The Oil Sands Weekly
Jim Prentice among 4 killed in plane crash . . .
Former Alberta Premier Jim Prentice was among four people killed when their twin-engine Cessna Citation crashed shortly after takeoff from Kelowna en route to Calgary's Springbank Airport. The plane's wreckage was found near Winfield, BC.
Prentice was born in South Porcupine, Ontario (just outside of Timmins) and practiced law for several decades before becoming a federal cabinet minister for Harper's Conservative Party. Prentice served as Minister for Indian Affairs, Industry Minister and Minister of the Environment. Prentice became vice-chairman of CIBC in 2010 and worked for Enbridge in 2014, leading talks on the Northern Gateway pipeline.
Prentice serves as Alberta's 16th premier from 2014 to 2015 but resigned after his party lost to the NDP in May of 2015. Prentice was 60 years old.
NEB orders pressure restriction on Trans-Northern pipeline . . .
The National Energy Board (NEB) ordered a pressure restriction on the Trans-Northern pipeline over the Thanksgiving weekend, causing gas shortages throughout southern Ontario. The Trans-Northern pipeline is is operated by Trans-Northern Pipelines Inc. (TNPI) and transports about 173,000 bbl/day of refined product from Nanticoke, Ontario into Hamilton, Oakville, Toronto, Ottawa and the Montreal area, including fuel supply to major airports along the route.
The NEB had previously issued three Safety Orders on sections of piping in response to incidents that occurred in 2009 and 2010, which it claims have yet to be rectified. TNPI was asked to further reduce pressure by another 10% and undertake a number of corrective measures related to the system's hydraulics and overpressure protection. A TNPI spokesperson said the company is complying with the NEB's order but did not confirm when the system will return to normal.
Alberta Government confirms latest advisory committee members . . .
The Government of Alberta unveiled its Energy Diversification Advisory Committee panel members this week. This latest advisory committee was formed as part of a recommendation from its recent Modernized Royalty Review Framework.
The seven committee members include government officials, union representatives, lawyers, members of Alberta's aboriginal community and the former head of AIMCo. The group will explore opportunities to boost government revenues and create jobs in areas such as partial upgrading, oil refining, petrochemicals and chemicals manufacturing. The objective of the task force is to find ways to diversify Alberta's economy away from diluted bitumen exports, which is still growing in volumes and represents a big portion of the province's revenues. A final recommendation will be submitted to the province's energy minister in the fall of 2017.
Since being elected in 2015, the Alberta's NDP government has set up a number of review panels related to the province's energy sector including the Energy Efficiency Advisory Panel, the Climate Technology Task Force, the Oil Sands Advisory Group, the Advisory Panel on Coal Communities and the Royalty Review Advisory Panel.
Petro-Canada gas stations not for sale, at least not yet . . .
Suncor Energy tried to squash rumours that its 1,500 Petro-Canada gas stations are up for sale, after Reuters quoted two sources familiar with the matter. CEO Steve Williams suggested the sale back in April in order to monetize non-core assets. However, Williams conceded it wasn't at the top of the divestment list.
Imperial Oil sold its remaining 497 Esso stations for $2.8 billion in March, which would make the 1,500 Petro-Canada stations worth over $8 billion.
Five guys with bolt cutters stage dangerous publicity stunt . .
A group of 5 activists from Climate Direct Action carried out a coordinated attack Tuesday morning, targeting 5 pipelines carrying Canadian oil into US refineries. The five sections of pipelines targeted included Enbridge's Line 4 and Line 67 in Minnesota, TransCanada's Keystone pipeline in North Dakota, Spectra Energy's Express Pipeline in Montana and Kinder Morgan's Trans Mountain line in Washington State.
A spokeswoman said the group cut off the chain locks with bolt cutters and manually closed the emergency shut-off valves. The protestors and their support crews recorded the event for social media, then patiently waited for the police to arrive. The activists assured the public they carefully studied the stunt for several months to ensure no harm to the environment. The group is now asking for donations to cover impending legal costs.
The 5 pipelines targeted carry about 2.8 million bbl/day of Canadian oil into the US, representing over 10% of the country's total daily oil consumption. The lines were shutdown as precautionary measures but returned to normal operation within 24 hours.
Emergency shutdown valves are normally fenced-in and pad locked, but access is relatively easy in case of emergencies. Many are calling for stricter security as activists increasingly target shutdown valves to gain instant celebrity status and draw attention to their causes. Kinder Morgan Canada says it has already begun conducting a review of its security measures.
This week's other Canadian energy news . . .
The T’kemlups Indian Band signed a mutual benefits agreement (MBA) with Kinder Morgan worth $3 million should the Trans Mountain expansion be approved and constructed. Kinder Morgan already has MBAs in place with the city of Kamloops, Thompson River University and several other local communities and First Nations groups. Funds typically go towards job skills training, infrastructure upgrades or other business ventures.
TransCanada has commenced yet another round of bidding for natural gas shipments from BC/Alberta to southern Ontario. Under the new structure, shippers signing up on a 10 year term will pay from 75 to 82¢/GJ, depending on the volumes committed. However, shippers will now be given the option to terminate the contract after 5 years. Current tolls on the natural gas mainline are roughly $1.41/GJ. Producers such as Encana and Canadian Natural Resources expressed concerns over TransCanada's previous offer, which was conditional on a 10 year commitment. Open season closes on November 10th. The new shipment tolls take effect November 2017.
The Conference Board of Canada (CBOC) thinks that LNG might still be worth it despite challenging economics. However, the CBOC warns that timing is key and governments should be efficient and transparent when dealing with regulatory issues. Canada's natural gas industry is on track for another year of red ink, after losing an estimated $1.7 billion in 2015.
This week's notable economic news . . .
TD Bank is warning Canadians to brace for a budget shock, suggesting the federal government's fiscal deficit will be $16.5 billion higher than forecasted. The bank blames a weak Canadian economy, lower than expected US growth and an ambitious "wish-lists" from all levels of government.
The federal government is currently projecting deficits of $29.4 billion in 2016/17, $29 billion in 2017/18 and a $22.8 billion deficit in 2018/19. TD estimates Canada's debt-to-GDP will rise from the current 31% to 32.3% by 2022, which is says is still relatively low compared to other developed nations.
This week's US energy news . . .
A power outage at Suncor's Commerce City Refinery near Denver triggered an automatic shutdown sending plumes of orange and black smoke into the sky, prompting officials to shutdown nearby highways. A spokesperson for Suncor confirmed no hazardous emissions were released and described the smoke as a clay-like dust coated with hydrocarbon oil. The Commerce City refinery has a processing capacity of about 98,000 bbl/day.
Three tanker cars carrying oil derailed in New Jersey this week, but no injuries or spills were reported. The train was coming from Exxon Mobil's Lube Plant in Paulsboro, NJ.
Plain All American's Basin Pipeline remains out of service due to pressure anomalies. Basin is the largest pipeline flowing out from the Texas Permian basin into the Cushing, Oklahoma storage hub with an estimated capacity of 450,000 bbl/day. The pipeline was set to restart on Thursday after a 10-day hydrotest but the company has yet to provide a new restart date.
Talisman Energy is being sued in a Texas federal court for unpaid royalties. A group of oil and gas royalty owners in the Texas Eagle Ford Shale claim the company manipulated production volumes by as much as 20 to 30% and consistently shorted royalty payments. Talisman and Statoil entered into a 50/50 joint-venture in the region in 2010. The group claims royalties cheques received from Talisman were substantially lower than those received from Statoil. The royalty owners also allege that Talisman further reduced royalty payouts in the spring of 2015 after the company was purchased by Spanish energy giant Repsol.
Marathon Petroleum is suing BP for breaching conditions related to its 2012 purchase of the 459,000 bbl/day Texas City Refinery for US$2.4 billion. Marathon claims they began finding problems after they took over the refinery and also allege that BP failed to carry out a planned maintenance overhaul of the aromatics recovery unit prior to the sale being complete. BP maintains it spent billions in the years preceding the sale to upgrade the refinery and called the suit "nothing more than an attempt by Marathon to renegotiate the terms of the Texas City refinery purchase of almost four years ago." The Texas City Refinery became infamous after the 2005 explosion that killed 15 workers and injured 180.
The US Environmental Protection Agency (EPA) has accused the Federal Energy Regulatory Commission (FERC) of failing to properly assess climate change impacts in its approval of Columbia Pipeline's (now TransCanada) 257 km Leach Xpress pipeline. The Obama administration recently asked federal agencies to step up their assessment of global warming impacts when reviewing energy projects. FERC has approved more than 1,400 km of gas pipelines in 2016, the most since at least 2010.
Energy Transfer Partners is moving forward with construction of the controversial Dakota Access Pipeline after a US appeals court denied a request to halt construction of the project. The pipeline is now about 60% complete but the company is still awaiting a final federal permit for a segment of pipe that crosses underneath the Missouri River. The Obama administration has asked Energy Transfer to voluntarily halt construction but so far have refrained from executive action. Former presidential candidate Bernie Sanders and four other senators are calling on President Obama to intervene in the Dakota Access Pipeline, asking for all current permits to be suspended "until a complete environmental and cultural review has been completed for the entire project."
Elsewhere in the world . . .
BP announced it has canceled exploration of the Great Australian Bight Oilfield, located in the southern part of the country. The company insists the decision was merely an economic one and not related to regulatory red-tape. BP says it will continue to look for upstream investment opportunities elsewhere in the world.
After 3 years of exploration, Statoil also abandoned plans to explore for oil and gas in the Reinga basin off the coast of New Zealand. Statoil says the chances of making a large discovery appear to be slim to none.
Royal Dutch Shell signed a major petrochemical contract with Iran's National Petrochemical Company. Iran plans to expand its petrochemical output from the current level of 60 million tons to 160 million tons by 2025.
Shell is also reportedly considering a sale of its 15% stake in a Malaysian LNG export plant located on the island of Borneo. The divestiture could be worth an estimated US$1 billion. Shell hopes to sell US$30 billion worth of assets in the next few years as it works towards chipping away at its US$90 billion debt load.
Brazil's state-owned Petrobras will cut diesel prices by 2.7% and gasoline by 3.2% in an effort to combat rampant inflation in the South American country. Brazil's inflation rate is about 8.5%, down from a high of almost 11% at the beginning of the year.
Reuters is reporting that US imports of Venezuelan oil jumped 10% m/m in September to 789,000 bbl/day. Venezuela has ramped up exports of heavy grades of crude diluted with naphtha, while lighter grades are consumed domestically. Venezuela's oil production is down sharply from last year but has start showing signs of recovery in recent months, now averaging 2.42 million bbl/day.
The massive Kashagan oil field in Kazakhstan exported its first shipment last week. About 167,000 barrels of crude and 22.8 million cubic meters of gas were exported via pipelines. The country's energy minister said four wells are currently producing about 90,000 bbl/day as the US$53 billion facility transitions out of start-up mode and into stable operation. Kashagan has an ultimate capacity of 370,000 bbl/day.
China’s crude imports rose to a record high as the country scrambles to fill its strategic petroleum reserves, taking advantage of relatively low oil prices. China imported 8.1 million bbl/day of crude oil in September, up 18% y/y, overtaking the US as the world's largest crude oil importer. The US imported 7.98 million bbl/day in September. China exported about 14.9 million bbl/day of fuel, down from a record 15.7 million bbl/day exported in July. China's National Bureau of Statistics also reported the country currently holds about 234 million barrels of oil in its strategic reserves.
Effective this week, the US Energy Information Administration's (EIA) weekly oil inventory numbers will no longer include volumes temporarily stored on lease lands. These "temporary" stockpiles are not yet available for commercial use and therefore excluded from the calculated inventory volumes. Lease stocks account for about 31 million barrels of total commercial crude oil inventories in the US. The EIA now pegs total US inventories at 474 million barrels (excluding SPR), inline with estimates from the American Petroleum Institute (API), which was 471 million last week.
In their Short Term Energy Outlook, the EIA has revised expectations for 2017 US oil production, now expected to average 8.6 million bbl/day, up 100,000 bbl/day from its previous forecast. Production in 2016 is expected to average 8.7 million bbl/day.
In their October Oil Market Report, the International Energy Agency (IEA) estimates that OPEC production rose to a record high of 33.6 million bbl/day in September, a gain of 160,000 bbl/day from the previous month. Global oil supply rose by 600,000 bbl/day last month on higher output from Russia and Kazakhstan, record production from Iraq and the re-opening of Libyan ports.
In contrast, OPEC's September figures pegs the cartel's production at 33.4 million bbl/day, up 220,000 bbl/day from the previous month. OPEC also raised its forecast of non-OPEC supply next year, saying output from outside the group would rise by 240,000 bbl/day, up 40,000 bbl/day from an earlier forecast due to higher output from Russia. 2017 oil demand was unchanged at an average of 32.59 million bbl/day, which puts the oil surplus at 800,000 bbl/day, revised higher from its previous forecast of 760,000 bbl/day.
OPEC uses two sets of figures to monitor its output: a figure provided by each country and secondary sources which include industry numbers. The agency warns against using government data as some countries tend to "over-report" volumes produced in order to provide some wiggle room in the event of a production cap.
The EIA is projecting that natural gas production in the US will decline this year for the first time since 2005 on reduced drilling activity. The agency predicts US output in 2016 will be 72.5 billion cubic ft/day (bcfd). That compares with an all-time high of 74.14 bcfd in 2015. However, the EIA expects gas production will return to record levels in 2017, rising to 76.2 bcfd.
In Canada, natural gas inventories hit a record high of 747 bcf, up 96 bcf y/y.
Chinese exports declined 10% y/y in September, blamed on a slowing global economy slows and weak domestic consumption. China's trade surplus shrank to US$42 billion which put pressure on the Chinese yuan. Q3 growth is expected to average 6.7%, slightly below the government's target of 7%.
The Euro and British Pound were the biggest losers on currency markets this week, tumbling 2%. The US Dollar Index hit a major resistance level of 98.0 this week, rising almost 1.4%.
Oil prices are up almost 15% since OPEC announced plans for a production ceiling of 32.3 to 33 million bbl/day. OPEC meets in Vienna on November 30 but "technical exchange" is planned for November 29th to "set-up a road map" for the big meeting on the 30th. Oil prices have held up remarkably well despite a stronger US dollar and Russia backtracking from a "production cut" to a "production freeze".
The EIA revised its forecast for oil prices this year and next, specifically:
- 2016 Brent crude oil prices are forecast to average US $43/bbl (US $1 higher than the previous forecast) and US $51/bbl in 2017 (US$1/b lower than the previous forecast).
- WTI is forecasted to average about US$1/bbl less than Brent in both 2016 and in 2017.
The EIA also revised its 2016 forecast for Henry Hub natural gas spot prices to average US$3.04/MMBtu in the fourth quarter of this year rising to an average of US$3.07/MMBtu next year. Natural gas prices are near 18 month highs on both sides of the border on expectations of a colder-than-normal winter.
Paramount Resources announced plans to buy back 5.4 million outstanding shares, about 10% of its current float. The purchased commenced on October 13 and will take place over the next 12 months.
Phillips 66 Partners has acquired US$1.3 billion in assets from Phillips 66. As part of the deal, Phillips 66 signed a 10-year deal that includes minimum volume commitments covering about 85% of the company's forecast volumes. Phillips 66 Partners will issue US$1.125 billion worth of debt to pay for the acquisition. Phillips 66 Partners is a limited partnership formed by Phillips 66 which owns and operates several crude oil and natural gas pipelines and terminals in the US.
This week's 52 week highs on the TSX include: Advantage Oil & Gas (AAV), Birchcliff Energy (BIR), Bonavista Energy (BNP), Canadian Natural Resources (CNQ), Encana (ECA), NuVista Energy (NVA), Painted Pony Petroleum (PPY), Paramount Resource (POU), Teck Resources (TCK/B), Trilogy Energy (TET), Veresen (VSN) and Vermillion Energy (VET).
Third quarter earnings for the energy sector begin rolling out this upcoming week with most oil majors releasing results towards the end of October.
- Advantage Oil & Gas (TSX:AAV): Upgraded from Neutral to Outperform at Credit Suisse Group.
- Encana (NYSE:ECA): Upgraded from Equal Weight to Overweight at Barclays.
- Teck Resources (TSX:TCK.B): Upgraded from Neutral to Buy at Dundee Securities.
- Tesoro Corp (NYSE:TSO): Upgraded from Neutral to Outperform at Credit Suisse Group.
Royal Dutch Shell (NYSE:RDS.A): Downgraded from Hold to Sell at Canaccord Genuity. The company increased its price target from US$35.80 to US$50.55.
PRICE TARGET CHANGES
- ARC Resources (TSX:ARX): Price target increased from $27 to $28 at Barclays.
- Baytex Energy (TSX:BTE): Price target decreased from $8 to $7 at Barclays.
- Cenovus Energy (TSX:CVE): Price target increased from $19 to $20 at Raymond James Financial.
- Crescent Point Energy (TSX:CPG): Price target decreased from $28 to $23 at Barclays and from $26 to $25 at Raymond James Financial.
- Imperial Oil (TSX:IMO): Price target decreased from $50 to $49 at Rayond James Financial.
- Inter Pipeline (TSX:IPL): Price target increased from $27.50 to $29 at Raymond James Financial.
- MEG Energy (TSX:MEG): Price target increased from $9 to $10 at Raymond James Financial.
- Paramount Resources (TSX:POU): Price target increased from $16 to $17 at Barclays.
- Penn West Petroleum (TSX:PWT): Price target increased from $2 to $2.50 at Barclays.
- PraireSky Royalty (TSX:PSK): Price target increased from $28 to $29 at Barclays.
- Seven Generations Energy (TSX:VII): Price target increased from $36 to $40 at Barclays.
- Suncor Energy (TSX:SU): Price target increased from $42 to $43 at Raymond James Financial.
NEXT WEEK'S EVENTS
- November contract expiry for Western Canadian Select
- Chinese GDP figures released @ 10:00pm ET
- API Weekly Statistics Bulletin released @ 4:30pm ET
- EIA Petroleum Status Report released @ 8:30am ET
- Bank of Canada Interest Rate Decision & Monetary Policy Report released @ 10:00am ET
- Mullen Group Q3 earnings release
- Kinder Morgan Q3 earnings release
- Halliburton Q3 earnings release
- Third (and final) US Presidential Debate at the University of Nevada, Las Vegas @ 9:00pm ET
- August Employment Insurance data released by StatsCan @ 8:30am ET
- EIA Natural Gas Report released @ 10:30am ET
- Advantage Oil & Gas Q3 earnings release
- November West Texas Intermediate contract expiry
- September Consumer Price Index (CPI) data released by StatsCan @ 8:30am ET
- August Retail Trade data released by StatsCan @ 8:30am ET
- Baker-Hughes Rig Count released @ 1:00pm ET
- Precision Drilling Q3 earnings release.