The Oil Sands Weekly
Upgraders restart delayed until July . . .
Suncor Energy reported that both their in-situ facilities, MacKay River and Firebag, are in the process of ramping back up to normal after being shutdown for almost a month. However, base plant production won't be fully restored until the company completes a planned maintenance turnaround on one of its upgraders, which should be done by the end of June. Full year 2016 production guidance was cut 6%, now expected to average somewhere between 375,000 and 395,000 bbl/day.
Meanwhile over at Syncrude, the company is also planning a major upgrader turnaround, which had been planned before the wildfire outage. Syncrude's 2016 production was revised lower, now expected to range from 215,000 to 235,000 bbl/day, with operating costs expected to rise to $41-44/bbl (from an original estimate of $35-38/bbl).
ConocoPhillips reports minor damage at Surmont . . .
Surmont is also in the process of returning to normal, after being shutdown and evacuated on May 5th. ConocoPhillips reported the facility sustained minor damage, but nothing that will impact production. Surmont 2 had just began producing oil last fall. The SAGD facility is a 50/50 joint venture with Total E&P Canada and has a total production capacity of 150,000 bbl/day.
Fort Mac airports opened for business . . .
Fort McMurray's YMM Airport reopened to commercial traffic this Friday, although passengers are warned to expect long lines, delays and possible flight cancellations. The airport was closed to commercial traffic at the beginning of May, remaining open for firefighting and emergency crews only. Most oil sands operators to the south of Fort McMurray do not have their own airstrips and rely on the YMM Airport for transportation of staff and contractors.
Problems at Pelican Lake . . .
A 75 hectare fire near Pelican Lake caused a temporary shutdown and evacuation of 2 oil facilities belonging to CNRL and Cenovus. The shutdown only lasted a few days, affecting less than 50,000 bbl/day of heavy oil production. Pelican Lake is about 160 km southwest of Fort McMurray, near the hamlet of Wabasca.
Husky Energy also produces heavy oil near Pelican Lake but was not affected by the wildfires.
Baytex Energy back in business . . .
Reuters is reporting that Baytex Energy has restarted 95% of its idled wells, thanks to the recent rise in oil prices. Baytex shut-in about 7,500 bbl/day of conventional heavy oil production in the Peace River and Lloydminster area last year.
Suncor breaks the record for bought deals in Canada . . .
Suncor Energy has agreed to sell 71.5 million shares in a bought deal priced at $35 a share. The deal is expected to net the company $2.5 billion which it will put towards its $9 billion spending spree incurred over the past 9 months. Rumours are swirling that Suncor will use the funds to purchase more of the Syncrude mine, increase its stake in Fort Hills or even buyout MEG Energy.
The share offering was almost 200% oversubscribed, sold mostly to institutional investors. TD Securities, CIBC and JP Morgan earned $80 million in fees for brokering the deal.
More jobs being lost in Alberta . . .
Statistics Canada reported another lacklustre jobs report this month, with more bad news for Alberta. The province lost 41,000 full time positions in May, bringing Alberta's unemployment rate from 7.2% to 7.8%. The May and April jobs data has erased all shreds of optimism from March's positive numbers.
Alberta lost another 11,500 resource jobs in May, along with 7,400 construction jobs. Calgary's unemployment rate rose to 8.1% while Edmonton was unchanged at 7%. BC also lost jobs last month (mostly part-time jobs), increasing their unemployment rate from 5.8% to 6.1%. Job gains were recorded in Quebec, Ontario and Manitoba.
Labour participation continues to fall in Canada, dropping the country's unemployment rate to 6.9%. Fort McMurray residents were excluded from the survey due difficulty in collecting the data. The May data may also have been skewed by the 2016 Census hiring.
Happy Planet founder not so happy these days . . .
Vancouver Mayor Gregor Robertson headed to Ottawa this week to remind PM Trudeau who voted for him during the last federal election and warn those seats may be at risk if the Liberals approve expansion of the Trans Mountain pipeline. The federal Liberals won 16 seats in BC, 15 located in the Vancouver area. In contrast, Alberta only has 4 Liberal seats.
In an open letter to the Prime Minister, Robertson says one single spill from Trans Mountain would effectively kill Vancouver's tourism industry, wipe out thousands of jobs and damage the city's "green" reputation. The mayor goes on to say the NEB process is deeply flawed and that Alberta has gotten preferential treatment from the federal government for far too long.
Robertson is the former director of Tides Canada, the Canadian arm of non-profit behemoth Tides USA. Tides and the Rockefeller Group started the "Tar Sands Campaign" in 2008 with the aim of stunting growth in the Alberta oil sands through the politicization of Canadian pipelines. Many of the mayor's personal and political endeavours, including lucrative BC real-estate, his Happy Planet juice company and his Vision Vancouver party receives a suspicious amount of funding from US anti-fossil fuels activist groups. Robertson has denied any wrongdoing and insists the accusations are part of a public smear campaign.
Mark Carney visits Alberta . . .
Former Bank of Canada Governor (aka the current Bank of England Governor) Mark Carney applauded Alberta's attempt to connect energy policy to the environment. Carney was in Edmonton to accept an honorary degree from the University of Alberta and took the time to meet with Premier Notley. Alberta's new Climate Change Leadership Implementation Act (Bill 20) passed a third reading in the Alberta legislature this week, which will see a series of carbon levies take effect January 1, 2017.
Devon Energy continues to sell assets . . .
Oklahoma-based Devon Energy has reached agreements to sell almost US$1 billion worth of non-core upstream assets in east Texas, the Anadarko Basin and royalty interests in the northern Midland Basin. Devon is reportedly very close to selling its 50% stake of the Access Pipeline (jointly owned by MEG Energy). That brings the total divestitures so far to US$1.3 billion. The company hopes to raise up to US$3 billion to help shore up its balance sheet.
Energy execs pessimistic on oil prices . . .
Accounting firm KPMG released the results of its 2016 Energy Business Outlook, which polled more than 150 US energy executives. Among the key findings:
- 92% expect to see more mergers and acquisitions over the next 2 years
- a whopping 90% of execs see oil prices below $49/bbl by next spring
- 72% have no plans to hire and expect to see further reductions in head count.
Climate Change and the TPP . . .
More than 450 environmental groups are calling on US congress to reject the Trans-Pacific Partnership (TPP) amid concerns the trade deal would threaten enforcement of climate change agreements. Trade agreements between countries would make it illegal to block purchases of products (including fossil fuel products) for environmental or protectionist reasons. The group cites TransCanada's recent $15 billion lawsuit as a prime example, which claims that the blocking of Keystone XL is in violation of NAFTA.
The TPP includes twelve countries, representing nearly 800 million people with a combined GDP of $28.5 trillion. Both US presidential candidates are against the TPP in its current form. The federal Liberals have criticized TPP negotiations by the Harper government and are now in the process of consulting with Canadians on the deal.
Ontario's taps David Suzuki in climate change sales pitch . . .
The Liberal government expects to raise about $1.9 billion per year in new carbon levies, which they insist will cost the average Ontarian $13 a month. Home chefs throughout the province were at least relieved to hear they can keep their residential natural gas connection provided they offset the carbon emissions.
Shell saving more money than expected . . .
Royal Dutch Shell is apparently saving a lot more money than expected - about US$1 billion more to be exact. The company announced it will accelerate costs cuts related to the takeover of BG Group by reducing pre-tax spending by $4.5 billion in 2018. The company has also put US$30 billion worth of oil & gas assets for sale and will be exiting operations in up to 10 countries. Shell sees strong growth in deep water operations and its chemicals business. The company also referred to its oil sands operations as "cash engines"
Shell also sanctioned a new polyethylene plant in Pennsylvania, but made no mention of its LNG project in Kitimat. The LNG Canada project has an estimated price tag of $40 to $50 billion and is unlikely to go forward given the company's desire to tighten its belt. LNG Canada is a joint venture between Shell, Korea Gas Corp, Mitsubishi and PetroChina.
Future ain't bright for LNG . . .
The International Energy Agency (IEA) warned that demand for LNG is weakening while export markets will soon be grossly oversupplied. The IEA blames the soft demand on cheap coal and the growing popularity of renewables.
Global LNG supply will grow 45% over the next 5 years as many large projects currently under construction come online. The IEA also notes that very few new projects were sanctioned in 2016 as energy majors recognize the LNG market is already oversupplied.
Australia and Qatar are currently the world's LNG superpowers with the US expected to be a close third over the next few years. Korea and Japan currently purchase about 50% of all LNG exports.
This week's global energy news . . .
Statoil has completed a 19-month exploration drilling program near its Bay du Nord deposit off the coast of Newfoundland. The reservoir is estimated to hold 300 to 600 million barrels of recoverable oil and is jointly owned with BP, Chevron and Exxon Mobil.
BP has sold its Norwegian oil fields to a Norwegian company in an all-stock deal worth US$1.3 billion. BP retains 30% interest in the new company, which will be called Aker BP ASA.
CNN is reporting that oil production from Iraq has reached an all-time high of 4.5 million bbl/day in May, up 100,000 bbl/day from the previous month. The Middle-Eastern country is in the grips of war and chaos as the military fights to keep ISIS away from key oil facilities. About 60% of Iraq's production is sold to China, India and South Korea. Oil accounts for 99% of Iraq's exports and 90% of federal revenue.
The Niger Delta Avengers have rejected the government's offer of peace talks after blowing up another oil producing well belonging to Chevron. Nigeria's oil production still sits at a 27 year low.
Angola's state-owned oil company Sonangol is reportedly "missing" US$50 billion from its books. Consultants hired to review accounting practices at the oil firm reveal a huge gap between funds received and funds invested, suggested government officials were skimming some of the oil revenues. President Jose Eduardo dos Santos’s recently named his billionaire daughter Isabel as the new chair of Sonagol. The country has a US$3.2 billion sovereign wealth fund, run by the president's son. Despite the country's vast petroleum and mineral wealth, Angola has one of the highest infant mortality rates in the world and one of the world's lowest life expectancies.
Oil prices peaked on Wednesday on a better than expected US inventory report. However, the return of Canadian production, higher US production and an increase in the rig counts dragged oil prices lower by the end of the week.
The heavy oil discount has widened to US$12.25, up from a low of $11.65 in early May.
In their Short Term Energy Outlook, the Energy Information Administration (EIA) revised their 2016 Brent forecast slightly higher to $43/bbl, rising to US$52/bbl in 2017. WTI is expected to trade at a slight discount to Brent in 2016, but be closer to par next year.
Bond yields keep falling as central banks around the world (ex-US) pull out all the stops to devalue their currencies.
The British pound was the biggest loser in currency markets this week, falling 1.8% on renewed Brexit fears. The Euro was not far behind as ECB head Mario Draghi puts pressure on EU members to increase stimulus spending.
The falling pound and Euro helped push the US dollar higher. The Canadian dollar has also rebounded from the lows of late May, now back above 78¢.
Statistics Canada reported that Industrial Capacity Utilization rates increased to 81.4% in Q1, up from 80.9% in the previous quarter. Utilization rates in oil and gas extraction were the biggest contributor, rising to 79% after contracting in Q4/15. Industrial capacity utilization is the ratio of an industry's actual output to its estimated potential output.
+347 ▲ 12.8%
BBL/D CDN IMPORTS TO US
+10 ▲ 0.1%
BBL/D US PROD'N
-3.2 ▼ 0.6%
BBL US INVENTORY
+3 ▲ 0.9%
US RIG COUNT
The number of US oil rigs in service rose again this week, for the second week in a row. The news follows the first rise in US production in 6 months, suggesting shut-in production might be coming back on line.
Baker Hughes also reported that the number of active oil rigs in Canada jumped from 13 to 29 in the past week. Canadian rig counts are quite volatile and much more affected by seasonality due to poor ground conditions during the spring thaw. Last year at this time, there were 68 oil rigs active in the Canadian energy patch.
The EIA is sticking to its forecast of 8.6 million bbl/day average US production for full year 2016, falling to 8.2 million bbl/day next year. May 2016 production is expected to average 8.7 million bbl/day, down from 8.9 million in the previous month and much lower than 9.7 million bbl/day produced for the same time last year. US oil production averaged 9.4 million bbl/day in 2015.
The TSX corrected this week, pulling back from the highs of last Friday. Canadian energy stocks fell 2.6% while the US energy sector increased by 1.4%.
MEG Energy rose 16% on speculation that Suncor might go shopping for more oil sands assets. MEG stock has declined from a high of $52.50 in 2011 to just $6 a share, reducing its market cap to $1.6 billion, excluding debt.
Calfrac Well Services (CFW) also had a great week, gaining 38%. The company announced a new debt-with-warrants financing deal with AIMCo. The debt matures in 2020 with an interest rate of 9%.
Beaten-down energy stocks were big gainers on the TSX this week:
- Penn West (PWT) +23%
- Trican Well Service (TCW) +19%
- Baytex Energy (BTE) +18%
Canadian Natural Resources (CNQ), TransCanada (TRP), Pembina Pipelines (PPL), Raging River (RRX) and Peyto Exploration (PEY) all hit fresh 52 week highs on the TSX.
On US energy markets, Chevron (CVX), Exxon Mobil (XOM) and Halliburton (HAL) also hit 52 week highs.
- Enerplus (TSX:ERF): Upgraded from Neutral to Outperform at Macquarie with price target increase from $7.50 to $9.75.
- Royal Dutch Shell (NYSE:RDS.A): Upgraded from Hold to Buy at Evercore with a price target increase from US$51.60 to US$64.
- Penn West Petroleum (TSX:PWT): Downgraded from Neutral to Underweight at JP Morgan Chase and from Market Perform to Underperform at Raymond James.
PRICE TARGET CHANGES
- Enerplus (TSX:ERF): Price target increased from $6 to $7.50 at Desjardins
- Joy Global (NYSE:JOY): Price target increased to US$19 at Jefferies Group.
- Royal Dutch Shell (LN:RDS.A): Price target increased from GBX2,180 to GBX2,280 at Morgan Stanley and from £21.80 to £22.80 at Morgan Stanley and from £19 to £20 at RBC Capital.
NEXT WEEK'S EVENTS
- Speech from Finance Minister Bill Morneau @ 3:00pm ET
- API Weekly Statistics Bulletin released @ 4:30pm ET
- StatsCan manufacturing sale for April @ 8:30am ET
- Bank of Canada Governor Poloz speech & press conference
- EIA Petroleum Status Report released @ 10:30am ET
- US Federal Reserve Interest Rate decision & press conference @ 2:00pm
- EIA Natural Gas Report released @ 10:30am ET
- Bank of Japan interest rate decision
- US inflation data for May @ 8:30am ET
- Canadian Energy Services Annual General Meeting in Calgary @ 8:00am MT
- StatsCan Canadian inflation rate for May @ 8:30am ET
- Baker-Hughes Rig Count released @ 1:00pm ET