The Oil Sands Weekly

The Oil Sands Weekly

Scotford Refinery expands its heavy oil processing capacity . . . 

Shell announced this week the successful completion of an expansion at its Scotford Refinery, increasing hydrocracker capacity by 20%. Various vessels, compressors and feed pumps were retrofitted to allow a greater volume of heavy crude oil to be processed. The debottlenecking project equates to 14,000 bbl/day of added capacity. Shell says the 17 month long project was delivered on time and on budget.

The expansion boosts Scotford's crude processing capacity from 100,000 to 114,000 bbl/day. The refinery is 100% owned by Shell.

Social licences get put to the test . . . 

The federal Liberals announced decisions on three key pipeline projects this week:

  1. Kinder Morgan's Trans Mountain expansion was approved, which could see 590,000 bbl/day of extra pipeline capacity to tidewater by the end of 2019. The line runs from the Edmonton area to export terminals in Burnaby, BC and Washington State, carrying both crude oil and refined products. Kinder Morgan says it will begin reviewing project costs and could start construction as early as September 2017. A final investment decision is still pending from the company's board of directors. The project faces stiff opposition in the Vancouver area and will likely spark a flood of protests and legal challenges.
  2. As expected, Enbridge's Line 3 replacement was also approved. The project involves replacing a 50 year old line that runs from Alberta to Superior, Wisconsin. The federal approval applies to the Canadian segment only. The section of pipe on the US side of the border still requires state-level permits. If constructed, the replacement of Line 3 will be Enbridge's largest project to date and will add an additional 370,000 bbl/day of pipeline capacity to refineries in the US Midwest, currently the largest customer for Canadian oil. Enbridge thinks the line could be in service by early 2019 if all goes according to plan.
  3. Following through on an election promise, Trudeau also announced his government has instructed the National Energy Board to dismiss applications for Northern Gateway. The Liberals will be preparing formal legislation for a crude oil tanker ban on BC's northern coast. The ban applies to crude oil only, and not LNG, gasoline or refined products. 

During the press conference, the Prime Minster Trudeau emphasized that each decision was based on science, rigorous debate and evidence, not politics. The PM says both the Line 3 replacement and Trans Mountain expansion meet the strictest of environmental standards and are in the best interest of the entire country. Trudeau reiterated several times that expanding output from Alberta would force more oil onto railcars, which is far more dangerous than pipelines.

The PM also reminded Canadians that his government now has the social licence to approve pipelines. Since elected to office, the Liberals have implemented hefty carbon taxes, phased out coal power, boosted marine safety and committed billions towards renewable energy and GHG reductions. It remains to be seen whether any of that makes a difference.

Trump's top advisor heading to Alberta in the new year . . . 

Donald Trump's former advisor Kellyanne Conway will be visiting Alberta in January. The visit will include a tour of oil sands facilities near Fort McMurray and a fundraising dinner in Calgary, hosted by taxpayer advocacy group Alberta Prosperity Fund. 

The Trump team has promised to "unshackle" the US energy sector by reversing many of President Obama's executive orders. Although Keystone XL was not directly mentioned post-election, the project is expected to receive the green light sometime in the new year. Keystone XL will bring Canadian oil to Gulf Coast refineries, which have a strong appetite for heavy oil and have been relying on crude-by-rail from Alberta due to pipeline constraints. The 830,000 bbl/day pipeline will reduce transport costs for Alberta's heavy oil, making diluted bitumen much more cost competitive with heavy oil from Mexico and Venezuela.

For anyone interested in the math, Keystone XL + Line 3 replacement + Trans Mountain expansion = 1.79 million bbl/day of extra pipeline capacity.

Alberta "showing signs of stability"  . . .  

Provincial Finance Minister Joe Ceci delivered Alberta's second quarter fiscal update this week, revising the province's full year deficit from $10.9 to $10.8 billion. The government is banking on an average oil price of US$45 a barrel (for West Texas Intermediate), which is fairly close to the year-to-date average.

Although it's too early to definitely say the province is recovering from the oil prices shock, Ceci thinks some sectors of the economy appear to have bottomed and have begun "showing signs of stability". The finance minister says he sees several "green shoots" in Alberta's economy, including:

  • an improved employment outlook as job gains in the natural resources sector are starting to regain traction and more people re-enter the workforce
  • solid population growth thanks to high natural increases and strong international migration
  • a stabilized housing market, as prices, sales and housing starts appear to have bottomed and turned the corner
  • a recovery in manufacturing and exports post-Fort McMurray wildfires
  • a rebound in drilling activity after reaching record lows this spring/summer due in part to unseasonably wet weather, and
  • a bounce back in oil production and return to growth next year.

After 2 years of recession, GDP is expected to expand 2.3% in 2017.

Although Ceci did not speculate on the impact of pipeline approvals, the minister noted that added capacity will reduce the discount for Alberta's oil, translating into more royalties and tax revenue for the province.

Energy news from Saskatchewan - Part 1 . . . 

In the aftermath of the Husky oil spill that occurred in July, the government of Saskatchewan has introduced The Pipelines Amendment Act, which will replace the The Pipeline Act of 1998.

The amended act will revise inspection, investigation and compliance powers for the government, as well as require financial assurance from pipeline operators for high-risk locations such as river crossings. The maximum penalty will increase from $50,000 to $500,000 per day. Energy and Resources Minister Dustin Duncan did not rule out additional legislative changes after the province completes its investigation of the Husky incident.

Energy news from Saskatchewan - Part 2 . . . 

The government of Saskatchewan has also reached an "equivalency agreement" with the federal government this week, allowing the province to keep using coal-fired power plants in "a responsible manner" beyond 2030. About 50% of the province's power grid is currently coal-fired.

Saskatchewan invested about $1.5 billion to build a carbon capture and storage (CCS) facility at the Boundary Dam coal-fired power plant near Estevan, sequestering about 50% of the plant's GHG emissions. The Boundary Dam CCS project began with much fanfare and international acclaim, being the first commercial CCS facility built in the world. CCS has not gained much traction globally due to the high cost of carbon sequestration.

Nonetheless, the province indicated it would be looking to expand the use of CCS at other power plants but has so far made no concrete investment decisions. Environment Minister Scott Moe says his province's electricity grid will move to 50% renewables by 2030, cutting emissions by 40% over 2005 levels.

Energy news from Saskatchewan - Part 3 . . . 

Saskatchewan's Premier Brad Wall is sticking by his assertion that carbon taxes are not a good way to reduce carbon emissions. The premier has launched an online petition entitled "Say NO to a Forced Federal Carbon Tax" and will present the list of names to PM Trudeau at the next First Minister's meeting on December 9th. Wall thinks technology is the key to reducing GHGs and that opponents of pipelines and fossil-fuels in general are unlikely to be swayed by carbon taxes.

US Oil Sands runs out of cash . . .

Calgary-based US Oil Sands has run out of cash due to "prolonged construction activities" at its PR Spring demo plant in Utah. The company has received an US$7.5 million life-line from Luxembourg-based ACMO, its largest shareholder. 

In order to preserve working capital, US Oil Sands has temporarily laid off most of its Canadian and US employees, retaining only essential staff. The company expects to bring back employees in early January 2017 as it completes commissioning and commences commercial operation.

US Oil Sands has a proprietary technology using biodegradable, non-toxic solvent derived from citrus fruit to extract bitumen from oil sands without the need for large volumes of hot water and tailings ponds.

Quebec reaches record oil output . . . 

Tiny oil producer Junex produced a record 17,798 barrels of oil over the past 7 months, the largest ever recorded from a single well in the province of Quebec. The light sweet crude was extracted from the company's land holdings on Anticosti Island without hydraulic fracturing.

Environmental groups are horrified at plans to drill for oil on adjacent lands, potentially increasing output to 240 bbl/day, saying the government should focus instead on phasing out the use of all fossil-fuels. Quebec refineries currently consume about 350,000 bbl/day of crude.

Junex holds a 70% interest in the Galt Oil Property, located about 20 kilometers from Gaspé, Quebec. The other 30% is owned by Quebec businessman Bernard Lemaire. The Quebec government owns 16.5% of the company's outstanding shares through its Investissement Québec investment arm.

This week's other Canadian energy news . . . 

Savanna Energy warned its shareholders that AIMCo (Alberta Investment Management Corporation) may pull its $200 million financing if the company is taken over by Total Energy Services. Last week, Total Energy made an all-stock offer for Savanna shares after Savanna allegedly rejected proposals for a friendly merger.

BlackPearl Resources announced the sale of a 1.75% royalty interest on production out of Onion Lake for $55 million. The company currently produces about 8,000 bbl/day of conventional heavy oil at Onion Lake and is planning a 6,000 bbl/day expansion of its thermal in-situ facility. Proceeds from the sale will be used to pay down debt, allowing the company to borrow more money to partially fund the expansion, which has an estimated price tag of $180 million.

Northern Blizzard Resources closed on a deal to sell non-core light-oil assets to Raging River Exploration for $58 million. The properties are located in southwestern Saskatchewan and produce about 620 boe/day.

Bellatrix Exploration announced their President and CEO Raymond Smith has taken a temporary leave of absence due to personal reasons. The company's Executive VP and COO Brent Eshleman will be taking over CEO duties in the interim. Bellatrix stock (BXE) hit a 6 year low on the TSX this week.

OECD delivers a rather optimistic forecast for Canada . . .

The OECD (Organisation for Economic Co-operation and Development) boosted its projections for global economic activity, in part on an improved outlook for the US. Projections for global growth were increased to 3.3% in 2017 and 3.6% in 2018. Among the key highlights:

  • US GDP growth expectations were revised higher to 2.3% in 2017 and 3.0% in 2018.
  • The Eurozone economy is expected to grow 1.6% next year and 1.7% in 2018.
  • Japanese growth is projected at 1.0% in 2017 and 0.8% in 2018.
  • China continues to decelerate, growing just 6.4% next year and 6.1% in 2018. 
  • India’s growth rate is expected to hold steady at 7.5%.
  • Brazil is expected to emerge from its deep recession at the end of next year, growing at a rate of 1.2% in 2018.

For Canada, the OECD thinks non-energy exports will continue to strengthen thanks to the lower dollar and the labour market will soon return to "full employment" thanks to "Liberal" government spending announced in the last federal budget. The agency actually sees interest rates potentially rising in Canada and warns more needs to be done to prevent a collapse of the housing market. The OECD also warned that provinces already have too much debt and should not "loosen their fiscal stance."

The OECD also called on all governments to "avoid protectionist policies" and warns that a rise in protectionism "could risk impairing already weak growth in global trade". Despite record government debt around the world and the threat of rising interest rates, the OECD would also like to see more "collective fiscal action" from all countries.

This week's other notable economic data . . . 

Bank of Canada Governor Stephen Poloz says expansion of the service sector will be key to returning the economy to full output. In a speech delivered at the C.D. Howe Institute, Poloz estimates the global financial crisis coupled with the collapse in oil prices have created a $90 billion "hole" in Canada's economy.

Statistics Canada reported that the country's third quarter current account deficit narrowed by $700 million to $18.3 billion. The Q3 declines come after three consecutive quarterly increases. Exports saw the highest growth in over two years. The trade surplus for sale of goods to the US increased $3.1 billion to $8.4 billion, led by stronger exports of energy products.

The Industrial Product Price Index (IPPI) rose 0.7% m/m in October, while the Raw Materials Price Index (RMPI) increased 3.3%, both led higher by energy and petroleum prices. Big gainers in October were motor gasoline (+3.8%), diesel fuel (+8.2%), light fuel oils (+10.1%), conventional crude oil (+9.9%) and petrochemicals (+5.9%)

Canada's GDP grew by an annualized rate of 3.5% in the third quarter, driven by a strong rebound in energy exports. Business investment declined sharply in the third quarter while consumer spending remains strong. The Bank of Canada expects the economy to grow 1.1% this year, rising to 2% next year.

Across Canada, 10,700 jobs were added in November, mostly part-time. Unemployment ticked down to 6.8% from 7.0% as the labour participation rate fell to 65.6%. Employment in natural resources, construction, manufacturing and professional services all declined this month. Compared to the same time last year, 213,700 part-time jobs were added nationally while 30,500 full-time jobs have been lost so far.

In contrast, Alberta lost another 13,600 full-time jobs in November while the number of people looking for work increased by 11,000, pushing the provincial unemployment rate to 9.0% (+0.5%), the highest since July 1994. Most of the increases are being seen in Calgary, where the unemployment rate rose to 10.3%, while Edmonton's rate fell to 6.8%. Compared with November 2015, there are 30,600 fewer jobs in the province.

US third quarter GDP expanded by 3.2%, much stronger than expected. Business investment remains soft but the labour market, exports, government spending and consumer confidence remains strong. The US unemployment rate declined from 4.9% to 4.6%, as the US economy added another 178,000 jobs in November. Average hourly earnings grew at an annualized rate of 2.5%. The US participation rate nudged lower to 62.7%, up slightly from a low of 62.4% reached in September 2015.

OPEC plays the media like a fiddle . . . 

After tweeting out hints of discord and disagreement on Tuesday, OPEC surprised markets on Wednesday by announcing an agreement on production cuts, sending traders scrambling to cover their shorts. The group agreed to a 1.2 million bbl/day cut, distributed approximately as follows:

  • Saudi Arabia: 486,000 bbl/day
  • Venezuela: 95,000 bbl/day
  • Gulf States (UAE + Qatar + Kuwait): 300,000 bbl/day
  • Iraq: 210,000 bbl/day
  • Algeria + Angola + Ecuador + Gabon: 165,000 bbl/day

Iran will be allowed to increase production by 90,000 bbl/day. Indonesia refused to comply with a request for a 5% production cut and was kicked out of the cartel. The country is a net importer of oil and only rejoined OPEC in January after a 7 year hiatus.

The cuts will take effect in January and represent reductions from January output levels. OPEC currently produces about 33.6 million bbl/day. The 1.2 million bbl/day cut will bring output back to January 2016 levels. This is OPEC's first quota reduction in 8 years. The cartel is also seeking 600,000 bbl/day of cuts from non-OPEC members. 

Russian Energy Minister Alexander Novak has agreed to "gradually" cut up to 300,000 bbl/day for the first half of next year, adding that it is "technologically challenging" for his country to cut production. This is the first time Russia has agreed to cut oil production since 2001. Other non-OPEC members like Mexico, Azerbaijan and Kazakhstan have indicated they might be willing to trim output. 

A meeting with non-OPEC members has been scheduled for December 9 in Moscow. The next "formal" OPEC meeting will be held on May 25, where compliance and output quotas will be evaluated.

From around the world this week . . . 

BP has sanctioned the second phase of its deepwater Mad Dog project in the Gulf of Mexico. Phase 2 will include a new floating production platform with the capacity to produce up to 140,000 bbl/day from as many as 14 production wells. The project was shelved in 2013 as BP and its partners worked to reduce capital costs. BP says "standardization" has helped cut cost by 60% to US$9 billion. Partners in the consortium include BHP Billiton (23.9%) and Chevron (15.6%), neither of which have made a final investment decision on the project just yet.

Royal Dutch Shell is considering selling its Iraqi oil fields as part of its US$30 billion divestiture program announced earlier this year. The assets in Iraq are on top of North Sea assets and onshore properties in Gabon that are also rumoured to have been put up for sale.

Shell CEO Ben van Beurden dismissed suggestions that agreements to reduce emissions under the Paris Accord will result in some assets becoming "stranded." In an interview with a Dutch newspaper, the CEO says his company plans to exploit every last barrel of oil listed on its balance sheet.

Norway's oil minister announced that his country has agreed to exchange seismic data with Russia along the Arctic Barents Sea border. The two countries settled a 40-year border dispute in 2010 and will begin discussions on how to split potential future discoveries that straddle the border. BP, Lukoil, Statoil, Lundin Petroleum, Chevron and ConocoPhillips are among the companies that have won exploration licences close to the border.

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

+28k ▲ 0.9%
+9k ▲ 0.1%
-0.88M ▼ 0.2%
+3 ▲ 0.6%

Oil production and rig counts continue to slowly climb higher in the US. Baker Hughes reported a huge jump in Canadian rigs as the winter drilling season approaches, adding 6 oil rigs (+6% to 100) and 20 gas rigs (+25% to 98).

In their latest Shell Storage Report, the US Energy Information Administration (EIA) revealed that over 19 million barrels of extra crude oil storage capacity was built between April and September of this year, most of it in the Gulf Coast area. Additional storage capacity coupled with declining stockpiles translates into a lower utilization rate, falling from 66% at the end of March to 59% by the end of September. Inventories at Cushing, Oklahoma also appear to easing, falling from 87% to 79% of working storage capacity.

Friday close • data by Bank of Canada & ICE

-0.69 ▼ 0.7%
+1.36 ▲ 1.8%
+0.04 ▲ 1.7%
US 10Y Bond
+0.06 ▲ 3.8%
CDN 10Y Bond

Global bond markets continued their meltdown this week on the prospects of higher inflation. Bond markets have been rising for almost 3 decades. It remains to be seen whether this is a short term correction or a reversal of the trend.

Friday close, USD/bbl • data by CME Group
+7.22 ▲ 15.3%
+5.62 ▲ 12.2%
+5.57 ▲ 13.4%
+5.77 ▲ 18.9%

This week's strong gain in oil prices has moved WTI and Brent into backwardation for the first time since 2014, where near term contracts are priced higher than 2018 contracts. Backwardation implies (a) traders are betting future oil prices will be lower than the current price, and (b) it doesn't pay to keep oil in storage for a long time.

Despite a strong finish on the final day of the month, November average oil prices dipped from October as follows (USD/barrel):

  • Brent: $46.99 (↓8.6% m/m)
  • WTI: $45.76 (↓8.4% m/m)
  • WCS: $30.53 (↓14.7% m/m)
  • Canadian Light: $41.73 (↓10.6% m/m)

The heavy oil discount widened about 8% in November to an average of US$15.24 per barrel.

North American natural gas prices have also staged a spectacular rally, gaining over 30% in the past 4 weeks alone as temperatures dip below normal on both sides of the border.

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Some astounding gains in energy stocks this week, including MEG Energy (MEG +21%), Secure Energy Services (SES +18%), Baytex Energy (BTE +17%) and Precision Drilling (PD +14%)

This week's 52 week highs on the TSX include Bonavista Energy (BNP), Canadian Energy Services (CEU), Canadian Natural Resources (CNQ), Cenovus Energy (CVE), Encana (ECA), Enerflex (EFX), Enerplus (EFR), Ensign Energy Services (ESI), Imperial Oil (IMO), Paramount Resources (POU), Secure Energy Services (SES), Suncor Energy (SU), Teck Resources (TCK.B), Trican Well Service (TCW), Whitecap Resources (WCP), and Vermillion Energy (VET).

In US markets, Anadarko Petroleum (APC), Baker Hughes (BHI), Chevron (CVX), Devon Energy (DVN), Marathon Oil (MRO) and Schlumberger (SLB), Statoil (STO) all hit new 52 week highs.

Despite this week's pipeline approvals, the Big Three pipeline operators (TransCanada, Enbridge and Kinder Morgan) were among the worst performing stocks on both sides of the border. Pipelines companies have some of the largest debt loads in the energy patch, making the prospects of higher interest rates a very scary proposition.


  • Blackpearl Resources (TSX:PXX): Upgraded from Hold to Buy at Paradigm Capital.
  • Cenovus Energy (TSX:CVE): Downgraded from Conviction Buy to Buy at Goldman Sachs.
  • Chevron (NYSE:CVX): Upgraded from Hold to Buy at Independent Research GmbH.
  • ConocoPhillips (NYSE:COP): Upgraded from Neutral to Buy at Goldman Sachs.
  • Encana (TSX:ECA): Downgraded from Buy to Accumulate at KLR Group.
  • Precision Drilling (TSX:PD): Upgraded from Hold to Buy at Tudor Pickering.
  • PrairieSky Royalty (TSX:PSK): Downgraded from Outperform to Market Perform at Raymond James Financial.
  • Suncor Energy (TSX:SU): Upgraded from Hold to Buy at Desjardins.



  • October Balance of Trade released by Statistics Canada @ 8:30am
  • API Weekly Statistics Bulletin released @ 4:30pm ET



  • Q3/2016 Industrial Capacity Utilization released by Statistics Canada @ 8:30am
  • US Vice President Joe Biden arrives in Ottawa for 2-day visit
  • Cenovus Energy 2017 Budget Release @ 9:00am MT
  • EIA Natural Gas Report released @ 10:30am ET


  • PM Trudeau hosts First Ministers’ Meeting (FMM) in Ottawa and meets with aboriginal leaders
  • OPEC meets with non-OPEC members in Moscow, Russia
  • Baker-Hughes Rig Count released @ 1:00pm ET.

Next edition of the Oil Sands Weekly: Friday December 9, 2016 @ 8pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly