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The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • CNRL shopping for more heavy oil assets
  • Production improves at Great Divide
  • Alberta's "deep scars" will take time to heal
  • Westridge Terminal cleared for expansion
  • Trudeau pitches benefits of carbon taxes in Saskatchewan
  • Heavy oil discount widens as Gulf Coast capacity remains crippled
  • US regulators give Rover and Atlantic Sunrise Pipelines the green light
  • Hurricane Harvey widens crack spreads
  • DOE releases 4.5 million barrels of crude from SPR
  • Houston re-opens for business
  • Big Oil steps up to support displaced Texans
  • Massive basin offshore Brazil remains untapped
  • Pipelines under fire (literally) in Columbia
  • OPEC and Russia remain open to extending production cuts

ALBERTA

CNRL shortlisted for Pelican Lake
Bloomberg is reporting that Canadian Natural Resources (CNRL) has progressed to the final round of bidding for Cenovus' Pelican Lake assets, located about 300 km north of Edmonton. The asset is reported to be worth about $1 billion. Cona Resources (formerly Northern Blizzard Resources) is also vying for the property, put up for sale by Cenovus earlier this year to help pay down debt. Both CNRL and Cona operate similar facilities that use enhanced oil recovery to extract heavy oil.

Production improves at Great Divide despite financial woes
Calgary-based Connacher Oil & Gas reported a second quarter loss of $15.5 million this week, as the company continues to bleed cash while it sits under creditor protection. Q2 production at its Great Divide SAGD facility rose over 40% y/y to 12,060 bbl/day. This past quarter marks the fourth consecutive quarter of positive netbacks thanks to higher oil prices, lower operating costs and improved reliability. Connacher has been under creditor protection since May 2016 while the company continues to "investigate, evaluate, and consider possible sale and restructuring alternatives."

Deep scars will be slow to heal
In their August Economic Outlook, ATB Financial says Alberta's economy is "gradually gaining momentum" but the "deep scars" left by the recent recession will be "slow to heal." ATB says although the energy sector is improving, it will not be the economic growth engine of the province this year. The bank says enthusiasm over rising oil prices and the potential for new pipeline construction has long since fizzled as oil prices appear to be permanently stuck below US$50 a barrel. ATB is forecasting real GDP growth of 3.2% this year, falling to 2.1% in 2018.


CANADA

Westridge Terminal cleared for expansion
The National Energy Board (NEB) says Kinder Morgan Canada (KML) has met all the conditions required to begin expansion of its Westridge Marine Terminal, required as part of the Trans Mountain Expansion Project (TMEP). The regulator says the company has provided sufficient information to satisfy each of the 49 conditions related to construction of the terminal and has no outstanding concerns. The expansion will increase loading capacity from one Aframax-size tanker to a maximum of three. Construction on the marine terminal is expected to begin in September and last about 30 months. The NEB will also begin hearings later this year into minor changes being made to the TMEP route. BC's NDP government says it will not issue construction permits for work on public lands. The Westridge terminal sits on private property. 

Husky awards subsea contract for West White Rose
TechnipFMC was awarded the EPCI contract (engineering, procurement, construction and installation) of subsea equipment for Husky Energy's West White Rose Project off the coast of Newfoundland. The contract includes the supply and installation of tie-in manifolds, flexible flowlines and control umbilicals which will connect the offshore platform to the existing SeaRose FPSO (floating, production, storage and offloading) vessel. This is the latest in a series of contracts awarded so far this year. First oil from the $3.2 billion project is expected in 2022.

Strained labour relations continue at Come By Chance Refinery
North Atlantic Refining's employee union is accusing the company of ignoring safety concerns that may have led to a fatal explosion back in 1998. The United Steelworkers Union (USW) says "concerns over health and safety have fallen on deaf ears for too long" and is calling on the provincial government to acknowledge problems at the refinery. The 1998 incident resulted in two deaths, attributed in part to "dysfunctional and confrontational labour-management relationship ... as well as a lack of provincial government involvement and oversight." The 130,000 bbl/day Come By Chance refinery was purchased by NARL Refining Limited Partnership in 2014.

Trudeau pitches benefits of carbon tax in Saskatchewan
Prime Minister Trudeau was in Saskatoon this week as part of his cross-Canada fund raising tour. Trudeau says he has been working hard on behalf of the province and recognized the importance of the oil and gas sector on Saskatchewan's economy. The PM added that although carbon taxes "can be a contentious issue," he remains convinced it is the best path to reducing carbon emissions while growing the economy "in a clean and sustainable way." Both Manitoba and Saskatchewan have pushed back on the Liberal's plans to unilaterally impose carbon prices in the provinces, with both provinces questioning whether the federal government has the constitutional right to do so.


USA

Houston re-opens for business
Flood waters have begun to recede in Harris County, Texas, home to about 4.6 million people including the city of Houston. Houston's mayor has declared the city "open for business" as pubic transit and power has been restored to much of the city. Hurricane Harvey is the most powerful storm to hit the region since 1961. Almost one million people were displaced during the storm, which claimed 44 lives and flooded 136,000 homes and businesses. Houston accounts for 3% of the total US GDP. Economic losses are estimated to be between US$50 and US$100 billion.

Gulf Coast refineries take a hit
At its peak, Hurricane Harvey took one-quarter of the country's refining capacity offline, roughly 4.4 million bbl/day. Refineries and ports in Corpus Christi, Texas, where Harvey first made landfall, are slowly returning to normal. Power has been restored to all four refineries in the area and the ports are expected to be fully operational by Labour Day. Motiva's 603,000 bbl/day refinery in Port Arthur, the largest refinery in North America, is expected to be down for at least two weeks. ExxonMobil has shutdown their Beaumont refinery, Baytown complex and nearby Mont Belvieu plastics plant. Shell's Deer Park refinery is also expected to be down for at least a week. Total's Port Arthur refinery was also shut-in but has since restarted at half-capacity. Marathon Oil's Galveston and Texas City refineries are also restarting operations while Valero Energy's Texas refineries are running at reduced rates. International traders are diverting crude tankers away from the US and rerouting product tankers to the eastern seaboard. The US is normally a net exporter of refined products, particularly to South America.

Double whammy for Canadian heavy oil producers
The Canadian heavy oil discount (the differential between WTI and Western Canadian Select) has widened from less than US$10 a barrel pre-Harvey to almost US$13 by the end of the week as Gulf Coast refineries continue to operate at reduced capacity. TransCanada has temporarily shut-in the southern leg of its Keystone Pipeline that runs from Cushing, OK to refineries in Texas and Louisiana. Canada exports about 2.6 million barrels of heavy crude to the US daily, about 500,000 bbl/day shipped to the Gulf Coast region. Imports of diluent have also been curtailed, driving condensate prices more than $2 above par with WTI. Western Canada's heavy oil producers import about one-third of their diluent needs from the US.

Gas prices surge across North America
A partial shutdown of the 3 million bbl/day Colonial Pipeline caused wholesale gasoline prices to top US$2/gallon this week, the first time since 2015. Colonial delivers refined products from the Gulf Coast to markets along the US eastern seaboard, providing one-third of the region's refined products. National average gas price for the Labour Day weekend will average US$2.50 a gallon, a two-year high. Labour Day weekend is typically one of the busiest travel weekends of the year, but marks the end of the summer driving season as demand wanes considerably through the fall and winter. Colonial says it hopes to return to normal operation by Labour Day Monday.

Big Oil steps up to support employees and neighbours in need
A number of Houston-based energy companies and other firms with operations in Texas have pledged millions to help displaced Texans with rebuilding efforts, including Phillips 66, ExxonMobil, ConocoPhillips, Chevron, Motiva, Anadarko, Valero Energy, TransCanada and Williams Company. Relief funds are being funnelled through the American Red Cross and/or the United Way of Greater Houston.

DOE releases crude from SPR
The US Energy Department (DOE) authorized the release of 4.5 million barrels of crude oil from its Strategic Petroleum Reserve (SPR), to be sourced from its West Hackberry and Bayou Choctaw sites in Louisiana. About 1 million barrels are destined for the Phillips 66 refinery in Lake Charles, Louisiana. Marathon Petroleum has asked for 3 million barrels while Valero Energy has requested 500,000 barrels of crude. This is the first emergency release by the DOE since Hurricane Issac in 2012, where 1 million barrels of SPR were loaned to Marathon Petroleum. The US currently holds about 679 million barrels of crude in SPR, down from 695 million barrels held at the end of last year.

Rover Pipeline Phase 1A gets FERC approval
The Federal Energy Regulatory Commission (FERC) has cleared Energy Transfer Partners to start-up Phase 1A of its Rover Pipeline, which runs from Cadiz to Defiance, Ohio. The 713-mile Rover Pipeline will transport up to 3.25 billion cubic feet of natural gas per day from the Marcellus and Utica Shale to markets across the US and the Union Gas Dawn Storage Hub in Ontario.

Atlantic Sunrise gets the green light
Williams Partners announced the receipt of all remaining federal and state-level permits for the construction of its Atlantic Sunrise Pipeline Project, which would connect gas production from the Marcellus shale to markets in the Mid-Atlantic and Southeastern US. Construction is expected to begin in the fall, with an estimated in-service date of mid-2018. The US$3 billion pipeline is an expansion of the existing Transco natural gas pipeline.


US PRODUCTION & INVENTORY DATA

Crude stockpiles in the US declined for the ninth week in a row while production dipped ahead of Hurricane Harvey. US rig counts were unchanged at the end of this week, while 13 rigs were taken out of service in Canada.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

AUG 30, 2017

LOWER 48 OUTPUT DIPS AHEAD OF HURRICANE HARVEY

 

AROUND THE WORLD

Sinopec under investigation
The US Securities and Exchange Commission and Justice Department are investigating China Petroleum & Chemical Corp (Sinopec) over allegations the company paid out US$100 million worth of bribes to Nigerian officials, funnelled through various US banks. The payments were intended to resolve a US$4 billion dispute between the company’s subsidiary Addax Petroleum and the Nigerian government over capital costs, tax breaks and royalties. Sinopec is the world's largest oil refiner.

Coming up dry in the Barents Sea
Statoil says its Korpfjell exploration well in the Norwegian section of the Barents Sea has proven to be small and "non-commercial." The company says although the results are "disappointing ... it is too early to draw any conclusions on how this will impact the Barents Sea southeast area." Korpfjell is the company's fourth well in its 2017 exploration campaign in the region.

Brazil sends Total back to the drawing board
Brazil's environmental regulator has rejected Total's environmental impact study on its plans to drill in the Foz do Amazonas basin. The offshore basin, located in the western portion of the Brazilian Equatorial Margin, is estimated to hold up to 14 billion barrels of oil, which would make it more lucrative than the Gulf of Mexico. A consortium that includes Total, BP and Petrobras purchased five exploration blocks in the region in 2013, but drilling plans were put on hold after the discovery of a massive coral reef just 28 km from the basin. Brazil's regulator says it needs more information from Total and has threatened to suspend the company's license application.

Egypt makes progress on increasing oil output
The Egyptian government has signed three exploration deals for 16 new fields in the Western Desert worth at least US$81 million with Royal Dutch Shell and Apex International Energy. The country has been working hard to attract foreign investment back into its energy sector. Six bids were accepted in December worth up to US$200 million.

Pipelines under fire (literally) in Columbia
Ecopetrol reported damage to its 210,000 bbl/day Cano-Limon Covenas pipeline this week after the National Liberation Army (ELN) bombed a section of the line, spilling crude into a nearby river. Clean-up is underway and repairs are expected to take several days. Despite peace talks with the government, ELN has stepped-up attacks on energy infrastructure in protest of the country's energy sector. The line has been frequently taken offline due to terrorist attacks since 1986, including 43 attacks so far this year.

OPEC deal extension not dead yet
The Wall Street Journal is reporting that both Saudi Arabia and Russia are lobbying OPEC member countries to extend crude production cuts for an additional three months. The current deal is set to expire in the spring of 2018.


NEXT WEEK'S EVENTS

Monday:

  • Canadian/US markets closed for Labour Day

Tuesday:

Wednesday:

Thursday:

Friday:

  • August Labour Force Survey released by Statistics Canada @ 8:30am ET
  • Baker Hughes Rig Count released @ 1:00pm ET
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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