The Oil Sands Weekly

The Oil Sands Weekly


Husky Energy announced it commenced production at its 10,000 bbl/day Edam East Lloyd Thermal Project in Saskatchewan. Two additional thermal projects are expected to begin production later in the year: a 10,000 bbl/day Vawn project and the 4,500 bbl/day Edam West project. Husky's total thermal production is expected to reach 80,000 bbl/day by the end of this year.

Suncor Energy has announced plans to provide more details on how it plans to operate in a low carbon future. The company will also publish a list of trade associations that lobby government to which Suncor pays membership dues of greater than $50,000 and $100,000 per year. Suncor already discloses political donations and publishes a Report on Sustainability once a year.

TransCanada reported that the government of Quebec is suspending its request for an injunction against the Energy East pipeline after the company agreed to submit to a provincial environmental assessment. The province ruffled a lot of feathers in March when it applied for an injunction against the pipeline, claiming TransCanada failed to abide with provincial legislation. Energy East falls under federal law since it crosses inter-provincial borders.

Alberta finance minister Joe Ceci gave a speech to a sold-out crowd at the Calgary Chamber of Commerce defending his budget and the growing provincial debt. The budget plans for US$42 oil but has built-in contingency for prices as low as US$36/bbl. Ceci also plans to visit bond credit agencies in Toronto to discuss the province's debt rating, which was downgraded by DBRS from AAA to AA. The finance minister reiterated that Alberta's revenues need to be less dependant on energy and says the government remains open to the idea of a sales tax (which would completely patch the gaping hole in the provincial budget) but only if Albertans really want one.

Alberta and BC are reportedly in talks to trade pipelines for power. Although the news isn't new, Premier Notley now says she is no longer opposed to the Northern Gateway Pipeline which would run from Bruderheim, AB to Kitimat, BC. The deal would be a win/win for both provinces as Alberta would like to shutdown its coal plants and northern BC will soon have an excess of hydroelectric power. Northern Gateway was approved by the NEB but has yet to address the 200 conditions spelled out in the approval. The project also has the added roadblock of a moratorium on crude oil tankers imposed by the Trudeau government.

Statistic Canada released a slew of economic data this week, painting a confusing picture on the state of the Canadian economy:

  • StatsCan reported that 548,700 Canadians received Employment Insurance (EI) benefits in February, up 0.8% from January and up 6.7% year/year. Saskatchewan saw the biggest increase (+3.5%), followed by Alberta (+2.4%). Some of the hardest hit cities remain Calgary (+2.5%), Kelowna (+2.5%) and Saint John, NB (+3.8).
  • In contrast, the total number of new EI claims declined 4.5% across the country, led by drops in BC (-10.2%), Manitoba (-5.2%), Newfoundland and Labrador (-5.2%) and Saskatchewan (-3.6%). The number of new claims in Alberta was unchanged from the previous month. It's unclear whether the recent change in EI qualification rules for Alberta and Saskatchewan has yet to impact EI data.
  • Canadian wholesale trade declined more than expected in February. StatsCan reported a 2.2% decrease to $55.8 billion in February after three consecutive monthly increases. Declines were seen across the board including forestry, mining, construction, industrial machinery, agricultural products, building materials and autos. Saskatchewan was the worst hit in February, with wholesale trade declining 12.8%. Alberta also saw a drop of 3.4%.
  • Retail sales continue to fall in Alberta, declining 0.4% to C$6.112 billion in February. Year-over-year, Alberta is the only province to see a contraction in sales receipts, falling 1.8% for the past 12 months. Despite the sagging economy, Albertans still spend more per capita than any other province, approximately 18% more than the national average. 
  • Across Canada, retail sales unexpectedly rose for the second month in a row, gaining 0.4% in March (month/month). Economists were expecting a decline and attribute the better-than-expected results on a warmer-than-normal winter.
  • Despite the drop in retail and wholesale numbers, inflation continues to tick up across the country. Alberta saw a 1.5% yr/yr increase in the Consumer Price Index (CPI), higher than the Canadian average of 1.3%. Gasoline prices spiked 20.5% in March but remains down almost 10% yr/yr. Rent prices are showing signs of easing in Alberta falling 0.4% yr/yr. Excluding food and gas, the Canadian CPI core inflation rate is tracking at 2.1%, much hotter than the Bank of Canada was projecting.

The Canadian dollar briefly peaked over 79¢ on the better-than-expected data from StatsCan, the highest level since July of last year.

First quarter earnings began to roll out this week . . . 

  • US pipeline giant Kinder Morgan unexpectedly reported lower first quarter results over last year. Net income was US$276 million, down from $429 million for the same period last year. Revenues fell to US$3.20 billion, much lower than the US$3.76 billion that was expected and lower than Q1/2015 revenues of US$3.60 billion. The 2016 capital budget was cut from US$3.3 billion to US$2.9 billion. The company expects it will be able to fund its projects and dividend without having to issue more debt or shares. 
  • Kinder Morgan Canada reported Q1 earnings of US$40 million versus US$41 million for Q1/2015. Demand on the Trans Mountain pipeline remains high with deliveries to Washington State up 17% year/year. The company is still waiting for final approval of its US$5.6 billion Trans Mountain Expansion. The earliest in-service date has been moved to the end 2019 thanks to new delays brought in by the Federal Liberals. The expansion will increase the line's capacity from 300,000 to 890,000 bbl/day.
  • A weak commodities sector took a toll on CP Rail's first quarter earnings this week, declining 4% to C$1.59 billion. The company saw a sharp drop in crude-by-rail revenues declining 28% from the same time last year, driven by a 23% drop in transport volumes. CP transported 17,000 carloads of crude in the first quarter or 2016, down from 22,000 in Q1/2015. Crude oil transport by rail now accounts for only 5% of CP's revenues, down significantly form the peak of 2014. CP recently abandoned its plans to takeover Norfolk Southern after serious backlash south of the border. CEO Hunter Harrison thinks consolidation is the only way for the North American rail industry to boost revenues amid declining commodity prices and major rail congestion in the Chicago area.
  • Trucking and oilfield services company Mullen Group reported first quarter revenues of C$272 million, down 19.4% from the same time last year. Demand for oilfield services was called "extremely weak", declining 43% year/year. The company cut its annual dividend from $0.96 a share/year to just $0.36 a share. In order to reduce costs, the company has cut its head count by 658 employees, down 10% from last year and will cut Board members' retainer fees by 20%. Mullen Group CEO Murray Mullen noted Alberta's economy is "beyond a recession" and resembles a depression, at least in the oilfield service sector.

First quarter earnings releases in the energy patch will ramp up significantly over the next 2 weeks. Results are expected to be very ugly as oil prices averaged the low-US$30s in Q1, much lower than the fourth quarter of last year and quite possibly the worst in decades for some producers. Analysts are expecting a “kitchen sink” quarter where companies write-off all errors in judgement and pray for a rebound in oil prices in the next quarter. Enform's latest labour market survey (PetroLMI Report) estimates another 16,000 to 25,000 jobs will be lost in the Canadian energy patch this year, with most of those losses concentrated in Alberta.

In this week's random global energy news:

  • ExxonMobil announced first oil from its deepwater Julia oil field in the Gulf of Mexico. The project is a 50/50 joint venture with Statoil with an estimated capital cost of US$4 billion. The facility has an initial design capacity of 34,000 bbl/day and a lifespan of 40 years. ExxonMobil is on track to start up 10 new upstream projects in 2016 and 2017, adding 450,000 boe/day of production to the company's bottom line.
  • Statoil announced it will resume Arctic exploration after having cut drilling and exploration due to low oil prices. The company faces a steep decline in production after 2025 if it doesn't find new sources of oil. Around half of the undiscovered resources offshore of Norway lie in the Barents Sea, where development and production costs are much higher. Many energy majors such as Shell, ExxonMobil, Total and Eni recently took a pass on Arctic exploration and are instead focusing on less capital-intensive developments.
  • The Saudi government appointed JPMorgan Chase and Michael Klein as advisors on the IPO of Saudi Aramco, although no final decisions have been made on timing or size of the IPO. The kingdom wants to raise non-energy revenues by US$100 billion by 2020 and create a US$2 trillion sovereign wealth fund to help diversify its economy.

About 150 nations have pledge to sign the Paris Agreement on Climate Change in New York this week:

  • Under the agreement, countries set their own targets for reducing emissions of carbon dioxide and other greenhouse gases. The deal will include assurances that global temperatures will not be allowed to rise by another 2°C and wealthier nations will help poorer countries finance their transition to a low-carbon future.
  • The targets are not legally binding but countries have at agreed to update the targets every five years. 
  • Federal Environment Minister Catherine McKenna has yet to confirm how she plans to lower Canada's GHG emissions, which have been steadily rising in the recent decade due to strong growth in the energy and natural resources sectors. Alberta and BC's desire to grow their petrochemical and LNG sectors puts them at odds with Canada's target of reducing GHG emissions 30% below 2005 levels by 2030.
  • Trudeau personally attended the festivities at the UN but Obama did not, sending Secretary Kerry to sign the paperwork in lieu. The UN has expressed concerns that the US will not abide by the Obama administration's commitments and is especially worried about a potential change in government regimes in the fall.
  • Global emissions are showing signs of levelling off compared to last year. It's unclear how much of that is due to weak economies in Russia, Brazil, the Middle-East, China and the many emerging markets that rely on commodities exports. 

In this week's OPEC news . . . 

  • Over 7,000 oil and gas workers took part in three-day strike in Kuwait to protest government plans to cut wages and benefits. The strike had cut Kuwait’s oil production by almost half. The protest ended just hours after Kuwait’s acting oil minister refused to negotiate until the workers had returned to their jobs. The country is slowing ramping production back to its normal output of 2.8 million bbl/day. Union strikes are relatively rare in the Middle East.
  • The failure to reach an agreement at last week's Doha meeting is now being blamed on Saudi deputy crown prince Mohammed bin Salman. The 30-year-old son of King Salman, who is also in charge of defence and economic planning, forbade his energy minister from negotiating production caps unless Iran was present at the table. The prince is also threatening to increase production if other OPEC members do the same.
  • Iran's energy minister has hinted they may be willing to freeze production once they get back to pre-sanction levels of 4 million bbl/day.
  • The head of Libya's National Oil Corporation also noted his country could also rapidly ramp up oil production as soon as stability returns.
  • Perhaps responding in retaliation, Russia's Deputy Energy Minister says his country is now considering boosting oil production to a new record high this year. An executive at Russia's Lukoil had previously noted Russian oil production will fall this year unless the government changes the tax regime. The country would like to see another attempt at an oil output freeze agreement to help prop up prices. Russia is not a member of OPEC but has a complicated love/hate relationship with the cartel.
  • The next OPEC meeting in June will be held in Vienna, Austria.

The International Energy Agency (IEA) reiterated its forecast that non-OPEC production (aka US shale) will see a steep decline in 2016. In a speech delivered by Executive Director Fatih Birol in Tokyo, the IEA remains adamant that non-OPEC production will see the biggest drop in a generation and is calling for a market "rebalancing" which should bring oil prices back to US$80/bbl. The IEA expects demand to increase by around 1.2 million bbl/day by 2021 and world oil consumption will hit 100 million bbl/day in 2019/20. The agency's projections are at odds with many US shale executives who have announced intentions to bring production back online if oil prices remain solidly above US$40/bbl. Despite the crash in oil prices, energy companies have had no trouble raising cash in credit markets and the trend is likely to continue with interest rates at historic lows.

Despite the lack of production caps and rising inventories, oil prices continue to power forward this week, hitting a 5 month high. Goldman Sachs warned investors that the recent rally in oil prices may be overdone but raised its view on energy from Underweight to Neutral. Many of the worst performing commodities, including metallurgical coal, corn, steel, aluminum and zinc have seen spectacular rallies in the past few weeks, helped by better than expected demand from China and a slumping US dollar


+2.01 ▲ 4.7%
+3.37 ▲ 8.3%
+4.42 ▲ 17.4%
+5.18 ▲ 15.8%
-24 ▼ 0.3%
+2.1▲ 0.4%
-8 ▼ 2.3%
+0.39 ▲ 0.4%




  • Enerplus (TSX:ERF): Upgraded from Equal Weight to Overweight at Barclays. The company raised its price target from C$5 to C$8 a share.
  • Devon Energy (NYSE:DVN): Upgraded from Equal Weight to Overweight at Morgan Stanley. The company raised its price target from US$26 to US$36 a share. The average consensus price target among analysts is US$59 a share.
  • Schlumberger (NYSE:SLB): Upgraded from Equal Weight to Overweight at Barclays. The company raised its price target from US$83 to US$93 a share. The average consensus price target among analysts is US$92 a share.
  • Joy Global (NYSE:JOY): Upgraded from Underperform to Neutral at Bank of America. The company raised its price target from US$8 to US$22 a share. The average consensus price target among analysts is US$20 a share.


  • Suncor Energy (TSX:SU): Downgraded from Buy to Neutral at Citigroup.
  • Ensign Energy Services (TSX:ESI): Downgraded from Market Perform to Underperform at Raymond James. The company raised its price target from C$5.60 to C$6.00 a share.
  • PrairieSky Royalty (TSX:PSK): Downgraded from Overweight to Equal Weight at Barclays.  The company raised its price target from C$24 to C$26 a share.
  • Teck Resources (TSX:TCK/B): Downgraded from Underperform to Sell at Credit Agricole and from Outperform to Market Perform at PBR & Co. 
  • Pengrowth Energy (TSX:PGF): Downgraded from Sector Perform to Underperform at RBC Capital. The company increased its price target from C$1.10 to C$1.25 a share.
  • ConocoPhillips (NYSE:COP): Downgraded from Hold to Underperform at Jeffries. The company has a price target of US$37 a share.


  • Suncor Energy (TSX:SU): Price target increased from C$38 to C$40 at Citigroup and from C$35 to C$37 at Desjardins.
  • Imperial Oil (TSX:IMO): Price target decreased from C$46 to C$44 at Citigroup and increased from C$38 to C$39 at Desjardins.
  • Cenovus Energy (TSX:CVE): Price target increased from C$15.50 to C$19.00 at Citigroup and from C$18 to C$19 at Barclays.
  • Husky Energy (TSX:HSE): Price target increased from C$14 to C$18 at Citigroup, from C$17 to C$19 at RBC Capital and from C$21 to C$22 at Barclays.
  • Teck Resources (TSX:TCK/B): Price target increased from C$9 to C$10 at Scotaibank and from C$5 to C$7 at Desjardins.
  • Athabasca Oil Corp (TSX:ATH): Price target lowered from C$2.00 to C$1.50 at Barclays.
  • Mullen Group (TSX:BTE): Price target decreased from C$17 to C$15.50 at Scotiabank.
  • Baytex Energy (TSX:BTE): Price target increased from C$2.50 to C$6.00 at Barclays and from C$4.50 to C$6.25 at Desjardins.
  • Enerplus (TSX:ERF): Price target increased from C$6.85 to C$7.25 at Raymond James and from C$4.50 to C$6.00 at Desjardins.


  • Husky Energy Q1/2016 earnings release
  • Precision Drilling Q1/2016 earnings release
  • Canadian National Railway Q1/2016 earnings release.


  • Bank of Canada Stephen Poloz speech "A New Balance Point" @ 9:00am ET
  • API Weekly Statistics Bulletin released @ 4:30pm ET
  • Prairie Sky Royalty Q1/2016 earnings release.


  • US FOMC Rate Decision @ 2:00pm ET
  • Canadian Wholesale Sales data for February @ 8:30am ET
  • EIA Petroleum Status Report released @ 10:30am ET
  • Cenovus Energy Q1/2016 earnings release
  • Suncor Energy Q1/2016 earnings release.


  • US GDP & Jobless claims @ 8:30am ET
  • EIA Natural Gas Report released @ 10:30am ET
  • Suncor Energy Annual General Meeting @ 10:30am MT
  • MEG Energy Q1/2016 earnings release
  • Calfrac Well Services Q1/2016 earnings release
  • ARC Resources Q1/2016 earnings release
  • Western Energy Services Q1/2016 earnings release
  • ConocoPhillips Q1/2016 earnings release.


  • Canadian Producer Price Index (PPI) for March @ 8:30am ET
  • Canadian Raw Materials Price Index for March @ 8:30am ET
  • Canadian GDP for February @ 8:30am ET
  • Baker-Hughes Rig Count released @ 1:00pm ET
  • Imperial Oil Q1/2016 earnings release
  • ExxonMobil Q1/2016 earnings release
  • TransCanada Pipelines Q1/2016 earnings release
  • Last trading day for Brent June contract.

Next edition of the Oil Sands Weekly: Friday April 29, 2016 @ 6pm MT.

The Oil Sands Weekly

The Oil Sands Weekly