The Oil Sands Weekly

The Oil Sands Weekly

Directive 086 takes effect for shallow SAGD facilities near Fort McMurray . . .

The Alberta Energy Regulator (AER) has finalized regulations for shallow in situ steam-assisted gravity drainage (SAGD) operations. The regulation applies to certain sections of the Athabasca deposit near the town of Fort McMurray, where the caprock is either eroded or less than 150 meters deep.

Directive 086 was drafted as a response to a steam release incident at the Joslyn Creek SAGD facility in 2006, operated by Total. The facility extracts bitumen from the McMurray Formation, which is capped by a layer of Clearwater shale (caprock). The caprock provides a seal that prevents steam from migrating to the surface.

After a 4 year investigation, the AER concluded the release was likely caused by fractures in the caprock brought on by excessive steam pressures, causing steam to migrate to the surface. Joslyn Creek was the shallowest SAGD operation in Alberta, where the McMurray formation lies 90 to 105 meters below the surface. The facility was abandoned in 2010.

Directive 086 is intended to protect the integrity of the caprock for the life of the operation, in part by restricting the maximum operating pressure for leases with complex geology. The AER developed the guidelines through collaboration with Alberta Health, Alberta Energy, Alberta Environment and Parks, industry and research experts, the Regional Municipality of Wood Buffalo and indigenous communities.

Alberta's labour data not getting any better . . . 

According to Statistics Canada, the number of Albertans receiving Employment Insurance (EI) benefits rose another 3% in October, to a total of 93,200. Most of the increase was in Calgary (+4.3%) and Edmonton (+3.2%).

The number of people collecting EI in Alberta is now up 55.8% from the same time last year, due in part to recent changes in EI eligibility rules that made it easier for Albertans to qualify for benefits. Although figures remain at elevated levels, the number of recipients is actually down from the July highs reached after the Fort McMurray wildfires.

Compared to the same time last year, the number of beneficiaries in Canada is up 31,400 or 5.8%.

Average weekly earnings continued to fall in Alberta, declining another 2.5% (y/y) in October to $1,106 per week. Employment in the province is now down by 73,000 positions (or 3.5%) over the past 12 months. Albertans are still the highest paid in the country, although the average weekly paycheque is down almost 6% from record highs reached in January 2015.

Alberta's deteriorating labour market has left the national average salary basically unchanged over the past year at $954 per week.

Inter Pipeline releases 2017 budget . . . 

Midstream player Inter Pipeline plans to spend $545 million next year, about $475 million on growth projects and the remaining $70 million on sustaining capital.

The company has $305 million earmarked for the advancement of engineering and procurement for a propane dehydrogenation plant and polypropylene facility to be located near Fort Saskatchewan, Alberta. The company was recently awarded $200 million in royalty credits from the Alberta government but is still awaiting a final investment decision from the board, expected by the end of the second quarter next year. The two NGL processing plants have an estimated price tag of $3.15 billion.

As announced last week, Inter Pipeline has also agreed to connect CNRL's yet-to-be-completed Kirby North SAGD facility to the Cold Lake and Polaris pipeline networks. The connection will be completed by 2020. The 2017 budget includes $6 million for design and early works. 

The company also has a total of $65 million planned for its oil sands transportation business and another $65 million for conventional pipelines.

Trudeau and Obama find common ground in the Arctic . . . 

Prime Minister Justin Trudeau and President Barack Obama have joined forces to ban drilling in Arctic waters.

The Canadian government has designated all Canadian Arctic waters as "indefinitely off limits" to offshore oil and gas licensing. The ban will be reviewed every five years through a "climate and marine science-based life-cycle assessment". All of Canada's offshore oil production is located on the Atlantic (mostly offshore Newfoundland) which is not affected by the ban. 

The US ban covers 46.5 million hectares of federal waters in the Chukchi Sea and most of the Beaufort Sea off the coast of Alaska and 1.5 million hectares in the Atlantic from New England to Chesapeake Bay. Less than 10,000 bbl/day of oil are produced from US Arctic waters, all of which is unaffected by the ban

President Obama used his powers of executive order under the Outer Continental Shelf Lands Act, which dates back to 1953.

President-elect Donald Trump has promised to open up federal lands to oil and gas exploration, but there is little consensus over whether or not the US ban can easily be overturned. Lawmakers in Alaska called the deal "an incredibly lopsided trade" for the US since the Canadian ban is only for 5 years while the US ban is indefinite. While there is no oil production out of the Canadian Arctic, Russia is progressing development in its Arctic waters.

The US Arctic is estimated to hold 27 billion barrels of oil and 132 trillion cubic feet of natural gas. Representatives from northern territories in Canada and the US say they were not involved nor consulted in the decision.

Trudeau and Trump find common ground on Keystone XL . . . 

In a speech given at the Calgary Chamber of Commerce this week, PM Trudeau confirmed that President-elect Trump is "very supportive" of TransCanada's Keystone XL pipeline. The PM told the crowd he will "work with the new administration when it gets sworn in," adding "I'm confident that the right decisions will be taken."

Trudeau also said he believe's Canada's carbon price gives the country an investment edge over the US, calling Canada "extremely appealing in a world which is more and more unstable."

This week's Trans Mountain Expansion news . . . 

Prime Minister Justin Trudeau also announced the purchase of two new tug boats for BC's West Coast, big enough to tow large commercial ships that are in distress. The tugboats are part of the federal government's $1.5 billion Oceans Protection Plan.

Non-profit litigation firm EcoJustice is taking the federal government to court over its recent approval of Kinder Morgan's Trans Mountain expansion. The lawyers are suing on behalf of the Raincoast Conservation Foundation and Living Oceans Society, who both claim increased tanker traffic would be harmful to the Southern Resident killer whales, who reside off the coast of BC.

Burnaby mayor Derek Corrigan is also planning to launch an appeal of his own. The city will argue the National Energy Board is ignoring city bylaws around land clearing, construction and traffic. Other mayors and a handful of First Nations communities will join in the lawsuit. 

All First Nations communities located along the Trans Mountain right of way and 80% of nearby communities have already signed Mutual Benefits Agreements with Kinder Morgan, worth at least $400 million.

Corrigan has long been a very vocal opponent of the Trans Mountain Expansion. The mayor has said he's willing to risk imprisonment and has actively encouraged civil disobedient. Although the courts have repeatedly ruled that pipelines fall under federal jurisdiction, Corrigan successfully delayed Kinder Morgan's geotechnical testing on Burnaby Mountain in 2014 and has made life generally miserable for the pipeline operator.

Other Canadian energy news this week . . .

Saskatchewan's Privacy Commissioner Ron Kruzeniski wants the Saskatchewan government to release inspection results for pipelines operated by Husky Energy over the past 5 years. The Saskatchewan government has so far refused, insisting that information might interfere with the current investigation and with Husky's right to a fair trial if charges are ultimately laid.

Savanna Energy's Board of Directors has advised its shareholders to unanimously reject Total Energy's hostile takeover offer. The Board says the offer is undervalued and does not reflect the future potential of Savanna. Savanna says it has received "strong expressions of interest" from third parties and will continue to explore strategic alternatives.

2016 has turned out to be the worst on record for the sale of oil and gas drilling licences in BC. The province netted just $15.5 million this year, the worst since records have been kept since the 1970s. In contrast, Alberta brought in $137 million for the sale of drilling rights auctions, the lowest in 39 years.

Calgary-based Grand Tierra has set a 2017 budget of $200 to $250 million, to be focused mainly on drilling and exploration in Columbia. The company expects to produce 34,000 to 38,000 boe/day next year, over 30% more than this year's average.

This week's notable Canadian economic data . . . 

After four consecutive months of growth, Canada's GDP shifted into reverse in October, contracting 0.3%. Economists were expecting a flat month. The contraction was blamed on weak manufacturing output and lower oil and gas extraction. Output in the oil and gas extraction sector declined 2.5% in October, but higher drilling activity helped boost support activities higher by 4.4%. BMO Capital Markets called the GDP report "an ugly snowball of reality to the face of the economy to end the year after a nice run earlier in the fall."

Canada's Consumer Price Index (CPI) rose 1.2% y/y in November, following a 1.5% gain in October. Much of the gains were attributed to higher costs for transportation and shelter.

Canadian wholesale sales increased 1.1% to $56.6 billion in October, offsetting most of September's 1.5% decrease. Alberta saw a decline of 0.4% to $6.1 billion, its fifth decrease in the past 7 months. Alberta's wholsesale sales are now down 6.2% for the year.

Canadian retail sales increased for the third consecutive month, gaining 1.1% to $45.0 billion in October. Most of the gains were attributed to higher sales at gasoline stations and general merchandise. Sales were up in 9 of 11 subsectors, representing 90% of total retail trade.

This week's US energy news . . . 

President-Elect Donald Trump has appointed billionaire Carl Icahn as a special advisor for regulatory reform. Icahn said it is time to "break free of excessive regulation" and let businesses create jobs. The billionaire investor is a very vocal opponent of EPA regulations surrounding the purchase of renewable fuel credits, which hurts the profitability of independent refineries. As a special advisor, Icahn has no specific job description and will not take a salary for the role. 

Private-equity firm Blackstone Group is in talks to buy a stake in assets owned by Energy Transfer Partners, in a deal estimated to be worth about US$5 billion. Energy Transfer Partners is currently building the Dakota Access Pipeline, which is still awaiting a federal permit to complete a final crossing under Lake Oahe.

Chesapeake Energy has sold another stake in its Haynesville Shale operations in northern Louisiana for US$465 million to Covey Park Energy. The assets include 41,500 acres and 326 wells currently producing approximately 50 million cubic feet of gas per day.

Anadarko Petroleum has sold various natural gas assets in the Marcellus Shale to privately-held Alta Resources Development for US$1.24 billion. The divestiture includes about 195,000 net acres which produce about 470 million cubic feet per day of natural gas.

French energy giant Total has acquired 23% of Houston-based Tellurian for US$207 million. Tellurian has received US regulatory approval for the construction of Driftwood LNG, an export terminal in Calcasieu Parish, Louisiana. Driftwood is still in the engineering phase but is expected to be operational by 2022.

A Delaware court has dismissed a US$171 million investor lawsuit filed against Kinder Morgan related to the company's acquisition of El Paso Corporation. The lawsuit stemmed from a 2011 deal where MLP El Paso Pipeline Partners purchased assets from its parent company, El Paso Corp. The plaintiffs argued the MLP was coerced into overpaying. Kinder Morgan later purchased both the MLP and the parent company and maintains it cannot be held liable for a deal it was not involved in.

BP CEO says the worst is over for the company . . . 

BP has been on a spending bender in the past few weeks, as CEO Bob Dudley says “it’s time for BP to start growing.” Among this week's announcements:

  • BP has signed an agreement with the Abu Dhabi government for a 10% interest in the Abu Dhabi National Oil Company's ADCO onshore oil concession. BP will issue new shares, valued at 2% of the company's current outstanding shares, to be held by the Abu Dhabi government. The estimated value of the transaction is US$2.2 billion. The ADCO concession holds between 20 and 30 billion barrels of oil equivalent and currently produces about 1.66 million bbl/day of oil. The concession is valid for 40 years, until the end of 2054.
  • BP also entered into a partnership with Dallas-based Kosmos Energy for deepwater gas exploration in Mauritania and Senegal for almost US$1 billion to be spent on exploration, engineering and development. BP has also agreed to pay Kosmos a contingency bonus for future liquids discovery. The acreage spans approximately 33,000 square kilometres and holds an estimated 50 trillion cubic feet of gas and over 1 billion barrels of liquids.
  • SOCAR (State Oil Company of the Republic of Azerbaijan) and AIOC (the Azerbaijan International Operating Company) signed a letter of intent for the development of the Azeri-Chirag-Gunashli field in the Caspian Sea, located about 100 km east of Baku. The field is operated by BP and currently produces about 630,000 boe/day. The deal now extends BP's operating licence to 2050. Commercial terms were not disclosed.

BP says it can cover its capital expenditures and dividend without having to tap debt markets if oil prices remain in the US$50-$55 range.

Around the world this week . . . 

The Norwegian government appointed a new oil minister this week. Terje Soviknes, who replaces outgoing minister Tord Lien, said he sees "renewed optimism in the oil and gas industry," adding that the worst is probably over. Norway's oil production is 50% lower than the peak reached in the year 2000, but seems to have turned the corner two years ago thanks to improvements in technology. The country has lost an estimated 40,000 jobs since oil prices began falling in 2014.

Still in Norway, Bloomberg is reporting that ExxonMobil is close to selling several oil fields in the North Sea to several private-equity backed companies. Exxon produces about 64,000 boe/day from the the Ringhorne, Balder, Sigyn and Jotun fields offshore Norway. The divestiture is estimated to be worth about US$1 billion. Bloomberg is also reporting that Total and Shell are also shopping around to unload portions of their Norwegian assets.

Royal Dutch Shell has sold its 51% stake in its Malaysian unit to China's Shandong Hengyuan Petrochemical for US$66.3 million. The deal includes a 156,000 bbl/day refinery in Port Dickson, Malaysia. Hengyuan Petrochemical hinted it may upgrade the refinery to produce high quality fuel. Shell says it plans to maintain supply to its retail and commercial customers.

Brazil's Petrobras has sold US$2.2 billion worth of assets to Total, including a 50% stake in two thermal power stations and portions of two oil fields. Petrobras and Total are already partners in 19 oilfields worldwide. Total CEO Patrick Pouyanne says the partnership will help them reduce exploration risk and improve the operation of jointly held fields.

After a 2-year pause, production from several Libyan oilfields resumed this week. Libya's National Oil Corporation (NOC) confirmed on Tuesday that pipelines leading from its Sharara and El Feel fields had reopened. NOC says it hopes to add 270,000 bbl/day to the country's production over the next three months. Sharara has a production capacity of 330,000 bbl/day while El Feel can produce 90,000 bbl/day. Stability of the region remains uncertain, however. Rival Libyan militias still posses the ability to shutdown pipelines and curb output. Libya's Petroleum Facilities Guard currently have a deal to keep the pipelines open for now. Libya currently produces about 175,000 bbl/day and was excluded from OPEC's production quotas. 

With the help of the Nigerian government, ExxonMobil has settled a dispute with Nigerian oil workers, ending a strike that lasted over a week. The union went on strike after Exxon allegedly terminated more than 100 staff employees. Production and exports should return to normal, although the company did not confirm how much production, if any, was taken offline. 

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

+342k ▲ 11.1%
-10k ▼ 0.1%
+2.26M ▲ 0.5%
+13 ▲ 2.5%

The US Department of Energy (DOE) will begin selling crude oil held within its Strategic Petroleum Reserves (SPR) beginning January 2017.

As part of the 2015 Bipartisan Budget Act, the DOE is allowed to sell up to US$375.4 million worth of crude through 2020, representing approximately 190 million barrels (assuming a sale price of US$50/bbl). Another US$2 billion worth of SPR will be sold through 2020 in order to pay for SPR infrastructure improvements and modernization.

The US currently holds 695 million barrels of crude in four SPR storage sites located in the Gulf of Mexico

As a member of the International Energy Agency (IEA), the US is obliged to maintain at least 90 days of net imports in the event of a supply disruption. US SPR reserves are the largest in the world and currently represent about 141 days of import volumes.

Friday close • data by Bank of Canada & ICE

+0.03 ▲ 0.0%
-1.06 ▼ 1.4%
-0.05 ▼ 1.9%
US 10Y Bond
-0.04 ▼ 2.2%
CDN 10Y Bond

The Canadian dollar sank to a 5 week low this week due to worse-than-expected October GDP data.

In contrast, US GDP growth in the third quarter came in at 3.5%, revised higher from a previous estimate of 3.2% and higher than the consensus estimate of 3.3%.

Friday close, USD/bbl • data by CME Group
-0.05 ▼ 0.1%
+1.12 ▲ 2.2%
+0.57 ▲ 1.2%
-1.24 ▼ 3.2%

The heavy oil discount has widened to about US$16 per barrel.

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

This week's 52-week highs on the TSX include Athabasca Oil Corp (ATH), Calfrac Well Service (CFW), Canadian Energy Services (CEU), Gibson Energy (GEI), Imperial Oil (IMO), Inter Pipeline (IPL), Paramount Resources (POU), Pembina Pipeline (PPL), Savanna Energy Services (SVY) and Suncor Energy (SU).



  • Bonterra Energy (TSX:BNE): Upgraded from Underperform to Neutral at Versant Partners and CIBC.
  • BP (NYSE:BP): Upgraded from Neutral to Buy at UBS.
  • Keyera (TSX:KEY): Upgraded from Hold to Buy at Desjardins. 
  • Teck Resources (TSX:TECK/B): Upgraded from Neutral to Outperform at Macquarie.




  • Canadian and US markets closed for Christmas


  • Canadian markets closed for Boxing Day
  • API Weekly Statistics Bulletin released @ 4:30pm ET


  • EIA Natural Gas Report released @ 10:30am ET
  • EIA Petroleum Status Report released @ 11:00am ET (delayed due to Monday holiday)
  • Last trading day for Brent February contract


  • Baker-Hughes Rig Count released @ 1:00pm ET
  • Bond markets close @ 2:00pm ET.

Next edition of the Oil Sands Weekly: Friday December 30, 2016 @ 8pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly