
  • Iran and Total partner up on world's largest gas field
  • Qatar gives the US a run for their money
  • OPEC production hits 2017 record high

ALBERTA ENERGY NEWS

Leaner and greener SAGD
MEG Energy CEO Bill McCaffrey says the days of slash-and-burn are long over, but his company remains focused on "becoming a greener barrel than a lot of other choices around the world." Since 2014, MEG has reduced its headcount by 40% to just 600 employees, while managing to grow production, improve efficiency and lower costs at its Christina Lake SAGD operation. McCaffrey says MEG can be profitable in a US$45 WTI world and hopes to reach 113,000 bbl/day by 2020, up from the current 80,000 bbl/day.

Charges laid against Nexen
The Alberta Energy Regulator (AER) has pressed charges against Nexen for spilling 125,000 barrels of emulsion at its Long Lake facility in July 2015. The charges include releasing a substance to the environment, failing to report the release on time, failings to take all reasonable measures to remediate the spill and causing a disturbance to public land. Nexen’s first court appearance is scheduled for August 16, 2017 in Fort McMurray's provincial court.

Titanium Corp partners up with CNRL on tailings clean-up
The government of Alberta has approved up to $5 million in funding for Titanium Corporation's process to reduce emissions from the oil sands. Although initiatively developed to recover valuable minerals from tailings, the company has since pivoted towards lowering GHG emissions through the recovery of bitumen and solvent from froth treatment tailings streams.  Canadian Natural Resources (CNRL) is sponsoring the trials. Any learnings will be shared with other mine operators through Canada's Oil Sands Innovation Alliance (COSIA).

Creditors versus taxpayers
The AER and Orphan Well Association (OWA) are taking their appeal of the Redwater decision to the Supreme Court of Canada. In May of last year, Alberta courts ruled that creditors cannot be held legally responsible for remediation and reclamation of wells seized under bankruptcy. The creditors argued that the high cost of remediation made it impossible to sell the wells and recoup their investments. Since that decision, the AER says about 1,000 have been delegated to the OWA for clean-up, at an estimated cost of $56 million. The number of wells under the OWA's care has almost tripled from 1,200 to 3,200. The AER says the Redwater decision "undermines the foundation with which oil and gas licences are issued" and poses an unacceptable risk to taxpayers and the environment.

CAPP states the obvious
The Canadian Association of Petroleum Producers (CAPP) says 24,000 new jobs could be created in Alberta if governments would work to improve competitiveness in the oil and gas sector. CAPP points out that capital expenditures are expected to fall to $44 billion in Canada this year, down almost 50% from the highs of 2014. In contrast, the US is expected to see a 38% increase in capital spend to $120 billion. The association says improved competitiveness could add $4.5 billion to the country's GDP and generate another $300 million in taxes and royalties.

Crude production declines in April
The AER reported another decline in crude production for the month of April, blamed on the continued curtailment of output at Syncrude after a fire in mid-March crippled the upgrader. Synthetic crude (upgraded bitumen) production declined to just 737,000 bbl/day, down from 964,000 bbl/day in March and down substantially from a high of 1.2 million reached earlier year. Diluted bitumen (non-upgraded) production declined to 1.5 million bbl/day, down from a high of 1.7 million in February. Alberta's total crude output was 2.8 million bbl/day in April, down from a record-high of 3.3 million in February. The AER also announced it will no longer be publishing data on crude sales to the US and other Canadian provinces in its monthly ST3 report.

Clean-up continues at Winfield
Clean-up continues at the site of a small oil emulsion spill this week near the town of Winfield, Alberta, about 80 km south of Edmonton. About 6 barrels of crude was spilled on June 28, and a second leak was discovered the next day. Both spills came from the same pipeline, operated by Journey Energy. The spill was contained to small creek and various low-lying areas, spreading as far as 750 meter from the release location. According to the company, the area has been fenced in and contaminated soil is still being removed. According to the AER, no water bodies have been affected. The company has since been ordered to suspend its operations pending clean-up activities. This is the second spill in the same area this year.

Pembina puts new facilities into service
Pembina Pipelines announced the start-up of $2.8 billion worth of projects at the end of June, including the Canadian Diluent Hub, a third fractionator at its Redwater facility and 900 km of new piping stretching from Taylor, BC to Gordondale and Fox Creek, Alberta. The company plans to put another $3 billion worth of projects into service by the end of next year.

Hoping to party like it's 2015
The Calgary Stampede kicked-off with a parade this week, although the mood is a little more subdued. Bookings and revenues are no where near the highs of 2014, although organizers say this year is shaping up to be much improved over 2016. Last year's festivities were severely dampened by low oil prices and dismal weather.


CANADIAN ENERGY NEWS

Stampede for the exit continues
Houston-based Apache Corp becomes the latest US oil major to announce their "strategic exit from Canada", selling its Canadian subsidiary to Paramount Resources for $459.5 million and its Prevost assets in Alberta to an undisclosed buyer. A few weeks back, Apache sold its Midale and Mountain House assets in Alberta and Saskatchewan to Cardinal Energy for $300 million. The company says the divestitures are part of its plan to streamline its portfolio and focus on its assets in the US, UK and Egypt. The company says it expects to "realize a significant reduction in asset retirement obligations and annual overhead costs."

Paramount and Trilogy reunited
Paramount Resources also announced it will acquire all of Trilogy Energy's outstanding shares, on a basis of 1 Paramount share per 3.75 Trilogy Shares. Trilogy Energy was originally formed in 2005 through the spinout of assets from Paramount Resources. Paramount says the merger and acquisition of Apache's Canadian assets will help it grow production and optimize costs in the Montney, Duvernay and Deep Basin areas.

Quality control on pipeline parts
According to a report obtained by Reuters, the National Energy Board (NEB) is moving to ensure manufacturers of pipeline fittings abide by all Canadian standards, shifting responsibility away from the pipeline operators. TransCanada and Enbridge were forced to replace thousands of fittings on its lines after two suppliers were found to have supplied substandard parts. The report recommends more standardization, better quality control and tracking of materials through the supply chain.

Adding fuel to the fire
Prime Minister Trudeau made international headlines this week when he forgot to mention Alberta in his Canada Day speech. Trudeau's speech started with British Columbia, then the two territories, then east from Saskatchewan, all the way to Newfoundland and Labrador. After he left the stage, the PM realized he had missed one province and circled back to shout "I love you, Alberta" but the damage was done at that point.

Another half-decent jobs report
Statistics Canada reported another decent jobs report for the month of June, mostly part-time and mostly in Quebec and BC. Alberta lost 11,400 full-time positions but gained 19,000 part-time jobs, bringing the unemployment rate down from 7.8% to 7.4%. Professional and technical services also had a good month, adding 27,000 new positions. The national unemployment rate declined from 6.6% to 6.5%.


US ENERGY NEWS

Canadian crude spilled in Louisiana
A CN Rail train derailed in Plainfield, Illinois this week, spilling about 475 barrels of Canadian crude destined for Louisiana. Police evacuated a the area. No fire or injuries were reported. The cause of the incident is still under investigation. The crude was owned by ExxonMobil.

Methane regulations back to the drawing board
A Washington appeals court has blocked the Environmental Protection Agency (EPA) from delaying implementation of Obama's methane control regulations. The EPA argued the oil and gas industry didn't get a change to provide input into the regulations. The courts disagreed but says the EPA is free to rework the regulations as they please.

Speeding up permitting on federal landsInterior Secretary Ryan Zinke has ordered his department to speed up lease sales and permitting for energy exploration on federal lands. Zinke says the move will help the US produce more domestic energy and pull in more royalty revenues. Lease sales on federal lands sagged under President Obama, where companies waited an average of 257 days for government permits. 

Anadarko tries to return to normal
Anadarko Petroleum says it has restored production at about 30 vertical wells which were temporarily shut-in after a leak on an abandoned gas line sparked a fatal home explosion in Firestone, Colorado, just north of Denver. The wells produce about 200,000 boe/day. The company has completed inspections on over 4,000 active flowlines, with 99.6% passing inspection. Anadarko says it expects to complete all remaining abandonment work by the end of July.

The "new" Baker Hughes
Baker Hughes began trading as a division of GE this week, now becoming the world's second largest oil field service provider, after having merged its company with GE's oil and gas business. The new company has roughly 70,000 employees and about US$23 billion in annual revenues. Schlumberger retains the top spot as the world's largest oil field service provider, while Halliburton now moves to third place.

"Fake news" dragging oil prices lower
Raymond James is sticking with their bullish call on oil prices, calling all the recent negative press "fake news." The analysts blame the recent decline on a technical breakdown of price charts, fuelled by an endless stream of bad news, including weakening demand, rising production from US shale, Nigeria and Libya, floating storage stockpiles and the rise of EVs. About a year ago, the investment firm predicted oil would reach US$80 by the end of 2016 on lower production and strong demand for gasoline.

California imposes new fees - on EVs?
The state of California has imposed a new US$100/year fee for each electric vehicle (EV). The fee will go into effect in 2020 and is expected to raise US$200 million over the next decade. The money will be used to repair infrastructure, traditionally funded from gasoline taxes. Seven US states have added similar fees and eliminated subsidies for EVs. A federal tax credit incentive of US$7,500 per EV is also set to expire once auto manufacturers hit the 200,000 sales mark, likely to be reached sometime in the next few years. Fully electric vehicles account for 0.6% of all US auto sales but low gas prices have slowed the growth rate to just 5% last year.


US PRODUCTION & INVENTORY DATA

Oil rig counts increased in the US again this week, although the rate of increase appears to be slowing. In Canada, the number of rigs in service declined by 7 to 105, while the number of gas rigs also declined by 7 to 70. The US Energy Information Administration reported a huge drawdown in crude oil and gasoline stockpiles as consumption soared to new highs.

 
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WEEKLY US INVENTORY REPORT

JULY 6, 2017

 

AROUND THE WORLD THIS WEEK

A historic end to the internal combustion engine (sort of)
Swedish automaker Volvo announced "the historic end of cars that only have an internal combustion engine" this week, vowing every Volvo launched after 2019 will be fully electric or a gasoline/diesel hybrid. China's Zhejiang Geely Holding Group purchased the Swedish automaker from Ford for US$1.5 billion in 2010 after its sales tanked and the company came close to declaring bankruptcy. Sales have since rebounded thanks to strong demand from Chinese customers.

A carbon-neutral France
France's Ecology Minister Nicolas Hulot says he wants to ban the sale of gasoline and diesel vehicles by 2040 and become carbon neutral by 2050. Hublot says the "symbolic" act is in response to Trump's withdrawal from the Paris Accord. Petro-powered vehicles currently account for 95.2% of new car sales in the country. France also vowed to end coal-fired power by 2022.

Qatar willing to fight for top spot as global LNG superpower
Qatar announced plans to boost its LNG capacity by 30% this week, aimed at retaining its top spot as the world's largest LNG producer. Most of the country's natural gas is produced from the giant North Field, shared with neighbouring Iran. Expansion of the field will raise Qatar's total LNG production capacity from 77 to 100 million tonnes per year, raising the country's production to 6 million boe/day. 2017 will see 42.45 million mt/year of new LNG come online from major projects in US, Australia and Russia.

Major discovery in the Barents Sea
Statoil and its partners ENI and Petroro announced a major find in the Barents Sea. The Kayak well is estimated to hold 25 to 50 million barrels of oil equivalent, and suggests the potential for more discoveries in adjacent areas. Statoil and its partners also announced the sanction of its Snefrid Nord gas field in the Norwegian Sea, expected to come online by the end of 2019.

Iran and Total partner up on world's largest gas field
French energy major Total and Iran's National Iranian Oil Company (NIOC) have signed a 20 year contract to expand production from South Pars, the world's largest gas field. Phase 1 is expected to come online in 2021 at a cost of US$2 billion. Total was involved in the initial development of South Pars in the 1990s, but was forced to pull out in 2006 after sanctions were imposed. The company says it will be paid in condensate, not cash, due to ongoing restrictions on the local currency. The facility will have a total production capacity of 2 Bcf/day or 400,000 boe/day including condensate. Total has a 50.1% interest in the project and will operate the field. Estimated total investment is about US$5 billion.

Blocking condensate exports
Qatar says it is taking legal action after Abu Dhabi National Oil Company (Adnoc) declared force majeure on its shipments of condensate. Qatar is still allowed to export natural gas to the UAE and Oman via pipeline. Qatar called the force majeure illegal. The UAE denies any wrong-doing. The UAE, Saudi Arabia and Egypt cut-off trade with the estranged Gulf Nation last month after it was accused of funding terrorist groups.

Saudi Arabia's production cuts cause GDP to shrink
Saudi Arabia's GDP contracted 0.5% in the first quarter of 2017, a first since the 2009 financial crisis. The country's oil sector shrank 2.3% on lower oil production as per OPEC's production ceiling. Retail spending is expected to be very strong through the rest of 2017 due to the implementation of a Value-Added Tax (VAT) starting in 2018, a move intended to diversify government revenues away from energy exports.

Free crude storage in Japan, with strings attached
Japan has offered to increase its crude storage capacity for Saudi Aramco's stockpiles by 30% to 8.2 million barrels. Japan provides free storage for various Middle-Eastern countries in exchange for first dibs in the event of an emergency.

Record production at Saudi Aramco
Despite OPEC's production cuts, state-owned Saudi Aramco produced a record 10.5 million bbl/day in 2016, up from 10.2 million the previous year. Natural gas production rose from 11.6 to 12 Bcf/day last year. The company is the world's largest oil exporter with an estimated 261 billion barrels of oil reserves.

OPEC output hits record high
Bloomberg estimates that OPEC produced 32.55 million bbl/day in June, an increase of 260,000 bbl/day from May and a record for 2017. Saudi Arabia produced 10 million bbl/day in June, up 90,000 bbl/day from May and up 150,000 bbl/day from January. The UEA and Angola each boosted production by another 40,000 bbl/day last month. Libya and Nigeria added another 130,000 bbl/day of oil supply. Total OPEC output is now 390,000 bbl/day above its November 2016 production ceiling.

Russia reports full compliance (almost)
Russia's oil output was reported at 10.95 million bbl/day in June, unchanged from the previous month. The country says it is now in full compliance with its pact with OPEC members to cut production by 300,000 bbl/day from October 2016 levels, when it produced about 11.2 million bbl/day. The country also squashed any suggestions it will support deeper production cuts this week. Unnamed officials say deeper cuts would send the wrong message and signal that the current pact isn't working.


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Next edition of the Oil Sands Weekly: Friday July 14, 2017 @ 1pm MT.

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