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The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Alberta's energy patch loses a giant
  • Albian pushes CNRL over 1 million boe/day
  • Costs rise on Enbridge's Line 3 Replacement
  • PSAC raises Canadian drilling forecast ...
  • ... and blasts Canadian politicians
  • Good news for BC LPG exports
  • Quebec raises white flag on Anticosti Island
  • Quorum restored at FERC
  • Keystone XL public hearings kick-off in Nebraska
  • Exxon shifts to refining more light oil in the Gulf Coast
  • North Dakota seeks reimbursement for DAPL protests
  • Jacobs Engineering reaches deal to buy CH2M
  • Shell continues to downsize in developed nations
  • OPEC output hits another 2017 high
  • $50 oil the new $100

ALBERTA

Energy patch mourns death of an "oil sands guy"
Suncor Energy announced the untimely passing of former CEO Rick George at the age of 67. Suncor CEO Steve Williams called George's impact on the oil sands industry "immeasurable" and "far-reaching." George served as CEO of Suncor for 21 years. After retiring in 2012, the former CEO served on the boards of OSUM Oil Sands, RBC, Anadarko Petroleum and Penn West Energy.

CNRL's learnings from first month as AOSP operator
Canadian Natural Resources (CNRL) provided an update this week on its first month as the new majority owner of the Athabasca Oil Sands Project (AOSP) and operator of the Albian Sands Mine. Albian produced 289,000 bbl/day during the month of June, 202,300 bbl/day net to CNRL. A barrel of upgraded crude produced at Albian cost the company $27.50, while operating costs for CNRL's Horizon oil sands operation was reported at $22.09 a barrel averaged over the entire second quarter. Total production at CNRL topped 1 million boe/day in the month of June, a new record for the company. CNRL says the second half of the year will be another "inflection point" in its history as production from AOSP will be fully reflected and its Phase 3 expansion at Horizon comes online.

Syncrude found guilty in death of blue herons
The Alberta Energy Regulator (AER) has charged Syncrude with one count of "failing to store a hazardous substance in a manner that ensures that it does not come into direct contact with, or contaminate, animals" in the 2015 death of 31 great blue herons. The birds were discovered covered in residual bitumen at an inactive sump area at the Mildred Lake facility. The company faces a maximum fine of $500,000 under the Environmental Protection and Enhancement Act. A court date has been set for the end of September.


CANADA

Enbridge raises price tag for Line 3 Replacement
Enbridge says it plans to start construction on some segments of its Line 3 Replacement Program later this summer, keeping the in-service date to the second half of 2019. Capital costs have risen by 9% to $5.3 billion on the Canadian portion and 12% to US$2.9 billion for the US segment. Enbridge blames the added costs on regulatory delays and route modifications. However, the company says it expects to benefit from the higher Canadian dollar and lower operating costs, keeping project economics unchanged from its original 2014 sanction estimates. Line 3 is part of Enbridge's Mainline System, running 1,659 km (about 1,000 miles) from Hardisty, Alberta to Superior, Wisconsin. Once completed, capacity will be restored to 760,000 bbl/day of crude.

PSAC raises drilling forecast but takes a shot at Canadian politicians
The Petroleum Services Association of Canada (PSAC) has raised its forecasted number of wells to be drilled this year from 6,680 to 7,200 across the country, split approximately 3,600 in Alberta, 2,800 in Saskatchewan, 580 in BC and 206 in Manitoba. Despite the upwards revision, CEO Mark Salkeld says "Canada continues to struggle with its place in the world of energy supply given our lack of access to tidewater and public support for infrastructure ... investors see better opportunities for their capital elsewhere. What a shame given our abundant natural resources, our robust regulations and responsible development that could help the rest of the world lower their GHG emissions." PSAC's revised 2017 estimates assume an average AECO natural gas price of $2.75/mcf and US$49.00/barrel for WTI. 

Good news for Canadian LPG exports
Altagas has signed a firmed contract with Japan's Astomos Energy to buy 600,000 tonnes/year of liquid propane gas (LPG) from its Ridley Island Propane Export Terminal. The $500 million LPG project is currently under construction in Prince Rupert, BC and should be in service by Q1/2019. The plant will have a total LPG export capacity of 1.2 million tonnes of per year. Propane is used in 24 million Japanese homes for heating and cooking. Astomos is a partnership between Japan’s Idemitsu Kosan and Mitsubishi Corp.

Decision on LNG Canada expected next year
Royal Dutch Shell says it is looking to make a decision on its LNG Canada project in Kitimat sometime in the next 18 months. The company says it is looking at reducing costs by 20% and is cognizant of the pending $5 increase in the province's carbon tax, which will add to the facility's operating costs. A final investment decision was originally expected in 2016 but was later deferred "indefinitely" after Shell's US$53 billion purchase of BG Group left it desperate to divest US$30 billion of assets globally. LNG Canada has an estimated price tag of $40 billion for four LNG trains (2014 figures), each with a capacity of 6.4 million tonnes/year. LNG Canada is jointly owned by Shell (50%), PetroChina (20%), Mitsubishi (15%) and Korea Gas Corp (15%).

Quebec raises white flag on Anticosti Island
The Quebec Government has pulled the plug on oil & gas exploration on Anticosti Island, instead submitting a bid to have the island declared a UNESCO World Heritage Site. The former PQ government invested $115 million towards development on the island, estimated to hold 46 billion barrels of recoverable reserves. Several small companies active in the region have already received buyouts for cancellation of their exploration licenses. Other companies, such as Petrolia, are partnered with the Quebec government, making compensation negotiations more complicated. Drilling on Anticosti Island was a major thorn for the ruling Liberals, drawing fire from the many anti-fossil fuel groups in the province. Last December, the government revamped the Petroleum Resources Act, which outlines a plan for licensing, and production of oil resources in the province.

Finding better value elsewhere
Sprott's Energy Fund Manager Eric Nuttall says he's taken his money out of Canada due to "profound sentiment headwinds" from both the provincial and federal levels of government. Nuttall says he gets equally good value in the US without having to worry about "carbon taxes, royalty regime changes and pipeline takeaway" capacity. The Canadian energy fund is 85% invested in the US, a record high for the company.

Energy free trade under NAFTA
The Canadian Association of Petroleum Producers (CAPP), the American Petroleum Institute (API) and Mexican Association of Hydrocarbon Companies (AMEXHI) have penned a joint paper on the benefits of energy free trade under the North American Free Trade Agreement (NAFTA). The trio say NAFTA is mutually beneficial for all three countries, keeping energy "more affordable and reliable for citizens and the economy." About 99% of Canada's oil and gas exports go to the US. NAFTA negotiations kick-off in Washington, DC on August 16. 

Energy sector a drag on June economic data
A 4.1% decline in energy and petroleum products was blamed for a 1% decline (m/m) in June's Industrial Product Price Index. Gasoline prices fell 4% while diesel prices tumbled 6.1%. The Raw Materials Price Index also fell 3.7% m/m, led lower by a 9.3% drop in crude products, the biggest decline since January 2016. Exports of crude oil and bitumen fell 7.4% to $4.6 billion in June, the fourth consecutive monthly decline on lower oil prices and lower export volumes due to the shutdown of Syncrude's 350,000 bbl/day Mildred Lake facility in the middle of March.


USA

Keystone XL public hearings kick-off in Nebraska
Nebraska's Public Service Commission is scheduled to commence public hearings into the Keystone XL pipeline on August 7. The state regulators have ruled that opponents cannot make the claim that America does not need Canada's oil. Opposers are also barred from any environmental arguments, since Keystone XL already received its environmental permits. The commission is tasked with determining if the pipeline is in the public interest for the people of Nebraska, with arguments limited to jobs, revenues and impacts to the local economy.

Quorum restored at FERC
The US Senate has confirmed Neil Chatterjee and Robert Powelson as members of the Federal Energy Regulatory Commission (FERC), restoring a quorum to the agency. FERC was left with only one commissioner in February, leaving it unable to render decisions on interstate pipeline approvals. Chatterjee is an energy adviser to Senate Majority Leader Mitch McConnell, while Powelson serves as the president of the National Association of Regulatory Utility Commissioners.

Who pays for pipeline protestors?
The state of North Dakota has once again filed an application with the federal government to recoup $14 million spent on law enforcement during the Dakota Access Pipeline (DAPL) protests. FEMA (Federal Emergency Management Agency) denied Governor Doug Burgum's request to declare the DAPL protests a national disaster. The state is now seeking compensation from the Justice Department. The DAPL is up and running despite several lawsuits still pending in US courts. 

No change expected in biofuel blending requirements
Both Reuters and Bloomberg are reporting that the Environmental Protection Agency (EPA) will reject a proposal to rework the US biofuels program that requires refiners to blend biofuels (such as ethanol) into their gasoline or purchase blending credits. The credits come at a big cost for independent refiners that have no access to ethanol.

Exxon mulls expansion of light oil capacity in Beaumont
ExxonMobil is considering expanding its light crude processing capacity at its Beaumont refinery in Texas with the addition of a third crude distillation unit. If approved, construction could begin in 2019 and be completed by 2022. Exxon says the expansion reflect "the increased availability of abundant, affordable supplies of US light crude." The company added 20,000 bbl/day of light crude refining capacity to Beaumont refinery last year. If approved, this latest phase of expansion would be part of the company's US$20 billion investment in its Gulf Coast operations.

Philly refiner on the edge of bankruptcy, again
Philadelphia Energy Solutions (PES), owner and operator of the Philadelphia Refining Complex, has hired investment bank PJT Partners to help it refinance its debt, as the company struggles to turn a profit. PES was purchased by Carlyle Group and a subsidiary of Energy Transfer Partners in 2012 after the companies received generous tax breaks and environmental waivers from the state in exchange for rescuing nearly 1,000 jobs. The company turned a handsome profit in 2014/15 thanks to the purchase of discounted oil from the North Dakota Bakkens. Competition from East Coast product imports, shrinking of the North Dakota discount and "regulatory challenges" have weighed on refining margins, leaving the company unable to payback its short-term loans. The 335,000 bbl/day Philadelphia Refining Complex is the largest facility on the East Coast.

Consolidation continues in EPC space
Jacobs Engineering reached a deal to buy engineering-services firm CH2M for US$3.27 billion in cash and stock, including debt. The "new" Jacobs says it expects to save US$150 million a year in cost synergies. The combined company will have 74,000 employees. Jacobs also announced it has renewed its EPCM contract for Royal Dutch Shell projects globally.


US PRODUCTION & INVENTORY DATA

US crude oil inventories declined 1.5 million barrels last week, the fifth consecutive weekly decline on big drawdowns on the West Coast. Production out of the Lower 48 region (including the Gulf of Mexico) rose by another 25,000 bbl/day. Gasoline demand remains strong, hitting a record 9.842 million bbl/day last week.

According to Baker Hughes, US oil rig counts dipped by one this week, the second decline in the past 3 weeks. In Canada, the number of oil rigs declined by 5 to 124.

 
steelwork-1031485_1280.jpg

WEEKLY US INVENTORY REPORT

AUG 2, 2017

CRUDE STOCKPILES DECLINE FOR THE FIFTH WEEK IN A ROW ON BIG DRAWDOWNS IN THE GULF COAST

 

AROUND THE WORLD

Voices grow louder for more US action against Venezuela
Despite threats from the US, Maduro's government held an "election" last week to rewrite the constitution and give the unpopular government more power. The White House has followed through with various financial sanctions, including freezing the Venezuelan president's US assets and barring Americans from doing business with him. The Trump Administration has not yet completely closed the door to targeting the country's oil exports, which account for 95% of government revenues. About one-third of the Venezuela's oil exports are sold to the US. Venezuela says if the US doesn't buy its oil, there are plenty of other customers in the sea.

Shell continues retreat from developed countries
According to a leaked internal memo, Royal Dutch Shell plans to cut more than 400 "redundant" jobs in the Netherlands, moving some of those positions to Bangalore, India. The memo details plans to cut costs by outsourcing "lower value-adding" design work, reducing the number of costly expats and cutting layers of management in its project and technology operations.

Europe's largest refinery offline
A fire broke out last weekend at Shell's 404,000 bbl/day Pernis refinery, located in the port of Rotterdam. No injuries were reported. The fire was rumoured to have been sparked by a power outage. The refinery was taken offline pending a full investigation, causing a spike in European diesel prices. Pernis is Europe's largest oil refinery. Shell says it doesn't expect the refinery to restart until the second-half of August.

LNG expansion in Mozambique
Anadarko Petroleum has finalized two agreements with the Government of Mozambique to design, build and operate the country's first onshore LNG plant consisting of two trains with a total capacity of 12 million tonnes per year. The company says it expects to make a final investment decision once it secures sufficient purchase agreements.

Shell and Chevron partner up in Nigeria
Nigeria's National Petroleum Corporation (NNPC) has signed US$780 million worth of financing agreements with Chevron and Shell to help the country develop its Sonam project, estimated to hold 211 million barrels of reserves. NNPC says the assets are expected to generate US$16 billion in revenues over the life of the project.

Power up at the gas station
BP is reportedly in talks with several electric car manufacturers on the addition of battery recharging stations at its global network of fuel service stations. CEO Bob Dudley says he thinks the world will reach "peak fuel demand" by the late 2020s and his company would like to position itself to take advantage of the move towards EVs. A major headwind against plugging in at the gas station is the time required to power up. Tesla's Supercharger stations, which are 16 times faster than a traditional charging station, can recharge a fully-depleted battery in 75 minutes.

OPEC output hits another 2017 high
According to Reuters, OPEC output is expected to rise by another 90,000 bbl/day this month to 33 million bbl/day, another record high for this year. The gains were led by Libya, now producing more than 1 million bbl/day. The UAE, Gabon and Ecuador also boosted output, while Angola, Nigeria and Saudi Arabia are expected to be down for the month. Select OPEC and non-OPEC members meet in Abu Dhabi this coming week to discuss compliance with last November's production ceilings.

$50 oil the new $100?
According to Goldman Sachs, the world's largest oil majors are better positioned today than when WTI was trading at US$100/barrel. The investment firm says the companies "are showing strong ability to adapt to lower oil prices through cost cutting, improved operational delivery and capital discipline." Goldman also says free cash flow in the second quarter was much better than they had expected, thanks to "simplification, standardization, and deflation" across the energy sector.


NEXT WEEK'S EVENTS

Monday:

  • TSX closed for Civic Holiday
  • Nebraska Public Service Commission begins public hearings on Keystone XL
  • OPEC/non-OPEC compliance meeting in Abu Dhabi

Tuesday:

  • API Weekly Statistical Bulletin released @ 4:30pm ET
  • Q2/2017 earnings: Ensign Energy Services, Tesoro Corp, Plains All American

Wednesday:

  • Q1/2017 Industrial Capacity Utilization Rates released by Statistics Canada @ 8:30am
  • EIA Weekly Petroleum Status Report released @ 10:30am ET
  • Q2/2017 earnings: Keyera, Bonterra Energy, Obsidian Energy, Kelt Exploration, Blackpearl Resources, Essential Energy Services

Thursday:

  • EIA Weekly Natural Gas Storage Report released @ 10:30am ET
  • OPEC Monthly Oil Market Report
  • Q2/2017 earnings: Bellatrix Exploration, Brichcliff Energy, Enerflex, Trican Well Service

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
  • IEA Monthly Oil Market Report
  • Q2/2017 earnings releases: Inter Pipeline, Enerplus, Perpetual Energy
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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