The Oil Sands Weekly

The Oil Sands Weekly

Statoil divests Canadian oil sands operations . . . 

Norway-based Statoil has sold its entire Kai Kos Dehseh oil sands operations to Athabasca Oil Corporation for $832 million in cash and stock. The assets include the Leismer demonstration plant, the undeveloped Corner project and all associated midstream assets for $450 million in cash and 100 million Athabasca Oil Corp shares. 

Included in the transaction are dilbit and diluent lines from Leismer to Cheecham and 300,000 barrels of storage at the Cheecham and Edmonton terminals. Athabasca will also pay a contingency of up to $250 million if oil prices rise above US$65 a barrel.

Statoil purchased the Kai Kos Dehseh oil sands lease through its takeover of American Oil Sands in 2007. The company also runs a Heavy Oil Technology Centre in Calgary, employing about 60 staff.

Statoil is not exiting Canada completely, however. The company owns several exploration leases offshore Newfoundland and is a partner in the Hibernia, Terra Nova and Hebron platforms. The company also warned it will take a US$500 million impairment charge on the oil sands divestiture.

The acquisition boosts bitumen production at Athabasca Oil Corp to a range of 31,500 to 34,500 bbl/day, including production from the company's existing Hangingstone SAGD operations, located relatively close to the Statoil leases. Statoil says the divestiture will help it focus its capital on core activities. 

CNRL's outlook for 2017 . . .

Canadian Natural Resources (CNRL) announced a 2017 capital budget of $3.89 billion this week, a small increase from the current year. The final phase of expansion at Horizon is expected to wind down at the end of next year, leaving more cash to spend on Exploration and Production.

CNRL plans to spend about $1.7 billion at Horizon next year, down substantially from $2.7 billion spent in 2016. The final phase of expansion (Phase 3) is expected to be completed at the end of 2017, adding another 80,000 bbl/day of capacity to the mine and upgrading facility.

The company thinks it can add another 5,000 to 15,000 bbl/day of production by debottlenecking its fractionation tower. The project would cost about $70 million dollars but requires an extra 21 day shutdown, adding $90 million to the final price tag. A final investment decision is not expected until the second quarter. Next year's budget also includes $15 million for planning a future Phase 4 expansion.

Production out of Horizon is expected to average 170,000 to 184,000 bbl/day in 2017, a 44% increase from the current year. Most of that increase comes from the Phase 2 expansion, which came online in October. Operating costs are expected to average between $26 and $29 a barrel. Once Phase 3 is completed, nameplate capacity at Horizon increases to 250,000 bbl/day, bringing operating costs below $25/bbl. 

The company recently gave the green light to restart engineering on its Kirby North SAGD facility. First oil is expected in the first quarter of 2020. Facility design will be very similar to the existing Kirby South operation, with a nameplate capacity of 40,000 bbl/day.

Higher production from Horizon will boost the company's total output to 833,000 to 883,000 boe/day, a 6% increase from 2016. CNRL also notes it has significant flexibility in its capital spend and stands ready to cut up to $900 million from its 2017 budget if financial conditions deteriorate.

CNRL sells stake in Cold Lake Pipeline . . . 

CNRL also announced the sale of its 15% stake in the Cold Lake Pipeline system for $527.5 million to Inter Pipeline. The company will receive $350 million in cash and 6.4 million Inter Pipeline stock. 

Upon closing, Inter Pipeline will own 100% of the 1,400 km pipeline, that runs from the Cold Lake area to a terminal in Edmonton and Hardisty, AB.

CNRL has also committed to shipping bitumen and diluent volumes to and from its upcoming Kirby North SAGD operation. Inter Pipeline will construct a new $125 million pipeline connecting to the new facility, integrating shipments with its Kirby South production.

Inter Pipeline will issue $450 million worth of debt to pay for the acquisition.

Husky Energy plans for higher spending in 2017 . . . 

Husky Energy plans to increase capital spending significantly next year, rising from the current $2 billion to about $2.6 billion next year. Most of those funds will be allocated to maintenance and sustaining capital.

Average production is expected to increase slightly to 320,000-335,000 boe/day next year.

Production at Sunrise is expected to rise from the current 35,000 bbl/day to a range of 40,000 to 44,000 bbl/day in 2017 as the SAGD facility continues to ramp up to nameplate capacity of 60,000 bbl/day. Sunrise is a 50/50 joint venture with BP.

Production at Tucker is also expected to rise through next year, eventually reaching nameplate capacity of 30,000 bbl/day in 2018. Combined output from the Lloyd and Tucker heavy thermal operations is expected to exceed 100,000 bbl/day next year.

The Lloydminster upgrader will undergo a 7-week turnaround sometime in the second quarter.

The company says it can break-even in the low US$30's and will generate sufficient cash flow from operations to fully fund its capital spending program.

Fewer people working in the oil sands . . . 

In their latest Labour Demand Outlook for the oil sands, PetroLMI reports that 48,145 workers are currently employed in the oil sands (including production, maintenance and construction), down from 52,595 people last year. An estimated 3,615 new jobs are expected to be created by 2020, 40% less than its previous forecast. A total of 3,205 workers are also expected to retire and be replaced within the next 3 years.

The report also predicts that companies will rely more heavily on independent and third-party contractors due to reluctance to hire full-time staff.

Quebec opens the door to oil exploration . . .

The Quebec Liberals passed Bill 106 last week, a new energy policy bill that aims to reduce greenhouse gas emissions to 37.5% by 2030. The bill creates a new provincial agency, Energy Transition Quebec, which would oversee the government's clean energy plan.

Buried deep in the text (Chapter III - Division III, page 31) is the creation of a new Petroleum Resources Act, which outlines a plan for licensing, production, storage and distribution of oil resources in the province. Any royalties collected will be put into an Energy Transition Fund.

Although the Quebec government has been a vocal opponent of fossil fuels and pipelines, it has at times sent out mixed messages.

At last month's UN Climate Change Conference, Quebec's Energy Minister Pierre Arcand suggested the province may be open to fracking someday if the technology improves. However, Premier Couillard said fracking would be at odds with plans to combat climate change and "socially unacceptable" in densely populated area of the province.

The Quebec government is partnered with several oil juniors to explore for oil from Anticosti Island in the Gulf of St. Lawrence, estimated to hold about 46 million barrels of crude within the Macasty Formation. The exploration program was signed by the Parti Quebecois (PQ) government in 2014, under former leader Pauline Marois in a bid to wean the province off "foreign" oil (presumably that includes Alberta). The Liberals criticized the plan after they took office in 2014, although Couillard has long maintained he has no choice but to abide by the former government's contracts. The current PQ opposition party now says they're opposed to all oil and gas development, calling Bill 106 "a bill that sets Quebec back."

Last week, the Fraser Institute rated Quebec the second-least investor-friendly jurisdiction in the world for oil and gas development, only slightly ahead of Venezuela.

Other Canadian energy news . . . 

The National Energy Board (NEB) has appointed three temporary board members. The NEB says it will name a new Energy East Hearing Panel "shortly" and that the project's 21 month review schedule remains unchanged.

Pengrowth Energy has sold a 4% royalty interest in its Lindbergh thermal assets for $250 million. The sale applies to both current and future production, including the Muriel Lake lease. The Lindbergh SAGD project produced about 15,190 bbl/day in the third quarter.

Enerplus has agreed to sell non-operated assets in North Dakota for US$292 million. The assets include 5,800 acres on the Fort Berthold Indian Reservation which produced about 5,000 boe/day in the third quarter. The company says the sale will allow it to focus on its core operations in the Williston Basin.

Savanna Energy has pulled together a special committee charged with overseeing an unsolicited takeover bid from Total Energy Services. The company reports it has received competing offers from other suitors and intends on investigating strategic alternatives early in the new year. Savanna stock has already risen over 20% since the take-over was announced a few weeks ago.

Baytex Energy has set a 2017 capital budget of $300 to $350 million. The company expects to produce 66,000 to 70,000 boe/day next year, a slight improvement over the current year. Ed LeFehr will succeed James Bowzer as CEO in May 2017.

This week's Canadian economic news . . . 

After two consecutive monthly increases, Canadian manufacturing sales declined 0.8% (m/m) in October to $51.0 billion. The declines were blamed on lower sales of primary metals (down 2.4%) and declines in petroleum and coal products (down 1.7%).

The nation's wealth increased by 1.4% in the third quarter, mainly due to rising home prices. Total household debt reached $2 trillion at the end of Q3, split $590 billion in consumer debt and $1.3 trillion in mortgage debt. The ratio of debt to income reached a record 166.9% in Q3, up from 166.4% in the second quarter. For the second quarter in a row, household debt now exceeds the size of the Canadian economy. 

Donald Trump takes a sharp U-turn on the American economy . . . 

Donald Trump has nominated ExxonMobil CEO Rex Tillerson for secretary of state. Senators on both sides of the fence have expressed concerns over Tillerson's ties to Russia and Vladimir Putin. Tillerson is a big supporter of energy security, free trade, carbon taxes and Keystone XL.

Tillerson has moved his retirement date to the end of this year and will be replaced by Darren Woods. Woods is currently ExxonMobil's president and the former head of the company's refining business.

Former Texas governor Rick Perry was chosen to lead the Energy Department. The move was somewhat unexpected given that Perry lobbied to eliminate the federal agency while campaigning for leadership of the Republican party in 2011. 

About 60% of the Energy Department's budget is dedicated to nuclear weapon technology. The agency played a role in getting Iran to dismantle its nuclear program, combating global warming and advancing research in clean energy technology. 

Despite being a climate-change "denier", Perry is a big supporter of wind energy, making Texas one of world's largest wind-power producers. The former governor led the fracking revolution in Texas and is a big believer in domestic energy production, leaving some to speculate the Energy Department may shift its focus to energy security.

In an interview with Fox News this week, Trump promised to "have a decision fairly quickly" on the Keystone XL pipeline. 

ExxonMobil's 2017 Outlook for Energy . . . 

In their latest Outlook for Energy: A View to 2040, ExxonMobil predicts world energy demand will grow another 25% by 2040, driven by growth in emerging markets. Among the key highlights:

  • global population will increase from the current 7.3 billion to 9.1 billion in 2040
  • the population of India is expected to surpass China by 2025
  • global GDP is expected to double from 2015 to 2040, all driven by growth in non-OECD countries, particularly in the Asia Pacific (about half from China and India alone)
  • 55% of the world’s energy demand growth will be driven by power generation
  • global energy intensity is expected to fall 2% per year from 2015 to 2040, declining 45% by 2040
  • oil and natural gas will still account for 60% of the world's energy needs by 2040
  • natural gas is the fastest growing energy supply, projected to account for 40% of global demand growth 
  • nuclear and renewables are expected to provide 40% of incremental energy needs to 2040
  • CO₂ emissions are expected to peak in the mid-2030s and start declining, thanks to improved fuel efficiencies in the transportation section and transition from coal-fired power to natural gas and renewables.

Exxon also sees big increases in North American oil & gas production, becoming energy independent and a net exporter by 2025.

This week's OPEC news . . . 

OPEC has apparently convinced 11 non-OPEC producers to cut 558,000 bbl/day of production from October's output. Saudi oil minister Khalid al-Falih thinks this will be enough to stabilize oil markets and says he stands ready to cut output to less than 10 million bbl/day if necessary. The non-OPEC cuts include:

  • Azerbaijan: 35,000 bbl/day
  • Bahrain + Brunei: 14,000 bbl/day
  • Equatorial Guinea: 12,000 bbl/day
  • Kazakhstan: 20,000 bbl/day
  • Malaysia: 20,000 bbl/day
  • Mexico: 100,000 bbl/day
  • Oman: 45,000 bbl/day
  • Russia: 300,000 bbl/day
  • Sudan + South Sudan: 12,000 bbl/day

OPEC members agreed to 1.2 million bbl/day in production cuts two weeks ago (mostly from Saudi Arabia) bringing the grand total to 1.7 million bbl/day.

Cynics are speculating that Saudi Arabia is trying to goose oil prices in the short term to shift oil out of inventories and get maximum "shareholder value" from its pending IPO of Saudi Aramco. The Saudis hold about 280 million barrels of oil in inventories.

The cuts take effect in January and will be monitored by a five-country committee composed of Algeria, Kuwait, Venezuela, Oman and Russia. The quotas are in effect for 6 months and OPEC says it will re-evaluate the situation at the next OPEC meeting on May 25, 2017.

In its Monthly Oil Market Report, OPEC reported its members pumped a record 33.87 million bbl/day in November, a 150,000 bbl/day increase from October figures. OPEC expects non-OPEC supply to increase by 300,000 bbl/day next year, driven by higher output from Brazil, Kazakhstan and Canada. In contrast, production out of Mexico, US, China, Colombia, and Azerbaijan is expected to decline.

OPEC sees the oil markets rebalancing in the middle of next year, assuming everyone sticks to their agreed production quotas.

Hints of optimism at the IEA . . . 

In this month's Oil Market Report, the International Energy Agency (IEA) sees a shortfall of 600,000 bbl/day next year, assuming OPEC and non-OPEC members abide by their production quotes. Demand was revised slightly higher on an improved outlook for Russia and China.

World oil supply rose to a record 98.2 million bbl/day in November thanks to higher output from OPEC members. OECD inventories declined in October for the third month in a row and is likely to drop again in November.

million bbl/day • preliminary data by EIA
million bbls • data by EIA
million bbl/day • data by EIA & Baker Hughes

-516k ▼ 14.3%
+99k ▲ 1.1%
-2.56M ▼ 0.5%
+12 ▲ 2.4%

Despite another decline in US oil inventories, inventories at the Cushing storage hub rose again last week, which may put pressure on the Canadian heavy oil discount. Rig counts and oil production jumped higher again in the US.

The US Energy Information Agency (EIA) reported that proved reserves of crude oil and lease condensate in the US decreased from 39.9 billion barrels in 2014 to 35.2 billion barrels at the end of last year (a decrease of 4.7 billion barrels or 11.8%). Proved reserves of natural gas decreased by 64.5 trillion cubic feet (down 16.6%). The downward revision was caused by a 50% decline in the price of WTI and a 40% drop in Louisiana Henry Hub prices.

Friday close • data by Bank of Canada & ICE

+1.42 ▲ 1.4%
-0.93 ▼ 1.2%
+0.13 ▲ 5.3%
US 10Y Bond
+0.10 ▲ 5.8%
CDN 10Y Bond

As expected, the US Federal Reserve raised interest rates this week and signalled three more rate hikes are likely next year. The announcement sent the US dollar to a new 14 year high, ending the week 1.4% higher.

Friday close, USD/bbl • data by CME Group
+0.88 ▲ 1.6%
+0.40 ▲ 0.8%
+1.61 ▲ 3.4%
+2.16 ▲ 6.0%

Hedge funds have shifted from being record bearish (pre-OPEC announcement) to record-bullish (post-OPEC announcement).

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Tesoro Corp (NYSE:TSO) announced plans to issue US$1.6 billion in senior notes due in 2023 and 2026. The company says it will use the funds to finance its recent acquisition of Western Refining.

The Canadian energy sector hit a 19-month high early in the week. This week's new 52 week highs include Birchcliff Energy (BIR), Bonavista Energy (BNP), Calfrac Well Services (CFW), Canadian, Energy Services (CEU), Cenovus Energy (CVE), Encana (ECA), Enerplus (ERF), Ensign Energy Services (ESI), Gibson Energy (GEI), Imperial Oil (IMO), Inter Pipeline (IPL), Paramount Resources (POU), Pembina Pipeline (PPL), Savanna Energy (SVY), Secure Energy Services (SES), Seven Generations Energy (VII), Suncor Energy (SU), Vermillion Energy (VET) and Whitecap Resources (WCP).

In US markets, Anadarko Petroleum (APC), ConocoPhillips (COP), Devon Energy (DVN), Marathon Oil (MRO) and Statoil (STO) all hit new 52 week highs this week.


  • Athabasca Oil Corp (TSX:ATH): Upgraded from Hold to Buy at Desjardins and from Sector Perform to Outperform at RBC.
  • BP (NYSE:BP): Downgraded from Focus List to Outperform at Howard Weil.
  • Cenovus Energy (TSX:CVE): Downgraded from Buy to Hold at Edward Jones.
  • Chevron Corp (NYSE:CVX): Upgraded from Neutral to Outperform at Macquarie.
  • ConocoPhillips (NYSE:COP): Upgraded from Hold to Outperform at Cowen & Co.
  • Enerplus Corp (TSX:ERF): Upgraded from Sector Perform to Outperform at Scotiabank.
  • Marathon Oil (NYSE:MRO): Upgraded from Hold to Buy at Argus and downgraded from Buy to Neutral at Nomura.



  • Federal Finance Minister Bill Morneau meets with provincial/territorial finance ministers in Ottawa
  • Fed Chair Janet Yellen delivers speech on state of the US job market


  • October Employment Insurance data released by Statistics Canada @ 8:30am ET
  • October Wholesale Sales released by Statistics Canada @ 8:30am ET
  • API Weekly Statistics Bulletin released @ 4:30pm ET
  • Bank of Japan interest rate decision


  • Average Weekly Earnings and Hours released by Statistics Canada @ 8:30am ET
  • EIA Petroleum Status Report released @ 10:30am ET
  • Calgary Chamber of Commerce: A conversation with Prime Minister Justin Trudeau
  • January contract expiry for West Texas Intermediate (WTI)


  • October Retail Sales released by Statistics Canada @ 8:30am ET
  • November CPI released by Statistics Canada @ 8:30am ET
  • EIA Natural Gas Report released @ 10:30am ET


  • October GDP released by Statistics Canada @ 8:30am ET
  • Baker-Hughes Rig Count released @ 1:00pm ET.

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

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly