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The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • CNRL continues shopping spree
  • Kinder Morgan moves forward on TMEP
  • TransCanada hits pause on Energy East
  • Secure Energy expands in Saskatchewan
  • Carbon taxes expected to crimp Canadian economy ...
  • ... and do little to reduce carbon emissions
  • Complex royalty calcs in Newfoundland under scrutiny
  • More pipeline construction in Texas
  • 20 million barrels of crude still stuck at sea
  • Hurricanes raise concerns of demand destruction ...
  • ... and rising labour costs
  • France to phase out oil production, but nobody cares
  • China buys big chunk of Russian oil major
  • Libyan production returns to normal.

ALBERTA

One asset sold, and many more to go
Canadian Natural Resources has agreed to buy Cenovus Energy's Pelican Lake heavy oil operations for $975 million. The assets produce about 19,600 boe/day. Proceeds from the sale will go towards repaying its $3.6 billion bridge loan used to fund the company's $17.7 billion purchase of Western Canadian assets from ConocoPhillips. CEO Brian Ferguson says this sale "represents a significant first step" in the company's plans to reduce its debt load. Cenovus says other asset sales are still in the works, including the Suffield, Palliser and Weyburn conventional properties, all reported to have received "strong interest" from potential buyers. 

Divestitures continue at Pengrowth
Pengrowth Energy announced the sale of its remaining Swan Hills assets in North Central Alberta for $150 million in cash. The assets produce about 5,000 boe/day. The company will update its 2017 guidance after the deal closes in the fourth quarter. The buyer of the assets was not disclosed.


CANADA

Keep your head down and keep moving forward
Kinder Morgan announced the signing of six MOUs for the pending construction of its Trans Mountain Expansion Project (TMEP). The contractors include joint ventures by Kiewit, Ledcor and Aecon, made up of union and non-union workers. BC's NDP government is still looking at all legal avenues to overturn the federal government's approval of the project and has been granted a "late-entry" intervenor status on pending legal challenges. The provincial government is barred from raising new issues or introducing new evidence during the hearings, set to begin on October 2. Kinder Morgan Canada expects to begin construction on TMEP this month, running through 2019.

TransCanada extends open season on Keystone XL ...
TransCanada has extended open season by about 1 month on its Keystone XL pipeline due to the aftermath of Hurricane Harvey. The company will now be accepting bids until October 26, 2017. The 830,000 bbl/day pipeline runs from Hardisty, Alberta to markets in Cushing, Oklahoma, and the US Gulf Coast, which has a refining capacity of about 9.6 million bbl/day.

... and hits the pause button on Energy East
TransCanada also filed a request with the National Energy Board (NEB) seeking a 30-day delay in its $16 billion Energy East application. The company says it needs the extra time to review "significant changes to the regulatory process" mandated by the NEB, which include quantifying direct and indirect carbon emissions and providing "more visibility" into spill mitigation plans and potential impacts of a line rupture. The 4,500 km pipeline would carry 1.1 million bbl/day of crude from Western Canada into the Maritimes, displacing foreign oil imports and allowing for exports overseas. Rumours are rampant that the project will be shelved in favour of the $10 billion Keystone XL, a much shorter pipeline to a much bigger market. However, it is unclear if TransCanada's decision is due to costs, lack of demand (in light of Keystone XL), impossibly high regulatory hurdles, or a combination of the three. The federal government has been blasted by the energy sector and select provinces for requiring Canadian firms to jump through hoops to get projects approved, while freely allowing foreign oil imports without restrictions. Canadian refineries currently import about 600,000 bbl/day of foreign crude.

Expanding midstream capacity in Saskatchewan
Secure Energy Services announced plans to construct a light oil feeder pipeline system and receipt terminal in the Kindersley-Kerrobert region of Saskatchewan. The project will be developed in two phases, gathering crude oil from multiple producers to two storage terminals which connect to Enbridge's mainline. Phase 1, which connects to the existing Kindersley Full Service Terminal, is already 50% complete. Site preparation is underway for the second phase, which includes a new terminal and connections to Enbridge's export pipelines. Estimated capital costs for both phases is $75 million, with approximately $50 million to be spent this year. The new line should be in service by the end of 2018.

Complex royalty calculations in Newfoundland
The Newfoundland and Labrador (NL) Supreme Court has dismissed the provincial government's application to recalculate royalty payments from the Hibernia offshore oilfield. Partners in the development, including ExxonMobil, Chevron, Suncor, Murphy Oil and Statoil, deduct operating insurance costs before paying out royalties. An arbitration court ruled the practice to be perfectly legitimate, however, the NL government disagreed, sending the issue to the Supreme Court. Partners in the Terra Nova offshore project are also stuck in a similar legal dispute with the NL government. It is unclear if the province will appeal the ruling. 

Carbon taxes expected to hit Canadians in the wallet
The Conference Board of Canada (CBoC) estimates that the federal carbon tax will take $3 billion out of Canada's GDP in 2018 and depreciate the Canadian dollar. The CBoC says Canadians will be paying more for gasoline, natural gas, electricity, paper, plastics and everyday goods due to the higher cost of transportation. The federal government has mandated a minimum carbon tax of $10/tonne in 2018, rising $10 annually through 2022. The think tank estimated $1.5 to $3.4 trillion in capital is required through 2050 to wean Canadians off fossil fuels, and carbon pricing alone won't be enough to meet the country's emissions targets under the Paris Accord.


USA

Demand destruction in the US
Nearly one-third of Florida's gas stations have run out of gas this weekend as Hurricane Irma makes landfall, forcing the evacuation of 650,000 people out of the Miami area. About 97% of Florida's gasoline needs are imported by barge, expected to be severely crimped during the Category 4 storm. Analysts are now flagging concerns that both Irma and Harvey could result in significant demand destruction as residents forgo their travel plans to focus on rebuilding efforts. Florida is the third largest gasoline market in the US and has no operating refineries.

Concerns over rising costs
The US energy and petrochemicals sectors are flagging concerns over potential labour shortages and wage inflation as the industry competes with post-hurricane rebuilding efforts for tradespeople. Over the past few years, the US has seen a major increase in new pipeline construction, shale production, natural gas infrastructure and expansion of the petrochemicals sector, putting a squeeze on an already-tight labour pool.

Expanding products pipelines in Texas
Valero Energy and Magellan Midstream Partners have agreed to jointly build a 135 mile (220 km) products pipeline from Houston to Hearne, Texas. Magellan plans to reverse an existing pipeline, which will connect to the newly constructed segment, while Valero announced plans to build two terminals, one in Hearne and another in Williamson County, Texas, as well as a 70 mile pipeline (110 km) connecting the two facilities. Magellan plans to spend US$375 million and says it remains open to adding more capacity if there is sufficient demand. Valero's share of the project is expected to cost US$380 million. The new infrastructure should be completed by the middle of 2019.

Expanding crude pipelines in Texas
Magellan also announced the start of construction of a new 60 mile pipeline (100 km) from Wink to Crane, Texas. The line has an initial capacity of 250,000 bbl/day, carrying crude and condensate from the Delaware Basin to Magellan's Longhorn pipeline, which connects to refineries and marine terminals in Houston and Texas City. Magellan expects the project to cost US$150 million. The line can be expandable to 600,000 bbl/day if required.


US PRODUCTION & INVENTORY DATA

Refineries, production facilities and pipelines are slowly returning to normal this week after Hurricane Harvey ripped through Texas last weekend. The hurricane caused US crude oil stockpiles to rise by almost 5 million barrels for the week, as export terminals in the Gulf Coast were shutdown and over 4 million bbl/day of refining capacity was taken offline.

According to Kpler, about 20 million barrels of crude (or roughly 30 tankers) are still stuck in the US Gulf Coast waiting to offload in Houston and Port Arthur, Texas.

Baker Hughes reported a decline of three oil rigs in the US this week, falling to 756. The number of rigs in Canada this week was unchanged at 102.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

SEP 7, 2017

HURRICANE HARVEY THROWS A WRENCH INTO WEEKLY CRUDE AND PRODUCTS DATA

 

AROUND THE WORLD

Halting crude exports to North Korea
The US has submitted a draft resolution to the UN aimed at introducing a fresh batch of sanctions against North Korea, who fired off a hydrogen bomb last weekend. The Americans would like to see a ban on crude oil sales to the country, mostly supplied by Russia and China. The dilemma faced by the UN and the world is how to punish the North Korean government without inflicting more suffering onto its people. The North Korean government is threatened many more ballistic missile testing in Pacific waters. The next meeting of the UN security council is September 11.

France to end oil production
The French government has passed legislation to phase out all oil and gas exploration by 2040 and eliminated coal-fired power by 2022, as part of the country's plans to become carbon neutral by 2050. The country will no longer issue exploration permits and plans to ban the sale of diesel and gasoline-powered vehicles by 2040. France produces about 16,000 bbl/day of oil, representing about 1% of its national consumption. The country will continue to import and refine oil as required.

Shell opens first retail outlet in Mexico
Following in the footsteps of Andeavor, Royal Dutch Shell announced the opening of their first service station in Mexico, located just outside Mexico City. Shell says they plan to invest around US$1 billion in the country over the next decade, "if market conditions continue to develop at their current rates." Shell is the largest fuel operator in the world and is working towards expanding its retail footprint in India, China, Indonesia and Brazil.

Venezuela cracks down on corrupt oil bosses
Venezuela has arrested PDVSA's western region head Gustavo Malave and eight other executives on suspicions of corruption at the state-owned oil company. The government has been investigating "spectacular" overpricing in a dozen contracts in the Orinoco heavy oil belt, blamed on a small group of rogue employees and executives. PDVSA is accused of having "lost" about US$11 billion in funds between 2004 and 2014.

Russia cracks down on corrupt politicians
Former Russian Economy Minister Alexei Ulyukayev is on trial for extorting a US$2 million bribe from Igor Sechin, head of state-owned Rosneft, in exchange for approving a business deal last November. The $2 million in cash was delivered inside a lockable brown bag, as part of a bribery sting where Sechin was wearing a wire to gather evidence. Ulyukayev claims to have been framed and calls the allegations "absurd."

China invests in Russia
Chinese conglomerate CEFC has bought a 14% stake in Rosneft for US$9.1 billion from Glencore and the Qatar Investment Authority (QIA). Rosneft’s has a market cap of about US$57 billion, making it one of China's largest investments in Russia. Glencore and QIA will retain stakes of 0.5% and 4.7% in the Russian oil major, respectively. Russia is the world's largest crude producer and top supplier to China, the world largest crude importer.

Kazakhstan wants a break from OPEC
The country of Kazakhstan has asked OPEC for a standalone deal on capping its crude production in light of rising output from the massive Kashagan field. The Kazakh government says it needs to increase production out of Kashagan in order to repay its partners in the US$55 billion development, which include CNPC, ExxonMobil, Eni, Shell, Total and Inpex. Output from the field is expected to rise to 260,000 bbl/day next year. Under the current deal, OPEC has imposed a ceiling of 1.7 million bbl/day for the country, which has already been surpassed.

Libyan production returns to normal
Operations at Libya's Sharara oil field are finally back online, after disgruntled workers and militants shutdown the facility in late August. About 360,000 bbl/day was taken offline during the dispute, crimping the country's oil exports. Libya's output is now expected to return to about 1 million bbl/day.


NEXT WEEK'S EVENTS

Monday:

Tuesday:

Wednesday:

Thursday:

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
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