The Oil Sands Weekly

The Oil Sands Weekly

Rough week ahead for ConocoPhillips employees . . . 

ConocoPhillips began its latest round of layoffs this week. An estimated 300 Canadian employees, mostly located at the Calgary head office, were let go as part of a 1,000 head-count reduction announced earlier in the summer. This round of cuts is in addition to the 600 employees terminated last year. 

ConocoPhillips blamed the layoffs on low oil prices, higher taxes and insufficient pipeline capacity. Thankfully, the company has no plans for further layoffs in the near term.

AER gives the green light to 3 oil sands projects . . . 

The Alberta Energy Regulator (AER) approved 3 oil sands projects this week:

  1. Surmont Energy's 12,000 bbl/day steam-assisted gravity drainage (SAGD) Wildwood oil sands project
  2. Husky Energy's 3,000 bbl/day cyclic steam stimulation (CSS) Saleski project
  3. Blackpearl Resources' 80,000 bbl/day SAGD Blackrod project

Privately-held Surmont Energy has yet to make a final investment decision for its Wildwood project. CEO Mark Smith said his company is looking for financial backing to move forward with the first 3,000 bbl/day of development. Smith estimates about $125 million would be needed before an investment decision can be made.

Blackpearl CEO John Festival says his company has no plans to go out and build the newly approved Blackrod project, but is open to a partnership to help it develop its first phase. The company is currently focusing on its Onion Lake project in Saskatchewan.

Husky says it is progressing Saleski with the aim of commercializing the development within the next ten years. However, there is currently no development timeline for the project.

Former PM Mulroney wants current PM Trudeau to take leadership role in pipeline debate . . . 

While addressing law students at the University of Calgary, former Prime Minister Brian Mulroney called on current PM Justin Trudeau to champion Energy East and rally all Canadians behind the pipeline. Mulroney called the cross-Canada pipeline a nation-building project that will create thousands of jobs and boost revenues to all levels of government.

First Nations' challenge of TransMountain Expansion rejected, at least for now . . . 

The Federal Court of Appeal has rejected a challenge by the Tsleil-Waututh First Nation of Burnaby, who argued their rights were violated by the National Energy Board (NEB) during the review of Kinder Morgan's TransMountain expansion project

The aboriginal community is located near the Burnaby export terminal.

Since the project is still under review by the federal government, the court concluded it is too early to determine whether or not governments have fulfilled their duty to consult with First Nations groups.

Hope springs eternal for at least one pipeline approval by year end . . . 

Bloomberg is reporting that Prime Minister Justin Trudeau will approve at least one pipeline project in his first term, and that project is likely to be Kinder Morgan's TransMountain Expansion.

There are currently three crude oil pipelines awaiting final blessing from the federal government: the TransMountain Expansion, Enbridge's Line 3 Replacement and Northern Gateway. Trudeau has confirmed on numerous occasions Enbridge's Northern Gateway will not see the light of day under his watch. The project was approved by the Harper government, but that approval was overturned by the Federal Court of Appeal in June.

Enbridge's Line 3 involves replacing a 40-year-old pipeline, bringing Alberta crude to Wisconsin. The project has received the least backlash and little media attention, making it also very likely to be approved by year end. The new line would add 370,000 bbl/day of export capacity to the US. However, Line 3 does not provide direct access to tidewater.

The TransMountain Expansion involves twinning an existing pipeline from Alberta to an export terminal in Burnaby, BC. If built, the line would add 590,000 bbl/day of export capacity to the US and Asian markets. The project has received much opposition from Vancouver area mayors. However, Bloomberg sources think TransMountain has the best chance of being approved since there are only 17 Liberal seats at stake in BC, located mostly in the Lower Mainland.

If approved by the NEB, TransCanada's Energy East wouldn't be ready for federal approval until just before the next election. There are 120 Liberal seats at stake in Quebec and Ontario, making Energy East a political hot-potato for the Trudeau Liberals. The NEB's Energy East hearings were scrapped last week due to concerns of conflict of interest between NEB panel members and former Quebec Premier Jean Charest. Scotiabank called the project "doomed" and estimates its chance of approval at only 25%. Energy East would bring 1.1 million bbl/day to Eastern Canada refineries and tidewater on the East Coast.

Former Alberta premier and federal environment minister Jim Prentice doesn't think one pipeline will be enough. Prentice thinks the country needs about 2 million bbl/day of additional export capacity in order to make Canadian crude competitive on world markets.

Suncor CEO warns Canada must remain open for business . . . 

Suncor Energy CEO Steve Williams warned that Canada must remain open for business and should not destroy competitiveness in its efforts to combat climate change. During a speech at the Toronto Global Forum, Williams called Alberta Premier Rachel Notley and the federal government "brave" for moving forward on climate change, noting that Canada is no longer a "black sheep" on the world stage. 

The CEO calls the increasingly polarized debate over climate change a red flag for his company. Many countries, particularly the US, have successfully expand domestic oil production and built thousands of miles of new pipelines while maintaining claims to be climate change leaders.

Williams claims Suncor can operate “successfully” with oil prices between US$35 and $40 a barrel. The CEO also warned that oil prices are likely to remain volatile over the next few years, although he does expect prices to rise next through 2017.

Lack of energy infrastructure puzzles international ratings agency . . . 

Bond ratings agency DBRS warned that Canada may get downgraded if new pipelines to tidewater are not built in the near future. 

Canadian oil production is expected to reach 5.5 million bbl/day by 2030 but US reliance on Canadian oil may not keep pace due to increased production out of the US, Mexico and South America. DBRS advises Canada to sell more crude to China and India, where oil consumption is still growing.

Chevron Canada versus Chevron Corp . . . 

Chevron Canada was in a Toronto court this week, as a NY-based legal team representing Ecuadorian plaintiffs presented its case to seize Canadian assets for non-payment of a US$9.5 billion fine levied against Chevron in Ecuadorian courts.

Chevron Canada argued that it is a distinct operation from Chevron Corp. and therefore cannot be held legally liable for claims against the parent company.

A US court ruled that the Ecuadorian judgement was fraudulently obtained, and refused to hear the case.

Two energy agencies with one message . . . 

Paris-based International Energy Agency (IEA) spooked oil markets this week by lowering its 2016 oil demand growth to 1.3 million bbl/day from its previous forecast of 1.4 million bbl/day. The agency also downgraded 2017 growth to 1.2 million bbl/day. 

The IEA expects output to decline by 840,000 bbl/day this year due to supply disruptions around the world. However, production is expected to return to growth in 2017, adding 380,000 bbl/day to global oil markets.

OECD inventories grew by 32.5 million barrels in July, hitting a fresh record high of 3.111 billion barrels.

OPEC's September Monthly Oil Market Report echoed a similar sentiment, warning that the imminent start-up of the 370,000 bbl/day Kasahagan oil field in Kazakhstan will keep oil markets oversupplied well into next year. At the upcoming meeting in Algeria, the cartel will ask its members for their respective production "ceilings", a move intended to give struggling members such Nigeria, Iran and Venezuela room to recover lost output.

IEA warns future oil growth to come from politically unstable regions . . .

In their latest World Energy Investment 2016 report, the IEA estimates that global energy investments fell to US$1.8 trillion last year, down 8% from 2014.  Those figures include oil, natural gas, coal and power generation. Among the key highlights:

  • The largest energy investments made in 2015 was Chinese investment in power generation.
  • Investments in US shale declined 52% last year, while costs of production declined about 30%.
  • Upstream oil investment in Russia and the Middle East remain strong, with state-owned companies providing a record 44% of those investments.
  • The Middle East produces about 35% of the world's oil but accounts for only 12% of upstream investments due to exceptionally low drilling costs.
  • Lack of LNG infrastructure is limiting the use of natural gas for power generation in Asia, making coal-fired power plants substantially cheaper.

The IEA warns that the deepest cuts in upstream oil and gas investments have occurred in regions where geopolitical risk is low, such as North America. That means more production in the future will come from unstable areas, making global energy markets more susceptible to supply disruptions.

This week's global energy news . . .

Anadarko Petroleum has purchased deepwater assets in the Gulf of Mexico from Freeport McMoRan for US$2 billion. The company is hoping the purchase will help it double its production from the Gulf of Mexico to more than 600,000 boe/day within the next 5 years. The deal will be financed through the issuance of over 35 million new common shares.

ExxonMobil is involved in yet another investigation probe, this time by NY's Attorney General, on why the company has yet to write-down the value of its assets given the sharp decline in oil and gas prices. Billions have been written-down by all the oil majors around the world, including Chevron, Shell, BP and Total. Exxon has 24.8 billion barrels of reserves as of December 2015, enough to maintain current production rates for 16 years. That’s down from 17.4 years of reserves life at the end of 2014. The company says it thinks current oil prices are "temporarily low" and write-downs are not needed since prices will recover over the long term.

BP CEO Bob Dudley is enthused by new government reforms in Argentina and hopes to increase investments in the South American country. Dudley thinks Argentina has enough natural resources to become energy independent. The new government has vowed to crack-down on corruption and reduce red tape. Newly elected President Mauricio Macri has been working to attract investments from international oil companies to help develop its vast shale oil and gas deposits, said to be one of the largest in the world.

Libya's 2 main oil export terminals have been seized by a former military general. Armed groups in the country compete for control of Libya's oil, which provided 95% of the country’s export revenue prior to 2011. Prime Minister Fayez al-Sarraj has been attempting to restore output after the UN brokered a peace deal in December. The country's output is currently stuck at about 300,000 bbl/day, less than one-quarter of pre-war levels, but should ramp up to 600,000 bbl/day over the next few months. Libya exported its first tanker in 2 years to Italy this week. The country holds Africa's largest crude oil reserves.  

ExxonMobil will resume exports of Nigeria's Qua Iboe crude oil later this month, the first shipment since the company declared force majeure in July. The supply disruption was caused by a leak on the pipeline connecting to the export terminal.

Brazil's state-owned Petrobas has shutdown operations at its Getulio Vargas Refinery located in the southern Parana state after strong winds damaged a gas compressor at the cracking unit. The refinery accounts for 12% of Brazil's refining capacity.

million bbl/day • preliminary data by EIA
million bbls • data by EIA

million bbl/day • data by EIA & Baker Hughes

-208 ▼ 6.6%
+35 ▲ 0.4%
-0.56 ▼ 0.1%
+2 ▲ 0.5%

US imports of Canadian crude fell below 3 million bbl/day last week. The declines might be caused by maintenance outages at the Kearl oil sands mine, taking 200,000 bbl/day offline for much of September. However, it is important to note that week-to-week data can be very volatile due to large inventory volumes stored on both sides of the border.

US imports of Venezuelan crude declined 13% last month, blamed in part on lack of diluent required to dilute extra heavy crude produced from the Orinoco Belt. The diluent shortage is being caused by cash-flow problems at state-owned PDVSA. Venezuela's oil exports are down 12% y/y.

Saudi Arabia has reclaimed top spot as the world's largest oil producer, displacing the US. The Saudis have added 400,000 bbl/day of output in the past 4 months while US production has declined 460,000 bbl/day for the same period. The US produced 12.2 million bbl/day of crude oil and NLGs in August. That compares to Saudi Arabia's estimated output of 12.58 million bbl/day. The US became the world's top oil producer in April 2014, overtaking Saudi Arabia. The world's top crude oil producer (excluding NGL's) remains Russia.

Friday close • data by Bank of Canada & ICE

+0.81 ▲ 0.9%
-1.03 ▼ 1.3%
+0.03 ▲ 1.8%
US 10Y Bond
+0.04 ▲ 3.5%
CDN 10Y Bond

Bank of England (BoE) governor Mark Carney kept UK rates unchanged this week at a historic low of 0.25%. After an ugly July, August economic data was much better than expected due to the lower sterling. The BoE says it will lower rates if the UK economy shows signs of deterioration.

A dovish speech from US Federal Reserve Governor Lael Brainard and weak retail sales numbers seem to have taken a September rate hike off the table. The governor blamed a strong US dollar for economic weakness and low inflation in the US. 

Friday close, USD/bbl • data by CME Group
-2.24 ▼ 4.7%
-2.85 ▼ 6.2%
-2.91 ▼ 6.7%
-2.75 ▼ 8.7%

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Warren Buffet's Berkshire Hathaway stocked up on 1 million shares of Phillips 66 in mid-September.

With few exceptions, energy stocks retreated this week. Some of the biggest losers in the TSX Energy Sector include Baytex Energy (BTE -12.9%), Enerplus (ERF -10.0%) and MEG Energy (MEG -9.1%).

This week's 52-week highs on the TSX include Spectra Energy (SE), Seven Generations (VII), Penn West Petroleum (PWT) and Teck Resources (TCK/B).

State-side, refiners has a good week, including Tesoro Petroleum (TSO +3.5%), Valero Energy (VLO +3.3%), Marathon Petroleum (MPC +3.3%) and Phillips 66 (PSX +1.6%). All other energy stocks on the NYSE ended the week in the red.


  • ConocoPhillips (NYSE:COP): Upgraded from Neutral to Overweight at JPMorgan.
  • Penn West Petroleum (TSX:PWT): Upgraded from Reduce to Hold at TD Securities. The company raised its price target from $0.80 to $2.25 a share.
  • Secure Energy Services (TSX:SES): Upgraded from Outperform to Sector Perform at Scotiabank.
  • Teck Resources (TSX:TCK.B): Upgraded from Underweight to Equal Weight at Morgan Stanley.


  • Marathon Oil (NYSE:MRO): Downgraded from Outperform to Neutral at Credit Suisse. The company has a price target of US$19.
  • Spectra Energy (NYSE:SE): Downgraded from Buy to Neutral at UBS and Goldman Sachs. UBS raised its price target from US$39 to US$44.
  • Whitecap Resources (TSX:WCP): Downgraded from Action List Buy to Buy at TD Securities.



  • West Texas Intermediate October contract expiry
  • US Federal Reserve interest rate decision @ 2:00pm ET
  • API Weekly Statistics Bulletin released @ 4:30pm ET


  • EIA Petroleum Status Report released @ 8:30am ET
  • July wholesale trade data released by Statistics Canada @ 8:30am ET
  • Chinese Premier Li Keqiang begins four-day official visit to Canada


  • July employment insurance data released by Statistics Canada @ 8:30am ET
  • EIA Natural Gas Report released @ 10:30am ET


  • August CPI released by Statistics Canada @ 8:30am ET
  • July retail trade data released by Statistics Canada @ 8:30am ET
  • Baker-Hughes Rig Count released @ 1:00pm ET

Next edition of the Oil Sands Weekly: Friday September 23, 2016 @ 8pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly